With the tons of home loans available in Texas, choosing what is best for you can be a little overwhelming. One of the go-to mortgage programs would be the Federal Housing Administration (FHA) Loan.
Back in the 1930s, the FHA Loan program was designed to rouse the real estate market. It was made affordable for people who do not have enough money for a down payment and does not have a stellar credit score. In 2016, the FHA made the requirements more lenient by only requiring a minimum of 580 credit score to avail the lowest minimum down payment.
Now, fha home loans texas is made available for low to medium-income earners to afford a decent home in competitive locations. The easy-to-meet requirements made FHA mortgage program friendly for first-time homebuyers and to those establishing and rebuilding good credit.
With that said, it would seem that FHA home loan is the ideal mortgage program for everybody else, right? But just like any other major financial decision, you should also evaluate if it will help your financial goals in the long run.
In this article, we will give you a glimpse of some significant drawbacks of FHA loan that may help you in weighing your next financial move.
Low Down Payment
Paying a low down payment is attractive, but a down payment that is as low as 3.5 percent of the total loan amount can also be risky and not solid financial ground. Since you are starting with a little investment on your equity, your home’s value may decrease over time.
Higher Interest Rate
Since you will pay with a low down payment; there is a big chance that your monthly payment will carry a higher interest rate. Getting approved with a lower credit score will also mean a higher interest rate for your mortgage.
Private Mortgage Insurance
Borrowers who pay less than 20 percent down payment is required to pay private mortgage insurance. Funding for the PMI is probably the biggest drawback of an fha home loan texas as it makes your finances bigger than the usual.
The PMI for FHA loan is paid in two ways: as part of your closing cost and on top of your monthly payment. The upfront payment will be at least 1.75 percent of your total loan amount while the ongoing insurance will be worth .80 to 1.05 percent of your total loan amount. The additional cost is equal to a higher monthly payment compared to other mortgage programs.
The type of properties under fha home loans texas should meet the program’s guidelines; it will also be subject to inspection by an HUD-approved appraiser in the future. The home loan could be rejected if it does not meet the specific property guidelines set by FHA.
Every home loan program has its advantages and disadvantages; not everything will suit your capabilities and financial goals. Just make sure to do your homework and consider all the cost before finally taking the leap of being a full-pledge homeowner.