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kevin@kevinvitali.com
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Should You Get An FHA Loan When Purchasing a Home

Should You Get An FHA LoanThe FHA home loan is definitely a loan program to look at for cash strapped first time home buyers. It is certainly not a program just for first time home buyers, it can also be used for refinances and move up or down buyers.  Should you get an FHA loan or not when purchasing a home?

What is an FHA Loan?

An FHA home loan is one backed by the Federal Housing Authority or the FHA.  It is a government agency that secures home loans with Mortgage Insurance.

The FHA loan program was initially created to help low to moderate income buyers secure low money down loans.  It has been used throughout the years to increase homeownership and stabilize unstable housing markets. 

It can be used to buy an owner occupied single family home. Condominium or multifamily between 1-4 units.

An FHA home loan traditionally has more forgiving underwriting criteria than a conventional mortgage.

The Pros of an FHA Home Loan

Should you get an FHA loan when purchasing a home?  Lets look at the pro’s of securing an FHA home loan.

Less Stringent Credit Requirements

One of the biggest benefits of an FHA home loan is less stringent credit requirements.  It is possible to be financed with a 580-620 credit score which most other loan programs will not allow.  Many loan programs will not allow credit scores of under 620-680.  Its important keep your credit score in good shape.

Low Down Payment with No Income Requirements

An FHA home loan has a minimum down payment of 3.5%.  It is one of the lowest down payment available for home buyers to purchase a home that is available to almost everyone. 

Many of the other low money down programs have income requirements.  They are geared specifically to low or moderate income borrowers.

Can Use Gift Funds and Seller Contributions for Down Payment and/or Closing Costs

FHA loans make it very easy to use gift funds for down payment and closing costs from a family member.   An FHA loan also allows a seller to contribute up to 6% of the purchase price for the buyers closing costs (cannot be used for down payment).

A borrower taking advantage of gift funds and seller paid closing costs can virtually buy a home without touching any of their own funds or very little.

$869,000 (New)
14 Cleveland Street
Salem, MA 01970
Property Photo
4
Beds
3 | 1
Baths
3,776
SqFt
Open House: May 26, 2022 9:00 PM - 10:30 PM
 
 
#72987340 | House
 
$549,000
81 Jenness St
Lynn, MA 01904
Property Photo
3
Beds
2
Baths
1,758
SqFt
 
 
 
#72983525 | House
 
$459,900
139 Jefferson Avenue #139
Everett, MA 02149
Property Photo
4
Beds
2
Baths
1,360
SqFt
 
 
 
#72951359 | Condo
 
$1,349,000
32-32A Cooper St
Lynn, MA 01905
Property Photo
6
Number of Units
 
 
 
#72984658 | Multi-Unit Residential
 
$624,900
38 Walnut Ave
Revere, MA 02151
Property Photo
2
Number of Units
Open House: May 26, 2022 8:00 PM - 10:00 PM
 
 
#72983563 | Multi-Unit Residential
 
$529,900 (New)
30 Arrow St
Billerica, MA 01821
Property Photo
3
Beds
1
Baths
1,689
SqFt
Open House: May 27, 2022 8:00 PM - 10:00 PM
 
 
#72988069 | House
 
$295,000 (New)
9 Village Green Dr #9
North Andover, MA 01845
Property Photo
3
Beds
1 | 1
Baths
1,070
SqFt
Open House: May 28, 2022 3:30 PM - 5:00 PM
 
 
#72988031 | Condo
 
$599,999 (New)
2 Veterans Ln
Stoneham, MA 02180
Property Photo
3
Beds
1 | 1
Baths
1,938
SqFt
Open House: May 26, 2022 11:00 PM - 12:00 AM
 
 
#72988054 | House
 
$528,000 (New)
52 Woodward Ave
Gloucester, MA 01930
Property Photo
3
Beds
1
Baths
1,152
SqFt
 
 
 
#72988041 | House
 
$549,500 (New)
20 Whittier St
Beverly, MA 01915
Property Photo
3
Beds
1
Baths
1,362
SqFt
 
 
 
#72988032 | House
 
$375,000 (New)
27 Janet Road
Chelmsford, MA 01824
Property Photo
3
Beds
1 | 1
Baths
1,263
SqFt
Open House: May 31, 2022 8:00 PM - 10:00 PM
 
 
#72987989 | House
 
$449,900 (New)
27 Villa Roma Dr #27
Tewksbury, MA 01876
Property Photo
2
Beds
1 | 1
Baths
1,941
SqFt
 
 
 
#72987962 | Condo
 
$399,000 (New)
130 Boston Street #6
Salem, MA 01970
Property Photo
3
Beds
1
Baths
1,415
SqFt
 
 
 
#72987958 | Condo
 
$2,250,000 (New)
15 Carriage Chase Road
North Andover, MA 01845
Property Photo
5
Beds
5 | 1
Baths
5,522
SqFt
 
 
 
#72987947 | House
 
$799,000 (New)
396 S Main St
Andover, MA 01810
Property Photo
3
Beds
2 | 1
Baths
1,919
SqFt
Open House: May 29, 2022 4:00 PM - 6:00 PM
 
 
#72987940 | House
 
$899,000 (New)
33 Woodland Ave
Saugus, MA 01906
Property Photo
3
Beds
2 | 1
Baths
3,053
SqFt
Open House: May 28, 2022 4:00 PM - 5:30 PM
 
 
#72987929 | House
 
$779,000 (New)
170 Clocktower #5312
Waltham, MA 02452
Property Photo
2
Beds
2
Baths
1,375
SqFt
Open House: May 29, 2022 4:00 PM - 6:00 PM
 
 
#72987898 | Condo
 
$495,000 (New)
65 N Federal St
Lynn, MA 01905
Property Photo
3
Beds
1
Baths
1,194
SqFt
Open House: May 28, 2022 5:00 PM - 6:00 PM
 
 
#72987908 | House
 
$639,000 (New)
24 Cold Spring Rd
Westford, MA 01886
Property Photo
4
Beds
2 | 1
Baths
2,068
SqFt
Open House: May 27, 2022 3:30 PM - 5:00 PM
 
 
#72987892 | House
 
$499,900 (New)
25 Daniels Street
Lowell, MA 01852
Property Photo
3
Beds
2
Baths
1,680
SqFt
 
 
 
#72987881 | House
 
$275,000 (New)
38 Main St #17
North Reading, MA 01864
Property Photo
2
Beds
1
Baths
784
SqFt
Open House: May 28, 2022 3:30 PM - 5:00 PM
 
 
#72987856 | Condo
 
$679,000 (New)
24 Lee St #B10
Marblehead, MA 01945
Property Photo
1
Beds
1 | 1
Baths
920
SqFt
Open House: May 28, 2022 2:00 PM - 3:00 PM
 
 
#72987846 | Condo
 
$1,499,000 (New)
26 Maynard St. #26
Arlington, MA 02474
Property Photo
4
Beds
3 | 1
Baths
2,611
SqFt
Open House: May 28, 2022 5:00 PM - 6:30 PM
 
 
#72987845 | Condo
 
$3,299,900 (New)
81 Ocean Dr
Seabrook, NH 03874
Property Photo
4
Beds
4 | 1
Baths
4,944
SqFt
 
 
 
#72987872 | House
 
$1,200,000 (New)
75 Sargent Road
Medford, MA 02155
Property Photo
3
Beds
2 | 1
Baths
3,000
SqFt
 
 
 
#72987871 | House
 

Larger Debt to Income Ratios

The FHA also allows larger debt to income ratio over other loan programs when qualifying for a mortgage.  The highest debt to income ratio for an FHA home loan is 45% while many other loan programs are 43% or less.

FHA Loans Can Be Assumed

A potential buyer could assume your mortgage if they qualify, if you should sell your home in the future.  While it is not the easiest process to go through in a market where interest rates are rising, this could be a real selling point.  If mortgage rates are 6 or 7% and you can offer a 4% assumable mortgage that will look attractive to many home buyers.

Purchasing After Bankruptcy

An FHA mortgage is probably the most liberal when dealing with bankruptcies.  In some circumstances, you can get a an FHA mortgage as soon as 1 year after a chapter 13 bankruptcy and 2 years after a chapter 7.  

If you have had a recent bankruptcy and you want to buy a home, than the FHA is probably the way to go.

shou you get an fha home loan

 

The Cons of an FHA Home Loan

Should you get an FHA home loan? Lets look at the cons of an FHA Mortgage.

MIP or Mortgage Insurance Premium

As with any loan you will be required to pay monthly Mortgage Insurance Premiums if you put less than 20% down.  The FHA mortgage insurance tend to be higher than on a conventional mortgage that uses Private Mortgage Insurance.

In most cases the MIP stays in place the whole life of the loan, 11 years if you put down 10% or more.  With other loan programs you have the opportunity to remove mortgage insurance if you can prove the equity is in the home.

Upfront MIP Payment

The upfront mortgage insurance premium is probably the biggest downside for most home buyers when using an FHA home mortgage.

You will also have an upfront mortgage insurance payment at closing it is typically about 1.75% of the amount borrowed.  If you borrow $250,000 your upfront MIP would be $4375.00.  No other loan program has a required upfront fee for mortgage insurance.

Loan Limits

The FHA Loan Program does have loan limits.  It varies across the country based on the median house income.  Generally the limits are high enough to finance a decent home but it may limit you if you could get financed for more through another loan program.

Mini Inspection

Unlike any other loan program, the FHA home loan requires an FHA appraiser to do a mini home inspection such as pest, peeling paint etc….  The property must meet the minimum standards for the loan to be approved.  It is more of a nuisance than anything. 

It does require any of the repairs to be done prior to closing and to be re-inspected by the appraiser.  Not every home seller will want to do the little nuisance repairs after you have already completed your home inspection period.

Condominium Approval Required

One are of huge disappointments for many buyers is the FHA requires condominium complexes to be FHA approved for them to finance a condominium.  Percentage wise it is low the number of complexes that are approved leaving many condos unavailable to buyers.

Should You Get An FHA Loan When Purchasing a Home

An FHA Mortgage is a great product if you have a lower credit score or higher debt to income ratio. With a minimum down payment of only 3.5% and relaxed underwriting, it could be the perfect home loan for you.

An FHA mortgage is a definite plus when if you need some looser underwriting guidelines, especially for credit score and debt to income ratio.  It also is a great low money down option that does not have income requirements like some other loan programs

The big downside is the upfront mortgage insurance premium, requiring more cash at closing.  But for folks with lower credit scores it may be the only option you have.

Work with your mortgage lender and buyers agent to find the right home loan program for you.  Not every lending institution has every program available.  Your buyers agent should also be familiar with the different low money down programs that are available to you and how they may benefit you.

Other low money or no money down programs are VA Home Loans, Mass Housing (for Massachusetts Residence only) FNMAE Home Ready Loan, FMAC Home Possible Loan and USDA Loan.

Other Real Estate Resources

  • Bill Gassett-  How to Remove Private Mortgage Insurance
  • Paul Sian- 20 Important Mortgage Terms To Know
  • Ryan Fitzgerald- What Do I Need to Know About Mortgages
  • Anita Clark- 5 FHA Mortgage Quirks You Must Know
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About Merrimack Valley MA Real Estate

Merrimack Valley MA Real Estate is a real estate website designed to help home buyers and home sellers with the purchase and sales of their home.

It is owned and run by Kevin Vitali.  Kevin is a Tewksbury MA REALTOR, based out of EXIT group One Real Estate.

You can use this site to find homes for sale anywhere in Massachusetts as well as find useful information on home buying, home selling mortgage, home improvement and more.  Kevin has written over 400 articles pertaining to real estate.

If you are thinking of buying or selling a home in Essex County or Northern Middlesex County Massachusetts, call kevin at 978-360-0422

Contact Me

Kevin Vitali

KEVIN VITALI


978-360-0422
kevin@kevinvitali.com
Kevin Vitali- Massachusetts REALTOR EXIT Realty Beatrice Associates
191 S. Main Street
Middleton, MA 01949 cell phone: (978) 360-0422 office phone: (781) 929-1010
© 2022 · Kevin Vitali · Tewksbury Real Estate

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