Home Equity Partner has covered the basic advantages of FHA loans:
- Low credit score requirements
- Small down payment.
- Easy to qualify
This makes FHA loans quite common for first-time homebuyers and people in unique situations. While it is a common way to get into a home it might not be the right loan for your situation. FHA loans are complicated and can become a long process with lots of rejections.
Stringent Property Requirements and Caps
While your home can’t be too expensive it can’t always be too budget-friendly either, leaving you with fewer options. Added with the housing market and you can miss out on a lot of homes since cash buyers are preferred over FHA loan holders.
Added to the fact that required appraisals done to approve FHA loans are strict. They will not allow even minor issues like improper handrails, chipped paint, inadequate attic access, being free from wood destroying insect infestations, and so on.
Many of these issues that FHA appraisals scrutinize are not things that common homeowners maintain while they live at the property. When they go to sell the property it is often easier to sell “As-Is” instead of investing money into a property in order to sell it. They may not let prospective buyers even fix the property to allow those prospective FHA loan holders to even purchase the property in the first place. This pushes many FHA loan holders to not even be able to buy many homes in their desired areas.
Even more complex FHA loans like a 203K don’t solve many of these issues that appraisals create and can make the closing process more complicated and end in not obtaining a home.
These complex FHA loan types may require contractors to sign off on the paperwork and provide receipts and information to the loan provider. Many contractors don’t qualify for this work and may consider it more work than it’s worth. If the contractor does not work with you then you won’t get into your home.
These issues don’t give sellers much confidence in a buyer. Many buyers using an FHA loan would be overlooked with multiple buyers present. The homes that have multiple buyers are often the homes that could pass these FHA/HUD property requirements.
Additionally, each county has a cap on the cost of the home that you can buy even with a large down payment and good debt to equity. In some areas, this can be restrictive as caps change separately from the market.
Find your limits here: https://entp.hud.gov/idapp/html/hicostlook.cfm
This might not be restrictive for some people, but it may be for you. Using a contract for deed or lease to own, you may be able to set yourself up with a better financial situation and down payment at a time that fits your needs. All while holding onto the home you want until the time is right.
Strict on Finances
FHA-backed loans have strict rules about where the money for closing comes from. People with small businesses or who rely on multiple streams of income will run into issues qualifying for an FHA loan.
Even a gift from a family member for closing costs and the downpayment requires extra paperwork and statements to prove the transaction for both parties. FHA loans look over several months of income statements from all of your accounts. Any dollar earned is scrutinized and can make bigger issues for some first-time home buyers.
Mortgage Insurance Premiums and Interest
FHA home loans are considered riskier and to combat this they require an upfront mortgage insurance premium and monthly payments. They also tend to come with higher interest rates even with a large down payment.
These fees and extra insurance protect the businesses and government backing these programs to provide many loans. While this is great for many it might not be the right fit for you. Waiting for a larger down payment and a better financial situation may be a good route for you and Home Equity Partner can help with that.
Learn More About Contract For Deeds: https://homeequitypartner.com/contract-for-deed-pros-cons/