The government-insured FHA loan was helping Americans buy into the dream of homeownership since the 1930s. For those who are only starting out, have had difficulties in the past or fall through the cracks from traditional loan programs, FHA loans offer the chance for a mortgage in near market prices and acceptable provisions. Yet there are disadvantages to FHA loans for many buyers.
Maximum Loan Limit
The FHA has a maximum loan limit that varies from county to county. As stated by the Department of Housing and Urban Development, this amount is $729,750 for a single family home in the San Francisco metropolitan area as of July 2010. In regions with lower home expenses, that loan limitation is less. While the numbers are designed to accommodate the average area home buyer, it excludes buyers in the end of the spectrum.
Upfront Mortgage Insurance
FHA loans carry not only a monthly mortgage insurance premium (MIP), whatever the amount of money down, but they also charge an upfront mortgage insurance fee. Most buyers add this to the loan amount and finance it, which means they pay monthly and interest MIP on this upfront charge. While conventional loans with less than 20 percent charge monthly mortgage insurance, they don’t charge an upfront charge.
Flat Interest Rates
FHA loans offer the exact same interest rate and provisions of borrowers, irrespective of credit score and history. There’s not any bonus or reward, such as better rates of interest, for those who have put forth the effort to pay on time and properly handle their debt.
Limited Program Options
FHA has limited loan program choices solely for owner-occupied primary residences only. For new purchases, they simply offer one and interrogate adjustable-rate program. They don’t provide land loansfor second homes or loans for investment properties.
Competent Property Standards
FHA loans have minimum property standards that limit the type of house an FHA borrower can buy. FHA lenders will not finance properties with plumbing, wiring, structural, electrical or base issues, such as historical homes. This means you cannot get a property that has some damage with the intention of fixing it up and living there. The FHA will not guarantee the loan until the vendor makes the proper repairs, which doesn’t typically happen with foreclosed or bank-owned possessions.