Deciding which mortgage option is right for you can be challenging. However, researching and learning what each type of loan offers can help borrowers make the best choice based on their financial circumstances and goals.
There are advantages and disadvantages for borrowers considering the FHA mortgage loan option. Here are the pros and cons of the FHA mortgage loan option to help you make the best choice for your financial goals.
Advantages of an FHA Home Loan
FHA mortgages are popular for their flexible requirements, granting homeownership opportunities despite lower credit scores or low to moderate incomes.
Low Down Payment
One advantage of the FHA loan is its low down payment requirement. For many borrowers, it can be difficult to accumulate a lump sum of cash large enough to cover a down payment on a home.
Depending on credit scores, borrowers can make down payments as low as 3.5%.
Lenient Credit Scores Allowed
Borrowers with a minimum credit score of 580 can qualify for an FHA loan. However, if borrowers can make a 10% down payment, credit scores can be as low as 500.
Better Interest Rates
FHA loans typically offer better, fixed interest rates when compared to other loan types. The market interest rates will determine interest rates, but your income, credit score, down payment, and more will also affect your interest rate.
Disadvantages of an FHA Home Loan
FHA mortgage loans have many advantages but have a few considerations or disadvantages to keep in mind.
Mortgage Insurance Premiums
Mortgage Insurance Premiums (MIPs) protect lenders against losses if borrowers default on their payments. FHA loans require both upfront and annual MIPs from borrowers, regardless of how much money is put towards the down payment. MIPs last the life of the loan unless you make a down payment of 20% or more, and it comes off the loan after 11 years.
Related: FHA Home Mortgage Guide
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.