Home Loans

Since 1934, the FHA has helped countless Americans fulfill the dream of becoming homeowners. That aspiration is alive and well today under the FHA loan program, which offers reduced down payments, lower interest rates, and easier qualification standards.

Despite their numerous advantages, FHA loans have distinct drawbacks, particularly over the long run. So how do you know if these special types of mortgages are right for you?

Why Choose an FHA Loan?

The Federal Housing Administration provides special loans that place a home in reach of people who might not otherwise qualify for a traditional mortgage. That means that if you’re suffering from a higher than normal debt-to-income ratio, a lower credit score, or minimal savings, your hopes of homeownership aren’t dashed quite yet. An FHA loan just might be the answer to your problems.

Why You Might Not Want to Choose an FHA Loan

If only that were the whole story, the decision would be simple. Of course, the FHA is not a lender. Rather, it is an insurer. All it does is guarantee your loan against default. Since lenders themselves assume less of the risk, they’re willing to lower their eligibility standards.

On the other hand, they are not charitable institutions, and they will compensate for those relaxed norms by charging a premium. In fact, these government-backed loans tend to come out on the expensive side, not because of high rates but because of added insurance fees. A 1.75 percent upfront fee topped off with a .85 percent monthly fee is typical.

The Final Analysis

Whether to apply for an FHA loan depends on your basic needs and primary motivations. If your main concern is overcoming the qualification hurdles, you would be wise to go the FHA route. If, on the other hand, you’re more concerned about the long-term cost of the loan, you might want to hold off.

In order to see how Elite Financial can help you evaluate your options and secure a mortgage loan, visit our FHA information page.