While an FHA loan may be a lifesaver if you’d like to purchase a home while having restricted cash on hand or even a not-so-great credit history, these loans do possess some drawbacks you ought to know of before you use.
- Extremely strict assessment criteria. The U.S. Department of Housing and Urban Development (HUD) has stringent property appraisal criteria that exclude many properties from FHA loan eligibility. The house has also to become your main or major residence, as an investment property (though FHA loans can be used for some multi-unit properties up to four units) so you can’t use it. Mobile phone homes as well as other prefabricated dwellings can qualify, however, many condominiums are not able to.
- Mandatory home loan insurance coverage. Borrowers with reduced credit ratings are statistically almost certainly going to miss payments or standard to their loans than people with higher fico scores, so lenders require FHA borrowers to pay for home loan insurance to mitigate the danger. The cost of this insurance is spread across two payment types: per FHA guidelines
- Just one payment that is bulk ofpercent of this loan quantity is born at closing. Like many closing expenses, this could be contained in the loan funding. (more…)