First-Time Homebuyers: Should You Choose An FHA Mortgage?
Posted on: 19 May 2017
If you are about to buy your first home, you have a big decision to make. Should you go with a conventional mortgage, or should you apply for an FHA mortgage: a government-backed mortgage created for first-time homebuyers just like you? While FHA mortgages do have many advantages for first-time homebuyers, they are not the right choice for everyone. Read up on these pros and cons to decide whether an FHA mortgage is right for you.
Pro: You won't need as large of a down payment.
Taking out an FHA mortgage may allow you to buy a lot sooner than if you were to take out a conventional mortgage. An FHA loan only requires a 3.5% down payment, whereas most conventional mortgages require a 20% down payment. You can certainly put down more than 3.5% if you have it saved, but it's not a requirement.
Pro: The loan is assumable.
FHA loans are assumable, which means that if you ever decide to sell your home before it is fully paid off, the buyer can take on your mortgage at the same rate. This can be a real advantage when interest rates are low. If rates rise, the option to assume a low-rate mortgage will make your home very appealing to buyers, which may help you get out from under your home faster if need be. For example, if mortgages are going for 8% in the future and a buyer can get your home at 3.5%, they may choose your home over others.
Con: You may have to pay mortgage insurance.
If you do only put 3.5% -- or any amount less than 20% -- down on your mortgage, you'll likely have to pay for private mortgage insurance. This is a policy that pays out to the lender in the case that you default on your own. Private mortgage insurance is not overly expensive; you may pay $50 or $100 a month. However, it does add to your monthly expenses.
Con: The FHA may require repairs before approving the loan.
The FHA, or Federal Housing Administration, makes sure that a home meets certain standards before they approve a loan. If the roof is not perfect, there are not railings on exterior staircases, or other standards are not met, you or the seller may have to make some changes before the loan can be approved.
To learn more about the upsides and downsides of FHA mortgages, talk to your realtor.
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