Home Guides: Benefits and Downsides of FHA Home Loans This 2020

The Federal Housing Administration program or FHA loan is one of the ways to purchase a home. This type of mortgage loan is managed by the Department of Housing and Urban Development (HUD) and comes in fixed-rate terms of 15 and 30 years.

The flexible underwritings standards of FHA programs allow borrowers who may not have excellent credit scores and high monthly income to become homeowners. To understand more about this government-backed mortgage loan, here are some of the benefits and possible downsides of using an FHA loan in buying a property this 2020.

Benefits of Using FHA Loans To Purchase a House

If you want to buy a house but you’re not qualified for a traditional or conventional loan, FHA housing program maybe your best option to get a home of your own. Primarily, this type of mortgage loan offers relatively lower down payments and less stringent qualification guidelines.

Aside from that, here’s an in-depth look at the advantages you’ll get from Federal Housing Administration loans.

Low Down Payment and Credit Score Requirements

Low down payments and low credit score requirements are some of the benefits you can get out of Federal Housing Administration loans. In fact, according to HUD, you can technically qualify for an FHA loan with a 3.5% down payment and at least a 580 credit score.

FHA LOans Qualifications are Less Stringent

If you are looking for a mortgage loan that has flexible qualification guidelines, an FHA loan is the one you need. Generally, the qualification criteria used for this government-backed mortgage loan are less strict. With that, you can have a stronger possibility of getting an FHA loan financing to get yourself a home.

FHA Loans are Assumable

Another good reason for using FHA loans in buying a property is because they are assumable. It means that when you sell the property purchased using this financing program, buyers can take over your existing Federal Housing Administration loan rather than applying for new mortgages.

However, homebuyers still have to meet the requirements and guidelines of HUD before they can assume your loan. On top of that, if your mortgage rate is lower than the current rates at the time you are selling your house, the one who will take over your property could also assume the lower rates.

Downsides of Using FHA Loans to Home Buyers

Federal Home Administration loans are getting more and more popular because they make purchasing a house relatively easier. However, just like other mortgage programs, FHA loans have also downsides that you should be aware of.

Thus, it would be best if you understood the disadvantages of this housing loan before signing any agreements and or contracts. Here are some of them:

Paying Mortgage Premiums

Paying for mortgage premium is one of the most significant downsides of FHA loans. The borrowers should pay for mortgage insurance if they use this program to purchase a property. In fact, they have to pay two types of insurance when using FHA loans. These are:

  • Upfront Mortgage Insurance Premiums. You have to pay an upfront premium fee of 1.75% of your total loan amount. You can pay this premium at the closing, if you have cash, or wrap it into your loan amount, which makes your monthly payments higher.

  • Annual Monthly Insurance Premium. Aside from the upfront MIP, FHA loan borrowers also have to pay annual MIP, which ranges from 0.45% to 1.05% of the base loan amount.

Furthermore, these mortgage insurance premiums are required by the HUD to protect the lenders in some cases of default.

Property Restrictions

Since HUD manages the FHA loan program, there are some specific rules and restrictions about the property you can purchase using this housing loan. In fact, you can’t use the Federal Housing Administration loans in buying a rest house or vacation home.

Aside from that, HUD also has particular guidelines with regards to purchasing a condominium. Thus, if you want to get yourself a condo using an FHA loan, you have to make sure that the property is on the HUD’s approved condominium list.

Higher Interest Rates

Another significant downside that you should consider in using an FHA loan is its higher interest rate compared to conventional mortgage loans. Since this type of loan is much riskier than other types of mortgage, lenders give higher interest rates as a way of protecting themselves.

Takeaway

Purchasing a home is one of the challenging goals anyone can achieve. Good thing, there are mortgage loans such as the FHA housing program that can help you buy a home despite your low credit score and income. To get more helpful information about buying a property or applying for mortgage loans, visiting https://talkinvesting.com.au/ and other financing sites is a smart way.

EAN Content

Content shared by this account is either news shared free by third parties or sponsored (paid for) content from third parties. Please be advised that links to third party websites are not endorsed by Estate Agent Networking - Please do your own research before committing to any third party business promoted on our website. As an Amazon Associate, I earn from qualifying purchases.

You May Also Enjoy

Breaking News

Construction Skills Mission Board (CSMB) shows the Government has a plan

The Construction Skills Mission Board (CSMB) held its first board meeting today (26 June 2025), where it set out a roadmap for recruiting 100,000 more construction workers a year by the end of Parliament. Richard Beresford, Chief Executive of the National Federation of Builders (NFB), said: “The Construction Skills Mission Board (CSMB) is a recognition…
Read More
Paint Stripper Tools
Estate Agent Talk

5 Strategies to Optimise Your Warehouse for Real Estate

The term fixer-upper can mean many things, from ‘slap some paint on the walls and it looks brand new’ to ‘will this building collapse if we open the front door?’ Indeed, in the dicey world of commercial property acquisition, each warehouse you buy will probably fall into both camps. Thinking about the viability of warehouses…
Read More
Breaking News

HMOs sell for up to 50% above market average

New research from Excellion Capital, the boutique debt advisory and investment firm, reveals that HMOs sell for as much as 50% above the average house price, further increasing their investment potential after it was revealed that HMOs also create rental yields of up to 12.5%. After previous research from Excellion Capital recently showed that the…
Read More
Breaking News

UK buyers struggle while 50,000 homes sit empty

As the UK housing crisis deepens, new analysis by Open Property Group exposes a worrying surge in so-called “zombie homes”- properties that sit unoccupied and deteriorating while millions struggle to access affordable housing. Key insights: 50,000+ long-term vacant homes in England alone 23,000+ of these have been empty for more than two years Estimated £13.6…
Read More
Breaking News

Breaking Property News 26/06/25

Daily bite-sized proptech and property news in partnership with Proptech-X.   The UK is Europe’s second most distressed market despite headline GDP growth Retail and Consumers Goods has emerged as the most distressed sector in Europe, with distress levels now the highest since the global financial crisis, according to the latest Weil European Distress Index (WEDI). The…
Read More
AI in estate agency letting agency property
Breaking News

Over half of lettings agents have no plans to adopt AI

The latest industry insight from Inventory Base has revealed a cautious approach to artificial intelligence (AI) among UK letting agents, with over half (53%) of agencies stating they have no plans to adopt AI or automation in their operations. A new survey of UK letting agents, commissioned by Inventory Base* assessed current adoption levels of…
Read More