Midland Mortgage sees FHA loans as a great way for more people to qualify to own a home. Before you apply, however, it’s important to understand the differences between FHA loans and conventional loans so that you can decide which option is best for you.
Government backing from the Federal Housing means that more people, particularly first-time buyers, can afford homes that would otherwise be out of their reach.
Perhaps the biggest advantage of an FHA loan is buying a home with as little as 3.5% of its total value up front as a down payment. Compare that to as much as 20% of the sale price for a down payment on a conventional loan. FHA loans also have lower closing costs.
The FHA tends to be more forgiving of credit and debt issues. Also, you do not have to have as much cash in reserve to qualify for an FHA loan.
The benefit of a lower down payment leaves a higher balance due on the mortgage, which means you will pay more interest over the life of the loan.
FHA home buyers must pay more in mortgage insurance. Also, unlike conventional borrowers, you can’t cancel your mortgage insurance once you accrue a certain level of equity.
The FHA can be more demanding on the condition of the home you want to buy. If you have your eye on a serious fixer-upper, it may not get past the FHA appraiser.
Now that you have a basic understanding of the pros and cons of an FHA loan, the specialists at Midland Mortgage can help you explore your options further. Contact us today to find out how we can help you.