| An FHA purchase loan can be a great a great way | | | | This means the new buyer of the home can take |
| for many families and individuals to qualify for a home | | | | over the existing mortgage terms without triggering |
| loan. However, any mortgage loan should not be | | | | any due on sale clauses that are more common with |
| entered into without considering the pros and cons. | | | | other conventional home loans. This makes it much |
| This is no different with FHA home loans. Here, we | | | | easier to sell the home at a later point in time. |
| take a look at the advantages and disadvantages to | | | | FHA Purchase Loan Disadvantages |
| help ensure you have a complete picture of what this | | | | 1. There are low levels for loan limits than vary in each |
| type of loan entails: | | | | county. |
| FHA Purchase Loan Advantages | | | | This means a prospective home buyer may not be |
| 1. A number of cost saving areas. | | | | able to qualify for the amount of financing they need |
| You are allowed to borrow with as little as 3% interest | | | | to get the type of home they are looking for. This may |
| for the down payment. This is a big advantage | | | | result in the family or individual settling for a lesser |
| compared to conventional loans where you are likely | | | | home. |
| to have a higher down payment of 20 to 25%. In | | | | 2. Private Mortgage Insurance is required regardless of |
| addition, family can help gift, pay costs, or even cosign. | | | | the amount of the down payment. |
| Finally, the seller can pay closing costs and up to 6% | | | | This means you can't really avoid having to pay this |
| on the purchase price in closing costs and discount | | | | extra addition to the monthly mortgage payment. |
| points and some common conventional loan fees are | | | | However, you can pay off the loan early or sell it to a |
| not allowed. | | | | buyer with the existing loan terms included. |
| 2. It is much easier to qualify for them than a | | | | 3. FHA purchase loans tend to have more |
| conventional loan. | | | | requirements than other loans. |
| FHA loans have easier approval because of higher | | | | Since you are essentially getting insured by the federal |
| qualifying ratios of 29% for housing for existing | | | | government for these home loans and are not putting |
| construction and 43% for new construction. In addition, | | | | down as much of your own money as conventional |
| the underwriting standards are more flexible. This | | | | home loans, you will have to fill out more paperwork |
| means you can still qualify with a bad credit history or | | | | than a conventional loan would require. |
| even a bankruptcy or foreclosure in your past. | | | | As you can see, there are a number of advantage |
| 3. There is no prepayment penalty. | | | | and disadvantages of FHA purchase loans. One thing |
| This means you are not going to get charged extra | | | | to keep I mind is that most home owners with FHA |
| money for paying off your loan early. This is a nice | | | | loans will refinance to a conventional loan when they |
| addition since many people gain more income as the | | | | create enough equity to drop off the mortgage |
| get older and can afford to pay off these loans early. | | | | insurance. This is a clear sign of the preference for |
| Plus. the lack of this penalty means home buyers can | | | | conventional loans over FHA purchase loans. |
| save some additional money that can be used in a | | | | However, it is no secret that these loans have helped |
| number of ways. | | | | many people get their first home and allow them the |
| 4. The FHA purchase loan is assumable with | | | | platform to move on to bigger and better homes and |
| qualifications. | | | | financing. |