Of all mortgages, many Utahns gravitate toward FHA loans. Insured by the Federal Housing Administration (FHA), these mortgages often come with interest rates lower than most of what you can find on the market. Also, an FHA loan you can take out in Orem, Utah is assumable. You can buy a house through an FHA loan, and you can take over the mortgage if its interest rate is lower than what you can currently get to save more money.
Although FHA loans have down payment minimums and closing costs, you can pay 100% of these upfront expenses through gift funds. When buying a property with one or two units, you do not need to have cash reserves. You can also qualify for one of these mortgages even if you have a large debt-to-income ratio. Indeed, FHA loans have features that conventional mortgages can’t beat, but they are not for every borrower. Below are the scenarios when one of these loans is not the perfect choice for you:
1. You Hope to Afford Monthly Mortgage Payment
The down payment minimum of an FHA loan for borrowers with a FICO score of 580 or higher is 3.5% of the property’s cost, while the number increases to 10% for borrowers with a FICO score of 579 or lower. But then again, you do not have to put down the very money you have saved in your bank account because you can use funds from a qualified donor. While this makes home ownership more attainable, lacking enough cash to pay for your own down payment may be a sign that you are not ready to buy a house. Every situation is different, so assess your finances to make sure that you truly have the means to repay in order to avoid the consequences of being in default.
2. You Dislike Paying for Insurance Forever
Insurance is perhaps the most undesirable quality of FHA loans. These mortgages come with types of insurance: one must be paid at closing and another must be paid monthly. The upfront can be added to the loan balance, which increases the money you need to borrow and inflates your interest costs. The ongoing mortgage insurance premium drives monthly mortgage payment higher over the life of the loan, and it can’t be cancelled.
3. You Want to Expand Your Property Options
The FHA loan amount maximums vary by location, but what can restrict your house options is the meticulousness of appraisers. FHA appraisers tend to be more fastidious than usual, so you need to be selective in choosing the property to purchase. While what most buyers consider to be occupiable, getting your chosen house assigned to a nitpicker can ruin the deal for everyone. Thus, if you are considering to buy a property that is not exactly move-in ready, like a fixer-upper or a foreclosed old house, an FHA loan may not be for you.
4. You Do Not Want to Scare Sellers
Sometimes, sellers are afraid of buyers getting an FHA loan because of the strict property requirements appraisers observe. This, however, should not concern you if your chosen property is already “livable” by most people’s standards. Sellers in a not-so-hot market also do not mind where a buyer gets financing as long as the other party is serious to close the deal.
As with any mortgage, an FHA loan is perfect when its unique features match your current needs. Explore all the loans available in your area, and talk to as many lenders as you can to find the mortgage that suits you.