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The Pros and Cons of FHA Home Loan for Borrowers in Tampa

comparison house mortgage gold coins the pros and cons of FHA home loan for borrowers in Tampa
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FHA loan is a popular type of mortgage among first-time homebuyers. It is considered advantageous for them because its requirements are not as strict as other types of loans. This makes it easier to qualify for. However, there are some aspects of FHA loans that make it undesirable for some borrowers.

To help you decide as to whether an FHA loan is right for you, we've listed the pros and cons of this mortgage type.

Pros of FHA loans

  • Low credit score and DTI requirements. Many low-to-moderate-income borrowers prefer FHA loans for its relatively easy eligibility requirements. Compared to conventional mortgages, FHA loans allow borrowers with little credit history, lower credit scores, and higher DTI. This makes it more accessible to young borrowers who had just started building their credit histories. It also gives a chance to people with a substantial amount of debt.
  • Low down payment requirements. The minimum down payment you have to make for an FHA mortgage is 3.5%. Conventional loans accept a minimum down payment of only 3%. However, you need to have a high credit score to be allowed such a low deposit. For people with lower credit scores, FHA loans are the best option.
  • Monetary gifts are accepted. If you have someone willing to cover the closing costs or the down payment for you, you might need to choose an FHA loan. Conventional loans don’t always allow these gifts. And even when they do, you are not allowed to have the whole down payment as a gift. A part of it would still need to be paid by you. Also, in FHA loans, the seller pays for the closing costs.
  • Non-occupying co-borrowers are accepted. Non-occupying co-borrowers are people who don’t live in the house with you. But they are listed as co-owners and are required to pay the loan back. Having a co-borrower not only helps you with the monthly payments but will also make qualifying for a loan easier.

Cons of FHA loans

  • Loan limits. The FHA loan limit in Tampa is currently $331,760 for smaller homes to $638,100 for bigger houses. It is much lower than the conventional loan limit, which is $510,400. If you want to buy a cheaper house, then this won’t be a problem. But some borrowers who choose properties outside the price range of the FHA loans might reconsider their choice of mortgage, or aim for a more affordable home.
  • MIP is required. A mortgage insurance premium (MIP) is an extra payment that must be made throughout the life of the FHA loan. This is done to protect the lender if ever you default on the loan. Meanwhile, conventional loans allow you to get rid of the insurance premium when you pay a 20% down or when your home equity reaches 80% of the initial loan.
  • Strict property eligibility criteria. FHA loans do not allow you to buy a second home or live in another residence while you’re paying off your loan. Also, after you make an offer to the seller and they accept it, the property must undergo a home inspection. This is done to protect borrowers from buying homes in bad conditions. The home inspection only becomes an inconvenience if you want to buy a fixer-upper.
  • Higher Credit Score Means Nothing. Another possible disadvantage with an FHA loan is that no matter how good your credit score is, it won't affect the interest rate that you have to pay. Basically, a borrower with a high credit score will get the same interest rates as another with low credit scores. If you have a perfect credit score, try applying for a prequalification for both FHA and Conventional loans. Once done, compare the interest rates and choose one that suits you best.

Did you make your mind about FHA home loans?

We hope that this information can help clarify the confusion in choosing a mortgage loan program. If you need more help, our mortgage brokers are more than ready to assist you. Call us today at 813-284-4027.
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