What You Should Know - Pros and Cons to FHA Loans

FHA loans have been helping people become homeowners since 1934.  Maybe this government program can help you purchase the dream home you always wanted.

Financial instruments come and go with the economic environment, there has been a shift in which kind of loans new home owners are applying for.  There has been a new shift with FHA loans which are more popular now than they have been in a few years. With rates and credit being tightened, they are asking for larger down payments, which consists of a 3.5% down payment required for all FHA loans. There are more incentives for lenders if you can get a loan insured by the Federal Housing Administration.

There are many great deals out there, but before your rush and finalize your loan.  Here is some important information about FHA loans that could help you in your decision making process.

Government programs usually have a lot of restrictions for individuals with high incomes, but this is not the case with the FHA loan. These loans are available to anyone with any personal income.  The main deciding factor in FHA loans has the ability to pay. For the majority of Americans with jobs this should not be a problem. There is a catch even though there is no income limit with FHA loan their are restriction on the value of your home. The value of the loan can not exceed $271,050, but in areas where the incomes and standard of living are higher the limit can be subject to change. So make sure to check if your are falls under the change.

FHA loans are actually easier to get than other loans. The Federal Housing Administration has now implemented a new under writing system that expedites the process and makes it a easier process for everybody.  For more information about FHA loans you can visit www.hud.gov/buying/loans.cfm.

If this sounds to good to be true. There are always a few draw backs with dealing with the federal government. Any home you want to buy with FHA loan requires a  appraiser approved by the government. Also the seller needs to follow federal government safety inspection guidelines.  This can result in penalties and delay of the loan being processed.

Looks can be deceiving,  FHA loans appear quite low-cost. FHA loans can end up costing more than you first thought. There is a 1.75% up front fee that you must be payed . There is also a annual 0.5% annual insurance premium and until the principal balance reaches 78% if the homes appraised value or sales price. On the other hand, the seller of the home can help. Sellers are able to help pay part of the FHA insurance costs in order to get the loan closed.  Sellers can only pay closing costs that are under 6% of the sales price. But lets remember everything helps!

This might not be for everybody but in this economic downturn and with government stimulus programs there are a lot avenues that you can take to make your life easier.