For first time home buyers, finding the right loan to finance your purchase is a challenge. You can choose a traditional mortgage but many first time buyers prefer to use an FHA loan.
These loans make buying a house easier when your finances aren’t as stable as other buyers. Before you make your decision, you need to consider the pros and cons of FHA loans.
Keep reading this article to know more about the disadvantages of homebuyers loan and how to wedge against them.
Disadvantages of Homebuyers Loan
Let’s now look into some of the disadvantages of homebuyers loan and then we will discuss how to wedge against them. Though FHA loans offer compelling benefits, they’re not without their downsides. These are the most common issues first time home buyers face when considering these loans. They’re Often Issued in Smaller Amounts.
FHA loans are meant to get you into an affordable house. This means you may not qualify for enough money to buy the home of your dreams.
Think about the types of homes you’re considering and their costs before you apply. A conventional mortgage may give you more flexibility to get a more expensive house. You Will Have to Pay Mortgage Insurance Since you’re not putting down the full 20 percent down payment, you’ll need to pay mortgage insurance over the life of the loan.
This requirement doesn’t go away once you repay 20 percent of the home’s sale price. Instead, you’re stuck making that extra payment until the loan is repaid in full.
If you’re ready to buy a house but aren’t sure where to start, reach out to our team. At Mortgage Solutions Financial, we specialize in helping first time home buyers get into a new home quickly and easily.
Advantages of Homebuyers Loan
FHA loans offer many benefits to first time home buyers that otherwise might not be able to qualify for financing in the first place. These are just a few of them.
They Require Lower Down Payments
FHA loans allow you to make a smaller down payment on the home you’re buying.
When you choose other types of loans, you’ll typically need to have 20 percent of the home’s sale price saved as a down payment.
With an FHA loan, you’re able to put as little as 3. 5 percent of the sale price down on the home. That frees up more of your savings to help cover things like improvements, moving expenses, and new furniture.
They’re Easier to Qualify For FHA loan
FHA loans exist to help borrowers with less-than- perfect finances qualify for loans. Typically, you’ll be able to qualify as long as you have a credit score over 620 and have a maximum debt-to- income ratio of 41 percent.
How To Wedge Against The Disadvantages Of Homebuyer Loans
Now that you know some of the disadvantages of homebuyers loan, let’s look into some of the ways which you can wedge against them.
These include; working with a lender, comparing your goals with your financial potential, and finally, moving to somewhere less Expensive. Keep reading below to fully grasp what we mean by these.
Work With a Lender
If you’re completely in the dark about whether you qualify for a mortgage, which is common if you’ve never gone through the mortgage process before, start by talking to a lender or a mortgage consultant.
They’ll often start with basic financial questions about your income and assets, but the real clarity comes when you apply for a loan.
If your lender or a mortgage consultant pulls your credit report, that will give them even more insight into your creditworthiness. They’ll be able to pinpoint any problem areas in your financial history and advise you on next steps.
In essence, a good lender can navigate you through the process of getting your finances in order and matching you with a loan that makes sense for your budget and financial goals.
The more experience they have, the more programs they’re likely to know about, such as down- payment assistance programs or specialty programs that banks, online lenders and credit unions might offer.
Compare Your Goals With Your Financial Potential
It might be frustrating to see friends and family become homeowners while you struggle to make rent. But keep in mind that motivated buyers are often willing to make serious sacrifices for homeownership.
So, what looks like a simple transaction might really be the fruit of years of saving, working extra jobs and living well below their means in order to access homeownership.
Or they could have inherited money they used to make a big down payment. Whatever the case, every situation is unique, so don’t compare yourself and don’t be limited by today’s setbacks, especially in today’s tough market.
Do you get another job? Cut back on expenses? Ask for a raise? Increase your skill set (and income bracket) by getting a specialized certification or going back to school? Obviously, this isn’t a quick- fix solution, but buying a home can take years, so don’t worry if you need more time.
Some people consider their retirement savings as part of their “ financial potential.” After all, $100,000 lying around in a half-forgotten 401(k) account can look an awful lot like the down payment to a dream house. And when homes are scarce, like they are now, it can create pressure to buy at all costs.
But leveraging your retirement to snag a home could be a devastating mistake. Experts roundly agree this is an unwise move that can cost you down the road, so definitely talk with a financial professional before you go down that path.
Move Somewhere Less Expensive
If you want proof that Americans love homeownership, all you have to do is look at the moving trucks. People will move across the country to become homeowners, San Francisco to Austin, Los Angeles to Boise, Manhattan to Montclair.This might seem extreme, especially if you have a strong network, family ties or a job that requires your presence. But for some motivated buyers, moving is just part of what you have to do if you happen to live in a pricey city.
Home prices are not the only consideration. Income tax, property taxes and cost of living ( food and utilities) all play a role in how much you’ll spend on just living in a certain area.
So if you have a tight budget, places that offer lower and fewer taxes can be a huge money saver. This is, after all, money that can be put toward a mortgage or down payment.
Finally, know that you know the disadvantages of homebuyers loan and how to wedge against them, before buying a home, it’s important to review as many of the advantages and disadvantages of becoming a homeowner before making the commitment.
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