Considering an FHA loan? Read this first.
- FHA loans are backed by the Federal Housing Administration.
- They can be easier to qualify, even with a low down payment.
- Suze Orman generally thinks that people shouldn’t use these loans to buy properties because they often signal that you’re not ready to buy.
If you are hoping to buy a home, you have many different mortgage options. FHA loans are one of those options. FHA loans refer to loans made by private lenders, but are backed or guaranteed by the Federal Housing Administration.
Lenders take much less risk when making an FHA loan because there is a government guarantee behind the loan. FHA Lending Guidelines and Lender Policies are specifically designed to make it easier for borrowers to get a loan, even when a conventional (non-government guaranteed) mortgage may not be available. In fact, it might be possible to get an FHA loan with a very low down payment and with a low credit score.
While these loans might sound attractive if you want to get into a home ASAP and your financial information isn’t perfect, you might want to consider these tips from finance guru Suze Orman before deciding on a loan. FHA loan is right for you.
Here’s what Suze Orman has to say about FHA loans
Suze Orman is a finance professional who has provided extensive advice to her readers and listeners on a wide variety of topics. When discussing real estate down payments in April 2019, she touched on the issue of FHA loans.
Orman explained that homebuyers often end up taking out FHA loans because they’re encouraged to do so when they have lower credit scores and would therefore be forced to pay higher private mortgage insurance rates if they don’t. they took out a conventional loan. Private mortgage insurance is required by lenders when making a loan to a borrower with a small down payment. PMI protects the lender by allowing the mortgage lender to avoid losses in the event of foreclosure. Borrowers have to pay for it, and Orman says PMI premiums can be costly on conventional loans with low down payments if a borrower doesn’t have good credit.
Orman goes on to explain that she doesn’t think people should take out these types of loans, even though the government has provided the support specifically to make it easier for individuals to buy property.
She said: “Here’s the truth I want you to remember: If your credit score is too low to qualify for a good conventional mortgage/PMI deal, I don’t think you should buy. Raise your score first This will help you get a better interest rate and a better PMI deal.”
Should we listen to Orman’s advice?
This advice may be disappointing to potential buyers who see FHA loans as an important lifeline that makes it easier to get into a home.
But, it’s generally good advice. The thing is, FHA loans also require borrowers to purchase mortgage insurance, which increases their costs, just like a conventional loan. The fees and costs you may have to pay with an FHA loan can make home ownership much more expensive than if you could get a conventional loan at a competitive rate.
Aside from the issue of additional FHA loan costs, the bottom line is that you should be in good financial shape before buying a home. This maximizes the chances that your property will help you build wealth instead of interfering with your efforts to achieve your financial goals. If you have a low down payment and poor credit, you should get your affairs in order rather than just trying to qualify for a mortgage with easy approval.
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