FHA Home Loans, Abilene Texas

The Federal Housing Administration established the FHA Home Loan Program to assist individuals and families with low to moderate incomes purchase their own homes.

FHA loans are affordable and easy to qualify for. They can also be used to buy, renovate, or refinance a home or even finance purchasing a manufactured home and the land it will sit on. This flexibility, combined with its more lenient credit and qualification requirements, makes the FHA home loan program one of the most attractive mortgage options for first-time homebuyers.

Pros and Cons of FHA Home Loans

Despite its popularity, the FHA loan is not without drawbacks. If you’re considering using this type of financing to buy a new home, you should carefully weigh the pros and cons of an FHA loan. 

• Benefits of the FHA Loan

          1. Lower Down Payment and Credit Score

Conventional loans typically require a down payment between five and twenty percent. Moreover, it’s almost impossible to qualify for a conventional mortgage with a credit score below 620.

On the contrary, an FHA loan technically allows borrowers with credit scores of at least 580 to put down 3.5% of the home’s purchase price. It’s also possible to obtain an FHA loan with a credit score as low as 500 if you’re willing to pay more upfront.

          2. Higher Debt-to-Income Ratio

Even if your monthly debt payments are pretty high, you may still be able to get an FHA loan. To qualify for most mortgages, a household’s monthly debt payments should not exceed 43% of its gross monthly income. On the other hand, you may be eligible for an FHA loan with a DTI of up to 50%.   

          3. No Income Limits

Anybody may apply for an FHA loan as long as they have a stable source of income, at least two established credit accounts, and no unpaid federal debts or debt related to previous FHA-insured mortgages.

          4. Allows Seller Concessions

FHA loans allow sellers to pay up to 6 percent of the loan amount toward the buyer’s closing costs. This is of great help to many first-time buyers who may have money for a down payment but don’t have enough to cover the closing costs. 

          5. Competitive Interest Rates

Rates for FHA mortgages are typically lower than those for conventional loans. The FHA does not use a risk-based pricing structure that would disadvantage those with less-than-perfect credit. The interest rate is the same for all qualified borrowers.

• Drawbacks of the FHA Loan

          1. Restrictive Housing Standards

The HUD has guidelines for what kinds of properties can be bought with FHA loans. The FHA loan can be used to purchase a single-family home, a multi-family home, a condominium, or even a mobile home, as long as the property will be used as a primary residence and meets minimum health and safety requirements. 

If you are planning to purchase a second home or an investment property, you may want to check out other mortgage options.

          2. Lower Loan Limits

FHA lending limits are typically 65% of conforming loan limits in a given area, making it difficult to purchase a home in high-cost areas with an FHA-backed loan. For 2022, the FHA loan limit for a single-unit home in Taylor county is $420,680, while the conventional loan limit is $647,200.

          3. Expensive mortgage insurance

High insurance premiums have always been the biggest drawback of FHA loans. An FHA loan’s mortgage insurance premiums (MIP) come in two forms: an upfront MIP and an annual MIP. 

In addition, regardless of how much equity the borrower builds up, they will have to continue paying for mortgage insurance for the life of the loan. With a conventional loan, you won’t have to pay insurance after paying 20% of your home’s equity. 

FHA Loans in Abilene, TX

The FHA loan may not be the most cost-effective option, but it’s one of the few mortgages that meet the needs and budget of low-to-average income households and first-time homebuyers.

Contact us today at (325) 387-8387!