Is an FHA Loan the Right Loan for You?
If you have your heart set on buying a home, but you can’t afford to put down a large downpayment and don’t have the greatest credit, an FHA loan might be the right option for you. FHA loans only requires a minimum downpayment of 3.5% of the purchase price. This makes them an affordable option for a lot more people.
FHA loans also allow a higher debt to income ratio than conventional financing. You can spend up to 57% of your income on debt. Conventional loans typically cap that around 45% or less.
What’s the downside? Well, you have pay an upfront mortgage insurance premium. That’s a pretty hefty amount, usually 1.75% of your purchase price. On top of that, you’re still paying PMI (private mortgage insurance) on a monthly basis. FHA PMI is typically higher than regular PMI.
Despite all that, if conventional financing is not an option, then this might just be the way to go!