Since the mid-1930s, FHA loans have helped millions of Americans secure that important element of the American Dream: home ownership. This mortgage program, which is managed by the Department of Housing and Urban Development, could be your ticket to a nice house for sale in Irvine. The first thing you should know about FHA loans is that they are not really mortgages. You will not borrow money from the government to buy your house. Instead, you will get a certificate from a bank or mortgage brokerage that allows financing to be granted under extraordinary terms.
On the surface, FHA loans may seem as if they would be ideal for many individuals. This is a program designed for homebuyers who do not have enough cash to cover the full down payment or whose credit profiles exclude them from conventional lending programs, but it may not be the most advantageous option for all borrowers. Here are some pros and cons everyone should know about FHA loans.
Leniency in Qualification
Although FHA underwriters are known to apply a very close scrutiny to all aspects of the 1003 Uniform Loan Application, credit worksheets, sources of income, and supporting documents, they are also known for being flexible and figuring out ways to qualify applicants. For example, if coming up with a down payment on your own proves to be too difficult, you will not have to dip into your reserves as long as a relative or household member can contribute a monetary gift toward this goal, which is something very few conventional lenders will do.
Realistic Debt-to-Income Ratios
Ever since the subprime mortgage meltdown of 2008, banks have really tightened their lending standards with regard to debt to income (DTI). Most banks want to see DTI ratios of lower than 40 percent, which is difficult for many prospective homebuyers in Southern California, a region known for its high cost of living. If your DTI ratio is closer to 50 percent, the FHA underwriters will work with you.
High Mortgage Insurance Premiums
FHA loans can be convenient and flexible, but they are not cheap. If the purchase price, the down payment you can afford, your income, and your credit obligations do not align in your favor, you will have to pay FHA mortgage insurance, which is often considerably higher than private mortgage insurance. While the upfront premium is only 1.75 percent of the principal, you have to keep in mind that home prices in Irvine have been higher than usual in recent years.
Intricate Loan Process
Processing and closing FHA loans are not simple tasks. You must be prepared to provide a substantial amount of documentation and wait longer than you may have expected. The appraisals and home inspections these mortgages require tend to be extensive, and the processing that has to take place before getting the HUD certificate is bureaucratic. Not all banks or mortgage brokers are licensed to offer FHA loans. In fact, some of them are not interested in offering this type of financing because of the intricate processing.
No matter what type of loan you qualify for, there are many amazing houses, townhomes, and condos for sale in Irvine, CA. Get in touch with a trusted local agent from OC Residential today to begin your search for your dream home. Call 714-454-6304 to schedule an appointment.