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FHA loans are quite popular simply because it makes it easy for most people to purchase a home. Home ownership is a reality for many people, but these types of loans are not for everyone. Ensure that you fit the right type of profile and that you understand the disadvantages of getting a FHA loan before you fall in love with getting one.

Highlights of a FHA loan

Even if you have limited funds for a down payment and have damaged credit, you can qualify to get a home loan with a decent interest rate.

Down Payments: a FHA loan will let you put as little as 3.5% down. This will allow you to purchase a more expensive home with less money, and you are able to reserve some funds for improvement projects or other types of goals.

Credit issues:Those who have a troubled credit history will often have a hard time of getting approved with a conventional lender. FHA backing will allow you to be approved with a low credit score.

Home Improvement: FHA 203k loans will let you fund home improvement projects and buy a house at the same time. Combined with other types of features, they also make it easy and inexpensive.

Drawbacks of using a FHA Loan

When you are looking to purchase a home, it is wise that you evaluate whether or not getting a FHA loan will help you. Look at the bigger picture and then consider all the financial goals.

Low Down Payment: Low down payments can be a red flag. Putting 3.5% down could indicate you are financially stable and a home loan may be a higher risk.

It is worth waiting until you can save up for a larger down payment or looking at a less expensive home? Remember, the more that you borrow, the more interest that you will pay, which will make your house more expensive.

Upfront Insurance: If you put less 20% down, it means that you will be required to pay for mortgage insurance, with FHA loans having 2 types of insurance that you will need to pay for the whole life of the loan.

There will also be an upfront charge of 1.75% and most borrowers tend to wrap this particular fee into the balance of the loan. Remember, the more that you borrow, the more interest that you will pay. You will pay more than 1.75% unless you write a check at closing. A larger loan will also mean that you will have a larger monthly payment.

Ongoing Insurance: You will also have to pay monthly mortgage insurance. Ongoing insurance premiums are between 0.80 and 1.05% of the loan balance, even though it can go as low as 0.45% if you have a 15 year FHA loan. This extra cost means that you will end up paying additional every month. Whereas, private mortgage insurance may be cancelled once you have over 20% equity within your home. However, FHA insurance is unable to be canceled unless loans were obtained prior to June of 2013. Basically, you will have to refinance or pay the loan off to eliminate that cost.

Loan Choice: You will have limited choices when getting a FHA loan. For many borrowers, there is a 15 year or 30 year fixed loan which is great, so there isn’t a problem. But, there are situations when an interest only mortgage or adjustable loan is much better. Don’t just use them to lower your payment, make sure you have a bigger plan.

Property Limitations: Getting a FHA loan approved means that the property meets certain standards. For instance, basic safety and health requirements are met. If you are looking for a fixer upper, a good bargain, or a foreclosure, the FHA loan won’t work. For the properties that are move in ready, a FHA loan will work. But if you are buying a condo it could be challenging. If there aren’t enough units in the building that are owner occupied or there are other issues, a FHA loan may not work.

Qualifying: FHA loans may not always get approved. You will still need a minimum credit score, and need documents that state you have plenty of income to repay the loan. For qualifying for the lowest possible downpayment, you’re going to need a 580 or higher on your FICO score. However, you may get approval with a score under 580 if you can provide a higher down payment.

Seller Hesitation: There are some situations that FHA loans could be a disadvantage when you are buying a home. Sellers want to know about their potential buyers, and a FHA loan doesn’t say strength. What is more is that the seller may fear that the extra requirements are going to slow down the deal. If you are purchasing in a hot market, then try a different financing form.

Alternative Loan Sources

FHA loans aren’t the only way to get the house you need.  Banks will work with people with good credit, hard money lenders work with fix & flip investors and home buyers with challenged credit, and military personnel are many times able to secure VA loans.  Choosing the right solution for your situation helps ensure that you get the home you need.

Bank Loans

A standard home loan that isn’t backed by FHA may solve most of the issues above. Even if you think you won’t be approved, it is worth trying for a conventional loan so that you can see what is out there. A conventional loan will let you have more flexibility, potentially purchasing a home with a 5%-10% down payment.

Hard Money Home Loans

If an FHA loan isn’t right for you; a Hard Money Loan might be the best way to get the house you need.  Hard money lenders can loan to borrowers that have bad credit, no credit, and a wide variety of other credit challenges which prevent them from getting conventional loans or FHA loans.  In fact with hard money lending you can qualify for a zero money down home loan with cross collateral. Read more about: How to quality for a hard money loan.

Military VA Loans

If you’re a member of the armed forces you might be eligible for a VA Loan for your home.  This is a great opportunity provides to veterans to purchase houses through a government funded service.  Interest rates are low and many times they work with challenged credit situations. Click here: For more information on VA Loans.

 Phoenix Valley Hard Money Lender

If you are looking for a hard money lender in the Phoenix Valley, Brad Loans is your source for the loan you need.  We can help you purchase a home to live in, or we can help you fund a real estate investment opportunity such as fix and flip properties.  We work with people with bad credit, no credit, and can overcome many of the roadblocks that standard FHA loans and traditional bank loans have.  For more information about how Brad Loans can help you get the money you need please call us at 602-999-9499 or fill out our hard money loan application.

Bridge loans are short-term loans used to bridge the gap between the purchase of a new property and the sale of an existing property. These loans are typically repaid once the existing property is sold or through long-term financing. Here’s a basic calculation for a bridge loan:

1. Determine the Amount Needed: Calculate the total amount needed to purchase the new property, including the purchase price, closing costs, and any renovation or repair costs.
2. Estimate the Sale Proceeds: Estimate the expected proceeds from the sale of your existing property. This can be based on the anticipated sale price minus any outstanding mortgage balance and selling expenses (e.g., real estate agent commissions, closing costs).
3. Calculate the Bridge Loan Amount: The bridge loan amount is the difference between the total amount needed to purchase the new property and the estimated sale proceeds from the existing property.Bridge Loan Amount = Total Amount Needed – Estimated Sale Proceeds
4. Determine Interest Rate and Term: Bridge loans typically have higher interest rates than traditional mortgages and shorter terms, often ranging from a few months to a year or more. Contact lenders to obtain quotes for interest rates and loan terms.
5. Calculate Interest Payments: Use the interest rate and loan term to calculate the monthly interest payments on the bridge loan. Keep in mind that some bridge loans may require interest-only payments during the term, with the principal due in a lump sum at the end.Monthly Interest Payment = Bridge Loan Amount × Monthly Interest Rate
6. Assess Feasibility: Evaluate whether the monthly interest payments are feasible within your budget, considering your current income, expenses, and cash flow. Be sure to account for any potential delays in selling your existing property or unexpected expenses.
7. Consider Risks: Bridge loans can be risky, as they often come with higher interest rates and fees. Be aware of the potential consequences of defaulting on the loan or not being able to sell your existing property within the expected timeframe.

Read on to learn more about calculating the cost of a bridge loan.

Rates will actually vary between lenders, but below is an average estimate for a bridge loan. The interest rate will fluctuate, but for this instance, we will use 8.5%. These types of bridge loans will not have payments for 4 months, but interest will build up and be due whenever the loan has been paid based on the sale of the old property. Below are sample fees:

• Title policy fee: $450 or more
• Recording fee: $65
• Notary fee: $40
• Escrow fee: $450
• Drawing/wire/courier fee: $75
• Appraisal fee: $475
• Administration fee: $850

Additionally, there will be a loan origination fee for the bridge loan that is based on the loan amount. Each point will be equal to 1%. Below are the average fees and they will vary.

• $100,000 – $150,000 = 0.75 point
• $150,000 – $250,000 = 1 point
• $25,000 – $100,000 = 0.50 point

Bridge Loans In Arizona

If you are looking for bridge loans in Arizona, Brad Loans by eMortgage can help. We offer bridge loans, hard money loans and fix and flip loans in Phoenix, Arizona and the sourounding cities.