FHA loans can be good financing options for homebuyers interested in acquiring condos, penthouses, or lofts in downtown San Diego. As of April 2018, the maximum FHA loan amount for properties in San Diego County was just below $650K, which is higher than the median home price in this regional market. There are pros and cons associated with FHA loans. While this mortgage program has greatly contributed to increasing the rate of homeownership across the United States, it may not be an ideal method of financing for all prospective homebuyers.
Here are a few advantages and disadvantages you should know about FHA loans, their terms, conditions, features, and processing times.
Lower Down Payments
A lower down payment is the most common reason homebuyers seek FHA loans. Ever since the crash of the housing and mortgage markets in 2008, the underwriting and qualifying standards of conventional mortgages have tightened up considerably. Many banks will only lend to homebuyers who can provide a 20 percent down payment. Even those who agree to finance a loan-to-value deal with a 10 percent down payment will likely seek to squeeze more points at closing, thereby making a condo acquisition more expensive. An FHA loan will allow you to purchase a property with as little as 3.5 percent down.
Even if your down payment is close to 20 percent, you will be expected to pay for mortgage insurance until you can refinance. For this reason, you may be better off with a conventional home loan if you are able to get a loan-to-value ratio of 80 percent. On the other hand, you can keep some of the down payment with an FHA loan and allocate it toward cash reserves since you will be expected to pay mortgage insurance anyway.
Qualification and Credit Evaluation
Conventional lenders like churning out home loans that are easy to close, which means they may give up on your mortgage application if they see a blemish on the credit report or if the title search returns an issue. FHA loan underwriters tend to be more flexible with credit evaluations, and they may suggest ways to clear title and credit issues so the loan process can move forward. Whereas a conventional lender may refuse to continue processing your loan application if your credit score is in the low 600s, FHA lenders will continue to work on the file.
Loan Processing Times
FHA loans take considerably longer to close than other types of loans, and this could be an issue in a sellers’ market such as downtown San Diego. You can get an FHA preapproval you can show to the seller when you enter your bid. However, the listing agent may warn his or her client that getting the FHA loan certificate could take longer than expected due to the detailed inspections and appraisals required.
In addition to the type of loan you acquire, there are many other things to consider when purchasing San Diego real estate. Downtown properties aren’t always on the market for long, so you need to make sure you work with a local real estate agent with the inside information you need on the latest listings. Get in touch with 92101 Urban Living today to speak with one of our trusted agents.