FHA loans in Texas have opened the housing market to many more prospective homeowners. They put dreams of homeownership within reach of more citizens by drastically lowering payment requirements and minimizing closing costs. As wonderful as this program is, however, it does have a drawback, and that drawback is monthly PMI (Private Mortgage Insurance). It’s this recurring cost that drives many homeowners to refinance through convention loans.
Differences in Initial Costs
Most new homeowners who choose FHA or VA loans do so to avoid large down payments and closing costs. This system has enabled far more people to buy homes, and it’s a very effective way to purchase a new home. After all, it’s incredibly difficult for a new home buyer to save up even ten or twenty thousand dollars to make a deposit on a small, cheap property. FHA loans in Texas allow potential buyers to build equity over time with a larger loan that covers these initial expenses.
Conventional loans require large down payments that very few potential buyers can afford. This is particularly true for young, first-time buyers. Conventional loans come with higher closing costs, too, which require money the buyer could otherwise have used to build equity. Since FHA loans have low closing costs, they allow buyers to get a jumpstart on equity building. Between the two types of loans, it’s easy to see why so many buyers choose FHA loans to purchase houses.
Differences in PMI
Most problems with FHA loans in Texas begin once the borrower realizes they cannot get rid of PMI (Private Mortgage Insurance). This monthly charge depends on the size of the down payment, the size of the loan, the borrower’s credit, and more. Large or small, however, it’s always a frustrating cost that does nothing to build equity.
PMI protects lenders from potential defaults and failure to make payments. It is essentially a safety net that allows lenders to offer options like FHA loans in Texas to borrowers who would not qualify for conventional loans. It makes a risky loan much more appealing to the lender. So, they are willing to offer more of them. However, FHA and VA lenders cannot waive PMI fees. It doesn’t matter if borrowers have a proven track record of successful, timely payments.
Conventional loans allow borrowers to essentially grow out of these monthly dues. In fact, the law requires conventional lenders to send borrowers written notice when they are able to opt out of PMI. If the borrower chooses, they can continue paying it, but very few do. Most would rather use that money to pay off their loan faster. This scenario leads many FHA borrowers to refinance with a conventional loan once they are able.
There’s nothing wrong with using the complex mortgage market to your best advantage. The lenders will get their dues one way or another, but there’s no reason to pay PMI if you don’t have to. FHA loans are a great way to get a home. Refinancing with conventional loans may allow you to build equity faster.