Pro’s and Con’s of FHA Loans

Many buyers think that an FHA loan should only be used as a last resort. Indeed, more often than not conventional loans are the way to go over FHA (which stands for Federal Housing Administration) loans. However, if you’re only able to put 3% or 3.5% cash down on a property, an FHA loan could make more sense for you. Home prices in the DC area have skyrocketed in the last few years, and with that comes more difficulty on the part of buyers to put a greater percentage down on a property. What exactly are the pro’s and con’s of FHA loans? Well, that’s exactly what we’re here to tell you:

Pro’s:

1. The buyer only has to put down 3.5% of the total sales price on a property.

2. 100% of the down payment can be a gift from a family member, friend, or anyone else.

3. The interest rates are actually lower than those associated with a conventional loan.

4. You can get a loan up to $625,500 (more than the average home price in DC), or even more if it’s a multi-unit property.

5. FHA loans require a higher debt-to-income ratio which allows you to qualify for more.

6. Your credit score can be as low as 580 to qualify.

7. Cosigners of the loan can be non-occupants of the property you are purchasing.

8. The lender can give the buyer back a large lender credit to include half or more of the closing costs.

9. The monthly mortgage insurance can often be less on an FHA loan.

10. It’s easier to qualify for than a conventional loan.

Con’s

1. Condos have to be FHA approved, and not all are. To find out, click here: https://entp.hud.gov/idapp/html/condlook.cfm

2. The buyer has to pay mortgage insurance for the entire life of the loan.

3. The mortgage insurance up front is more expensive than with a conventional loan.

4. When it comes to the appraisal, properties have to be free of safety defects/hazards to qualify the buyer for an FHA loan.

5. Although not always true, many agents feel that FHA loans are riskier in terms of financing and may not compete with conventional loans.