Pros and Cons of FHA Loans

Posted by Nate Ward on Wednesday, July 5th, 2017 at 10:05am.

The pros and cons of the Federal Housing Administration (FHA) loan.

At times homebuying can get overwhelming, especially when it comes to loans. We’re here to make things easier for you by sharing the pros and cons of FHA loans.

FHA loans are government insured loans from the Federal Housing Administration. This means FHA guarantees your loan but doesn’t actually lend out the money. When you take out loans, they need to be with FHA approved lenders. Some benefits of FHA loans include less down payment required, more forgiving debt to income ratio and less restrictions on bankruptcy and foreclosure.

One of the main advantages of an FHA loan is that a very large down payment is unnecessary. Loans can be as low as 3.5 percent, which is great for newlyweds and other first-time homeowners. Also, FHA loans require low cash investments which is great for people who haven’t been able to save up for a home purchase.

Cons for FHA loans include mortgage insurance, minimum property standards and loan limits. The FHA promises the bank that it will cover your debts if you don’t pay. Mortgage insurance is a policy that protects lenders against losses that results from defaults on home mortgages.  There is a premium of approximately .55 percent of the loan amount that is paid monthly, at least for the first 5 years.

Minimum property standards, are standards that need to be met for homes to qualify for the loans. Be careful and mind the details—FHA appraisers get a set of guidelines but it’s up to them whether certain household items need to be prepared before you can close. The loan limits for the FHA loan is a lot lower than other loan programs. Two years ago, FHA capped funding for the D.C. area at $625,500.

No matter what you choose to do, we recommend reading and researching as much as you can on FHA loans and talking to your lender.

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