Monday, June 24, 2019
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The Pros and Cons of FHA Loans

There are numerous benefits of FHA loans, which have significantly changed the realm of mortgage lending—particularly for first time homebuyers. While the pros outweigh the cons of this type of loan, here are some of the perks and drawbacks of Federal Housing and Administration loans.

Benefits of FHA Loans

  1. Relaxed Credit Requirements—FHA loans may be obtained with a credit score above 580, making them much easier to obtain after a foreclosure, bankruptcy or an excessive late payment history than conventional loans.
  2. Low Down Payments—FHA offers low down payments starting at 3.5 percent, and down payment funds and closing costs can be gifted to buyers, unlike traditional loans.
  3. Small Reserve Funds—It’s easier to qualify for FHA loans with minimal reserve funds such as one month. Their underwriting methods focus also on job security, income and employment history.
  4. Increased Allowance for Closing Cost Financing—While standard loans limit contributions towards closing costs to 3 percent, FHA will allow up to six percent, which is often enough to cover them. FHA also allows these costs to be rolled up into the loan.
  5. Larger Income to Debt Ratios—FHA allows for a more flexible debt to income ratio of 43 percent (or even higher in certain cases), while other lenders cap this around 36 percent.

FHA Drawbacks

  1. Mortgage Insurance—Unless buyers put more than 10 percent down, they will find themselves paying for mortgage insurance throughout the entirety of the loan period.
  2. Minimum Property Standards—Certain standards must be met for a home to be eligible for FHA loans, and various representatives may have their own ideas concerning what meets the criteria.
  3. Loan Limits—Loan limitations for FHA loans are somewhat lower than traditional loan programs.

If you need advice on a home loan or want more information about the benefits of FHA loans contact Mortgage Investors Group today.