What are the advantages and disadvantages of a FHA home loan?

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2 comments to What are the advantages and disadvantages of a FHA home loan?

  • Ryan M  says:

    Advantages: only 3.5% required as a down payment. Only a 620 credit score is required.
    Disadvantages: Higher interest rates, higher fees due to lack of PMI, the house itself MUST be approved by the FHA, subject to income restrictions, MUCH more red tape involved in the process, and the lack of a down payment can make you upside-down in your loan in a matter of a month or two.

  • godged  says:

    FHA is one of the few loans that accepts a very low down payment (VA and USDA still offer zero down loans, FHA requires at least 3.5% down payment).

    The big disadvantage on FHA is the appraisal. There is an inspection component to the appraisal (some people will tell you that FHA doesn’t require an inspection, and technically it doesn’t, but the appraisal includes some inspection criteria). And it can be a bugger to get through. Most items are considered health and safety items, which on its face is a good thing. Examples: If the home was built prior to 1978 and there is any peeling paint, it must be repainted where the paint is peeling. I had an FHA inspector flag a section of picket fence for peeling paint because the fence attached to the house. Another inspector flagged the garage door opener safety eye as too high. OK…. Yet another flagged a backyard because there was a low spot near the house and precipitation may not drain away from the house properly. That one cost the seller $500 and a soil engineers report to get the loan to go through. (It wasn’t an issue according to the engineer, btw)

    Another disadvantage is the timeline, anything involving a government loan moves at the speed of government, which is somewhere being snail and inanimate object in most cases. I won’t write an FHA purchase contract for less than 45 days, and in most cases, we are cutting it close.

    But if you ride out the bumps, it is a good alternative for financing with low down.

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