Pros and Cons of Going FHA

What is an FHA Loan?

Before delving into the Pros and Cons of going FHA, it is imperative to understand fully what the FHA is. The FHA was created in the early 1930’s during the Great Depression by the National Housing Act of 1934. During the depression, foreclosures and defaults spiked tremendously therefore it was designed primarily to increase home production and reduce unemployment, and is in charge of numerous programs to promote home ownership. The FHA does not make loans; FHA loans are insured loans made by private lenders obtained with the help of the FHA and are backed by the United States Government. FHA insured loans allow lower income Americans to borrow money that they otherwise would have to purchase a home. With a small down payment, buyers can purchase a home. Although FHA loans make it easier for people to qualify for a mortgage, they’re not for everybody.

The Pros of Going with FHA Financing

Typically almost anybody can get an FHA loan and makes home ownership a reality to many buyers, especially in today’s economy. Here’s why:

• Credit does not have to be stellar
• Flexible income guidelines
• No prepayment penalties
• Allow to purchase with a small down payment as small as 3.5%, when other lenders require higher down payments
• Up to 6% Seller Assistance
• Some programs offer no down payment
• Low closing costs
• May be assumable
• Leniency during financial hardship
• Fixed rate payments for 15 or 30 years
• Loans that cover fixer-upper purchases to include all repair/remodel costs
• Help for Seniors with reverse mortgage option
• Programs available for refinancing

The Cons of Going with FHA Financing
There are a few disadvantages to FHA loans, however:

• Credit must be established
• They are conservative loans; lower loan amounts which means you borrow less
• Strict mortgage insurance guidelines-have to pay private mortgage insurance called PMI
• Are designed for the longer-term home buyer and don’t have the variety that non-FHA loans have
• No down payment loans require borrows to have excellent credit and larger incomes
• Appraisal guidelines may be stringent
• Because FHA is backed by the US Government, it may take longer to process the loan as opposed to conventional mortgages

The bottom line is this: if you are looking for a mortgage with a low or no down payment or if your credit is not up-to-par then an FHA loan is most likely the way to go. If you have exceptional credit and a larger down payment, then a conforming loan would not be your best option. Whatever the case may be and most importantly, educate yourself to find out the best program that will suit you. After all, buying a home is the largest and most significant purchase you will make in your lifetime.