Home Buying in Seattle>Question Details

Emilia, Home Buyer in Princeton, NJ

Is an FHA loan good? what are pros/cons?

Asked by Emilia, Princeton, NJ Mon Jul 9, 2012

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FHA is a good loan, however in todays competitive market there are some times when it has limitations. From the consumer stand point its good because you only have to come up with a 3.5% down payment which makes it easier to get into your house. Recently I have had several buyers fall in love with a house only to find its an investor flip. FHA has a 90 day restriction, meaning you cant use it to finance a home that has been owned less than 90 days. Other issues in the current market include appraisals but this is true of any type of financing. Since the market is rising so fast, appraisals keep coming back lower than the offers you have to put in to secure the contract. Ultimately any approved loan is a good loan if your realtor can steer you towards the right property. Good luck and happy house hunting!
1 vote Thank Flag Link Mon Jul 9, 2012
FHA is a great loan with low down payment (3.5%). The only negative is that PMI (private mortgage
insurance remains thoughout the life of the loan. If you have 20% or more down and closing costs
(the seller may also agree to pay these about 2%) PMI will not be required. You have to weigh the
additional monies down versus the monthly PMI payment. How long you will remain in the property
is the deciding factor.
Mary
0 votes Thank Flag Link Mon Jul 9, 2012
Today, with tighter lending guidelines, the FHA loan is enjoying renewed popularity. FHA loans are government-regulated, so an FHA loan is the same whether you're buying a home in California or Connecticut.

FHA loans are designed for those with less-than-perfect credit. FHA loans have a low down payment requirement which is particularly attractive. The interest rate is competitive, and FHA allows the seller to pay some of the borrower's closing costs.

You will pay mortgage insurance on an FHA loan, but you will likely pay mortgage insurance on any loan you obtain unless you're making a down payment of 20%, or more.

As a side benefit, an FHA loan is assumable by the future buyer of your home.

There are more pros, than cons when it comes to an FHA loan.

Good luck.
0 votes Thank Flag Link Mon Jul 9, 2012
Kary is 100% right on the money on the point about it being assumable in the future. Back in the 90's, when rates were going up-up-up, those low interest VA and FHA assumable loans were making homes fly off the shelf rather than other homes with their current interest rates which were higher. You need a larger down payment to assume them, but people that have it, and want a loan with 3.5% when the interest rate is 6-9%, will bend over backwards to buy your house in the future when rates are up again.
0 votes Thank Flag Link Mon Jul 9, 2012
There are some good points to an FHA loan.

1. Low down payment.
2. The loan is assumable when you sell.

If and when interest rates head higher, the second point will be important.

But it really depends on your particular situation. As an example, VA loans are most likely better deals for disable vets.
0 votes Thank Flag Link Mon Jul 9, 2012
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