Property Q&A in Santa Maria>Question Details

Crisha, Home Buyer in Santa Maria, CA

What are the negative effects of a FHA loan?

Asked by Crisha, Santa Maria, CA Wed Feb 11, 2009

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This question is about this property: http://www.trulia.com/foreclosure/2003563228--Country-Ln-San…

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Hi Crisha, I'm not sure there are any negative effects either, considering how flexible the programs is. Here are the benefits:

1) 3.5% minimum Downpayment.
2) Up to a 6% Seller Credit allowed for buyer's closing costs and Seller concessions (non-FHA max is 3%).
3) FHA requires that identified safety/health issues be corrected.
4) FHA allows up to $8,000 in financed energy efficient upgrades without negatively affecting borrower's debt-to-income ratio.
5) Cash reserves not required.
6) Upfront Mortgage Insurance may be financed.
7) Non-occupying co-borrowers are allowed.
8) High and flexible qualifying ratios.
9) FHA loans are assumable.
10) No pre-payment penalties.
11) Will consider "compensating factors" in determining whether a loan should be granted.

Perhaps the only negative: While FHA only requires a 3.5% down payment this means you will be financing 96.5% of the sales price and you will have to pay Mortgage Insurance for a MINIMUM of 5 years, or until you have paid your original LOAN AMOUNT down to 78% (not that the loan amount is 80% of current market value, which is typical for non-FHA MI removal). This "78% or 5-year Rule" before Mortgage insurance can be terminated is covered here: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/fi…

Best Regards, Steve
0 votes Thank Flag Link Wed Feb 11, 2009
I'm not sure there is any. The house must meet certain requirements which is a good thing...

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0 votes Thank Flag Link Wed Feb 11, 2009
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