When you compare FHA loans to Conventional loans, here are some pros & cons:

·         FHA loans require only 3.5 percent of the purchase price as a down payment — conventional loans now require at least 5 or 10 percent down (20% down to avoid mortgage insurance premiums).

·         Importantly, the FHA does not mind if your down-payment funds come from a gift, a city-funded down-payment assistance program, or even a charitable organization — most conventional lenders require the funds to be from your own personal savings.

·         FHA loans often offer very low interest rates compared with lower-down-payment conventional loan programs — the government-backed insurance minimizes the risk on the lender’s part, so they charge you less.

·         FHA loans have very reasonable credit qualifying guidelines — while your specific lender might look for a higher FICO score, the FHA itself has a minimum credit score requirement of 500 if you are putting less than 10 percent down. Realistically, though, most lenders are looking for at least a 620 credit score to obtain an FHA mortgage — and they look at the borrower with the lowest middle FICO score.

·         The FHA typically implements home saving programs for homeowners with FHA mortgages much sooner and more effectively than non-FHA loans, in the event they run into financial difficulties during the life of the mortgage.

However, here are some of the potential pitfalls that FHA borrowers have also experienced:

·         FHA loans — like most government programs — are quite paperwork-intensive, causing some mortgage professionals to charge more for FHA loans than conventional loans. However, many reputable mortgage brokers will do FHA loans for 1.5 points or even less, its always best to shop around. FHA appraisals can be slightly more expensive.

·         FHA loans place more restrictions on the condition of the property than conventional loans. All elements of the home must in working order.  Abandoned homes without power, water and heat source will not pass inspection. 

·         FHA loans allow legally married individuals to buy homes on their own, but still requires that their spouse’s credit and debt be taken into consideration in the qualifying process.  Whereas conventional financing will allow spouses to buy separately without consideration for the spouse’s financials.

Action Plan

1. Avoid letting others’ experiences create anxiety or confusion in your mortgage decision-making process.

2. Get a reputable mortgage broker — ideally by referral from your Real Estate agent or a trusted friend or family member – to give you a personalized assessment of your purchasing power and mortgage options.

3. Discuss the FHA pros and cons with your chosen mortgage broker.

About the Author | Janeese Jackson

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