For those of you just joining us, this is the second article in a series on the pros and cons of an FHA loan. Click here to read the first post.
The Disadvantages of an FHA Loan
One of the disadvantages of getting an FHA loan is the loan amount limits that the FHA sets. Depending on which part of the country and which county you live in, property values vary, and property values determine how much you can borrow.
Another disadvantage is the long processing time. It often takes longer to qualify for FHA loans as opposed to conventional loans.
The FHA also sets minimum guidelines regulating the physical condition of a property. This means that if a property doesn’t meet these requirements, a seller is forced to make certain repairs before the property changes hands. Many sellers simply don’t want to spend the money to make extra repairs to a home they are selling. Therefore, given the choice between accepting an offer that has an FHA loan compared to a similar offer that has a conventional loan, a seller will often choose to accept the conventional financing offer.
Finally, another disadvantage is that you have to pay the mortgage insurance premium for the life of the loan. This is different from conventional loans, which allow you to stop paying mortgage insurance once you achieve a certain amount of equity.
Other features of FHA Loans
When getting qualified for FHA financing, remember that you must be the primary resident of the home. This means you are not allowed to purchase the home as an investment property. Dwellings that qualify include one to four unit residential properties. Included in your monthly mortgage payment are hazard insurance, MIP (if you’ve chosen to finance it), and 1/12 of the yearly property tax bill.