The Pros and Cons of a FHA Home Loan, Explained


Did you know that 27 million people in the United States plan on purchasing a new home in the next 12 months? One of the most popular types of loans that aspiring homeowners use to finance their new home is an FHA loan.

FHA loans make it much easier for people who wish to purchase a home but have a difficult path to that due to their circumstances. It is especially valuable to people who are looking to purchase their first home.

But what are the pros and cons of an FHA loan? And what are the FHA loan requirements that you need to meet in order to qualify? There are many benefits that you’ll get from using an FHA loan.

Continue reading to learn more about the pros of an FHA loan as well as the drawbacks of financing your new home with an FHA loan.

What Is an FHA Loan?

An FHA loan is a loan designed as a way to make purchasing and owning a home more affordable to everyone. It is especially great for helping people who are in a less than ideal situation.

It is also a great option for first-time homebuyers that haven’t had an opportunity to save up for the down payment for a home. When you choose to finance your home, there are two different types of loans: an FHA loan vs. conventional loan.

Conventional mortgages are not backed by the government. They are more difficult to get approved for than a government-backed loan or mortgage. Conventional mortgages require as little as 3 percent for the down payment. 

In order to get a conventional mortgage loan, you’ll need a credit score of 620 and a 36% debt-to-income ratio. If you don’t meet these criteria then you will not qualify.

The other type of loan is the government-backed loan. The FHA loan is a government-backed loan and is guaranteed by the Federal Housing Administration. 

If you take out an FHA loan and end up defaulting on it, the FHA will offer your lender compensation for the loan. While the FHA will back your loan, you don’t get the loan through them.

You get your FHA loan through your normal mortgage lender, like the kind people at Farmers Bank, which you can visit at

FHA loans require a 3.5 percent down payment, a 580 credit score, and a debt-to-income ratio of 43 percent. You can apply with a credit score as low as 500 but you’ll need 10 percent for the down payment if that is the case.

The Pros and Cons of an FHA Loan

FHA loans hold a high degree of popularity with first-time homebuyers that don’t have a large reserve of cash saved up for the down payment. While that sounds great, there are also cons of an FHA loan that you need to consider.

Here is a closer look at the pros and cons of an FHA loan.

Pros of an FHA Loan

One of the biggest pros of getting an FHA loan is that there is a very low down payment. FHA loans require a credit score of 580 and a down payment of only 3.5 percent. This is much lower than that of conventional loans.

Best of all, friends, family members, and employers can contribute gifts and money towards your FHA loan down payment. Most conventional loans don’t allow gifts and funds for a down payment on a home loan.

You can also still qualify for an FHA loan even if you have a poor credit score and a history of foreclosure with previous homes. As long as your credit score is higher than 500 and you can put 10 percent of the cost of the home into the down payment.

You’ll also still qualify even if your income-to-debt ratio is high. You’re eligible for an FHA loan as long as your income-to-debt ratio is below 43 percent. 

FHA loans are also great because of their versatility. You can use an FHA loan with multiple types of housing. Whether you’re purchasing a single-family home, a multifamily home with as many as four units, or even a condominium you can use an FHA loan.

It is also great because FHA loans don’t have income limits. People who earn a high income but have credit issues can qualify for an FHA loan with the minimum down payment. 

Another great perk of an FHA loan is that you’ll have cheaper mortgage insurance payments no matter what your credit score is. Conventional loans charge you more for insurance the worse your credit score is.

Cons of an FHA Loan

There are still insurance premiums with FHA loans, even if they are cheaper. The insurance cost is 1.75 percent of what your loan closes at. You’ll also pay a premium on that insurance that is 0.45 percent to 1.05 percent of your mortgage.

The minimum down payment is also an obstacle for some people that wish to purchase a home. There are other avenues that will help you navigate that through government help, such as the USDA loan. This could help you avoid paying a down payment at all.

You also should know that there are borrowing limits when you choose to get an FHA loan. It restricts you from borrowing more than a certain amount which could be an obstacle in the way of purchasing the home you’re set on getting.

Additionally, there are property standards to be considered. If there are significant safety issues with the home you want to purchase you won’t be approved for an FHA loan. This is especially tricky if you’ve found a fixer-upper home that you’re excited about.

Start the Process of Buying Your Dream Home

There are many pros and cons of an FHA loan that you should be aware of, but it provides a great opportunity and avenue to people of all financial circumstances to get the home they’ve dreamed of.

They help people with less than ideal financial circumstances get financing for a home without draining all of their funds. It is also an ideal way to finance a home for first-time homebuyers.

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