FHASTREAMLINEMORTGAGE.COM LENDER HOTLINE: 888-581-5008 FHA loans are like a doubled edged sword: there are good sides and there are bad sides. The good helps you get into the home you want without breaking the bank; the bad leaves you with quite a hefty monthly payment and limitations on where you can purchase a home. First time homebuyers and those that are trying to recover from the housing crisis are great candidates for this loan. The others can determine whether or not it is right for them by determining their ability to put enough money down and what their credit history looks like. The Good Side of the FHA Loans- FHA loans have a lot of positives. They let people get into homes that would they would otherwise be unable to get into. Even with the new 97% LTV Fannie Mae loan there are difficulties with purchasing a home for many people. With a risky conventional loan you need to have great credit. This is not the case for many people. So even though the option is there to put down 3% on a home, if you don’t have the stable income and great credit to back it up, you will not get a conventional loan. FHA loans, on the other hand, provide borrowers with the ability to put down just 3% and not have to worry about having stellar credit. Yes, the FHA still wants decent credit, but they are more forgiving. They are also a little more flexible when it comes to debt-ratios and income stability and they allow all of the funds needed for the down payment or closing to be a gift. This is likely due to the fact that they are backed by the government, so they can take on riskier loans. If you were to default, the lender is still going to get paid. The other positives about the FHA loan include the ability for the seller to pay the closing costs. On a conventional loan, this is allowed, but only a small percentage of the closing costs can come from the seller; the rest must come from your own funds. Last, but not least, you can have a non-occupying co-signor. This is great news for borrowers that have poor credit yet have someone that is willing to co-sign for them. This borrower will be on the loan, but can be refinanced off down the road when you are better able to qualify for a loan on your own. The Bad Side of FHA Loans- So what could be bad about a loan that offers such a low down payment and flexible guidelines? One fact: you have to pay extensive insurance fees in order to have this loan that is backed by the government. The fees are paid both upfront and on a monthly basis. Upfront, you will pay 1.75% of the loan amount. On a $200,000 that is $3,500 in addition to the 3.5% of the loan amount that you must put down on the loan. On an annual basis, you will also pay 0.85% of the loan balance, which is divvied up over a 12-month period. Over the life of a 30-year loan, that adds up to a large amount of money paid just to insurance.

1. Taking the Good
with the Bad with
FHA LoansFHASTREAMLINEMORTGAGE.COM
FHASTREAMLINEMORTGAGE.COM
LENDER HOTLINE: 888-581-5008

2. FHA loans are like a doubled edged sword: there are
good sides and there are bad sides. The good helps
you get into the home you want without breaking the
bank; the bad leaves you with quite a hefty monthly
payment and limitations on where you can purchase
a home. First time homebuyers and those that are
trying to recover from the housing crisis are great
candidates for this loan. The others can determine
whether or not it is right for them by determining
their ability to put enough money down and what
their credit history looks like.
FHASTREAMLINEMORTGAGE.COM
LENDER HOTLINE: 888-581-5008

3. The Good Side of the FHA Loans
FHA loans have a lot of positives. They let people get into
homes that would they would otherwise be unable to get
into. Even with the new 97% LTV Fannie Mae loan there
are difficulties with purchasing a home for many people.
With a risky conventional loan you need to have great
credit. This is not the case for many people. So even
though the option is there to put down 3% on a home, if
you don’t have the stable income and great credit to back
it up, you will not get a conventional loan. FHA loans, on
the other hand, provide borrowers with the ability to put
down just 3% and not have to worry about having stellar
credit. Yes, the FHA still wants decent credit, but they are
more forgiving.
FHASTREAMLINEMORTGAGE.COM
LENDER HOTLINE: 888-581-5008

4. They are also a little more flexible when it comes to debt-ratios
and income stability and they allow all of the funds needed for
the down payment or closing to be a gift. This is likely due to
the fact that they are backed by the government, so they can
take on riskier loans. If you were to default, the lender is still
going to get paid. The other positives about the FHA loan
include the ability for the seller to pay the closing costs. On a
conventional loan, this is allowed, but only a small percentage
of the closing costs can come from the seller; the rest must
come from your own funds. Last, but not least, you can have a
non-occupying co-signor. This is great news for borrowers that
have poor credit yet have someone that is willing to co-sign for
them. This borrower will be on the loan, but can be refinanced
off down the road when you are better able to qualify for a loan
on your own.
FHASTREAMLINEMORTGAGE.COM
LENDER HOTLINE: 888-581-5008

5. The Bad Side of FHA Loans
So what could be bad about a loan that offers such a low
down payment and flexible guidelines? One fact: you have to
pay extensive insurance fees in order to have this loan that is
backed by the government. The fees are paid both upfront
and on a monthly basis. Upfront, you will pay 1.75% of the
loan amount. On a $200,000 that is $3,500 in addition to the
3.5% of the loan amount that you must put down on the loan.
On an annual basis, you will also pay 0.85% of the loan
balance, which is divvied up over a 12-month period. Over the
life of a 30-year loan, that adds up to a large amount of
money paid just to insurance. Of course, once you hit 78%
LTV, the insurance has to be canceled by law, but it takes a
long time to get to that LTV when you put such a little
amount of money down.
FHASTREAMLINEMORTGAGE.COM
LENDER HOTLINE: 888-581-5008

6. In addition, FHA loans limit the maximum loan amount
that you are able to get. The maximum amount
depends on the area you live in; every county is
different. The FHA determines the maximums for
each area, depending on the average home price and
the need in that area. If you need more than the
maximum FHA loan for that area, you will have to find
a different method for financing.
FHASTREAMLINEMORTGAGE.COM
LENDER HOTLINE: 888-581-5008

7. You will have to take the good with the bad when
you are trying to determine whether or not to take
an FHA loan. In general, if you qualify for
conventional financing, it might be a better choice,
however you will have to pay PMI insurance if you
do not put at least 20% down, which should be
considered when you are trying to determine the
right loan for you.
FHASTREAMLINEMORTGAGE.COM
LENDER HOTLINE: 888-581-5008

8. T O L E A R N M O R E
FHASTREAMLINEMORTGAGE.COM
LENDER HOTLINE: 888-581-5008
C L IC K HE R E
FHASTREAMLINEMORTGAGE.COM
LENDER HOTLINE: 888-581-5008

9. Justin McHood is Americas Mortgage
Commentator and has been providing
Mortgage commentary for over 10 years.
INFORMATION PROVIDED BY:
JUSTIN MCHOOD
MORTGAGE COMMENTATOR
FHASTREAMLINEMORTGAGE.COM
LENDER HOTLINE: 888-581-5008

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MORTGAGECOMMENTATOR.COM
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