If I had a dollar for every-time someone said that they would never get an FHA loan or accept an offer (as a seller) from a buyer that had an FHA loan, I would be a millionaire. Seriously though, where do people get these opinions from? Typically, their parents, Real Estate Agents (sadly) and Financial Advisors, to name a few. Why would these people advise anyone to not get or accept an FHA loan? Put simply; because people have the wrong idea. My personal favorite misconception is that FHA stands for First Time Homebuyer. Close, but no cigar. FHA actually stands for the Federal Housing Administration.
Let's go straight to the source for some legitimate details. Wikipedia explains that “The FHA sets standards for construction and underwriting and insures loans made by banks and other private lenders for home building. The goals of this organization are to improve housing standards and conditions, provide an adequate home financing system through insurance of mortgage loans, and to stabilize the mortgage market.”
This type of loan program was created to help people become homeowners after the banking crisis that happened during and after the Great Depression in the 1930’s. The government created the Federal Housing Administration to insure the loans by regulating the rate and terms of the mortgages that it insured. These rules have somehow started to shed a negative light on a loan program that offers a pretty amazing opportunity to people: the ability to have a fighting chance to participate in the American dream: Home ownership.
Wilson Miller, a Mortgage Loan Originator with Planet Home Lending gave us some pros, cons + myths about the FHA Loan program:
Lower Interest Rates
Relaxed Credit Requirements
Low Down Payment, 3.5%
Small Reserve Fund Requirements
Increased allowance for Closing Cost Financing
Larger Debt to Income Ratios
Lower Credit Score liabilities
Fewer qualified properties
More strict appraisal guidelines
20% down is the best scenario
"Putting down all of you cash is not the safe or smart play. Yes, you may avoid mortgage insurance but most don’t understand that your monthly payment may not change or only change by a very small amount and at the same time draining your reserves. This money can be better spent with investments, furnishing your new home, landscaping or paying down other high consumer debts, food for thought.
Moral of the story- it is true that some sellers are wary of accepting offers from home buyers using FHA financing. Sometimes these reservations are passed along from the real estate listing agent. In some cases, there might be legitimate reason why a seller would not want to go with the FHA client. But more often than not, these concerns are unfounded and unnecessary. "
So is an FHA loan right for you? Its always good to know all of your options. Everyones situation is different. The best plan is to reach out and we would chat more and discuss your options with Wilson Miller to know for sure.
*Please don’t hesitate to reach out with any questions, comments or concerns you may have: firstname.lastname@example.org