In my last post, I discussed what a conventional loan is. But for many customers who do not qualify for a conventional mortgage, or who do not want to put as much money down on a house, going with an FHA mortgage might make more sense.

An FHA loan is a government backed loan with lower credit requirements, lower down payment requirements, and lower debt to income requirements. So, these loans are excellent for many first time home buyers who have not yet established the credit to qualify for a traditional mortgage or who have not saved up a tremendous amount for a down payment. In addition, there are very lenient rules around gifts for down payment. This means that if you have a friend or relative who will be giving you money to help you buy your home, an FHA loan might be best for you, as there are much less stringent requirements surrounding the actual gift, and much less documentation, as well.

FHA loans only require 3.5% down, which certainly helps keep out of pocket expenses down. But their major drawback is the associated fees. While conventional loans have mortgage insurance on loans with less than 20% down, FHA loans will have mortgage insurance no matter how much you put down. The mortgage insurance on an FHA loan is also generally more expensive than on a conventional loan, and there is an upfront mortgage insurance charge on FHA loans that is not always present on conventional loans.

As you can see, there are many benefits to an FHA loan, but they are certainly not right for every borrower. To find out if an FHA loan makes sense for you, contact us and we will help you make an informed decision on what makes the most sense for you. And if you have any general questions or anything to add about FHA loans, please leave a comment.