Pro's and Con's of FHA Mortgage Loans

Pros:

• Credit flexibility: You may be eligible if you have some blemishes on your credit report. If your credit score is lower than 600, you may not qualify for a conventional loan but could qualify for an FHA loan.
• Low down payment: You can still purchase a home if you have a small down payment—around 3.5% is all you’ll need.
• Higher debt ratios: If your mortgage payments account for a large portion of your paycheck, you could be eligible to spend up to 57% of your total income on monthly debt obligations; such as your mortgage, auto loans, child support, and credit card payments.
• Assumable loans: If you sell your home, a new buyer could assume your loan, making rising interest rates less of a concern.

Cons:

• Mortgage insurance: You’ll need to pay mortgage insurance if your down payment is less than 10%. Because FHA loans are considered risky, mortgage insurers want both an upfront and a monthly premium for any portion of your mortgage exceeding 80% of your new home’s value.
• Fees: 1.75% of the loan amount is due at closing, along with an annual fee, around 0.8%. If your financial situation improves or if you build equity in your home, the only way to eliminate these fees is to refinance your loan.
• Property standards: If you’re looking to purchase a home that’s considered a “fixer-upper,” the FHA has minimum standards, and you may have a difficult time getting a loan.
• Lending limits: There are loan limits for each county. While these change annually, the baseline "floor" for lower-cost markets in Washington is $541,287, while high-cost areas go up to $1,063,750. This makes FHA loans highly accessible across a variety of price points.