The Federal Housing Administration (“FHA”) provides mortgage insurance on loans made by FHA-approved lenders throughout the United States. This insurance reduces the risk to the lenders because the FHA will pay in the case of a loan default. In turn, lenders are willing to offer loans with a low down payment. The required down payment on FHA loan is only 3.5% if you have a credit score of 580 or higher. However, be aware that this is the minimum credit score required by FHA but an individual lender providing the FHA loans may require a higher score.
FHA Loan Pros:
- Easier to qualify than conventional loan
- Low down payment
- Loan can be assumed by the buyer when you sell your house if they meet the credit and income requirements. This can be attractive to buyers, and therefore a benefit when selling, if your FHA mortgage has a lower interest rate than the current mortgage rates at the time of sale.
FHA Loan Cons:
- The FHA mortgage insurance premiums (MIP) are often more expensive than the private mortgage insurance (PMI) on conventional loans.
- Unlike with conventional loans, based on the amount of your down payment, with an FHA loan you may be required to continue to pay monthly mortgage insurance premiums for the life of the loan – even after you have built up substantial equity in the home.
- There is an up-front mortgage insurance premium of 1.75% of the amount of the loan.
- Relatively low FHA loan limits means FHA loans are not an option for higher priced homes. Currently in Brevard County the maximum FHA mortgage you can get on a single-family residence is $356,362.