What's wrong with FHA loans?

I'm on my 2nd one. I don't see an issue. It allows for a smaller downpayment and a lower rate. You do have the PMI that you'll have to pay until you get 20% equity in the house (I think). Other than that, there's no real downside that I can think of as long as it's a fixed rate.

 

I have no idea why your family members would say FHA loans are bad. For a first time home buyer its the way to go.

What is an FHA home loan?

An FHA home loan is still issued by a private financial provider, but it's insured by the Federal Housing Administration (FHA). Essentially, this provides the lender with greater security and you with lower monthly payments.

Why should I ask for an FHA loan instead of a conventional loan?

1. It's easier to qualify for an FHA loan. Because the mortgage is insured by the FHA and the U.S. Department of Housing and Urban Development, lenders are more likely to issue the loan.

2. You can still qualify with poor credit. Even with past credit problems like a bankruptcy, an FHA loan is easier to qualify for than a conventional mortgage.

3. A lower down payment. An FHA loan only asks for a 3% down payment, which is significantly lower than some banks' requirements of 10-20%.

4. The loan costs less in the long term than a conventional loan. Because the FHA can offer more competitive interest rates, you'll often receive lower rates which will save you a lot of money over the term of your loan.

5. FHA offers foreclosure protection. Unlike many lending institutions, the FHA doesn't want to see your mortgage foreclosed. So, they have a number of programs designed to help homeowners who are in trouble. This can be a great resource if you hit hard times.

6. Energy efficiency credits. The FHA allows prospective homeowners to include the cost of energy efficiency upgrades into their mortgage, meaning you can get extra cash to make your new home more energy efficient.

 

We used the USDA Rural Development loan program to purchase our first house and I haven't heard anything bad about it.

 

FHA is great in today's market ... And really about the only way to go for a low downpayment option.

In the previous 5 years FHA was bad and completely unused because there were so many other no-down low interest options that you could go with. Those type of loans no longer exist.

The drawback to FHA is the stringent requirements that the place you are purchasing must meet. If you are buying a bank owned REO like we did, it can be a real hassle because the bank will not fix anything. In our house the dishwasher, the garbage disposal, and some of the electrical stuff was broken and had to be fixed before our FHA loan would go through so we ended up fixing all of this stuff ourselves on a house that we did not even own yet. Can really be a risk.

 

Same thing with the USDA Rural Development Loan. We had to rebuild stairs going into our garage and fix the flashing on the chimney before we could close but we finally closed on Tuesday.