Published on April 11th, 2014 | by Ian


Advantages And Disadvantages Of An FHA Loan

If you are finding that you are having a difficult time being approved for a traditional home mortgage loan you might find that an FHA loan is your best option.  What this type of loan is when the Federal Housing Administration (FHA) insures a mortgage loan so that borrowers who are low income borrowers still have the option of being eligible for a home loan.  What this program does is that it offers a insurance to the lenders and lowers their risk of loss and at the same time lowers the interest rates and up front costs for the home purchasers.  However you will find that there are both advantages and disadvantages to this type of loan program.

Advantages To An FHA Loan

When you start to check into a FHA loan as an option you will find that there are many advantages.  One of the best advantages that stick out is that of the very low interest rate.  You will find that the interest rate is much lower than that of the traditional mortgage loan with is based on the sub prime rate.  This can help you to save thousands of dollars throughout the life of the loan.

Another popular advantage is that you are not required to have a down payment in order to be approved for the mortgage loan.  When you are applying for a mortgage loan it can often be difficult to find the money for a down payment and if you can gather the money the amount you can be approved for is often much less than that of an FHA loan.  However there are still times where you will be required to have a down payment.  In this case it will only be around three percent compared to ten percent on a traditional bad credit personal loan.

You will also find that the fees that are often charged by mortgage companies are much less and cannot go over one percent of the total mortgage amount.  However there are many loan companies that will try to charge you too much on these fees so you do need to be careful.

Disadvantages Of An FHA Loan

If you are interested in an FHA loan you should not only be aware of the advantages but the disadvantages as well and these can have the soon to be homeowner making a bad loan decision.  One of these disadvantages is that the Federal Housing Administration sets limits on the amount of incomes you can have in order to qualify for this type of loan.  The reason behind this is to be sure that families who make more than the approved amount of income do not abuse the loan.

Another disadvantage that some people dislike is the fact that if you have an FHA loan you will need to reside in the home for the life of the loan.  This means that you are not able to own the home and rent it to someone else.  If you are looking for an investment property this is not the loan for you.


If you and your family are trying to get into a new home but you do not have a lot of money to put down as a deposit you might be in luck with an FHA loan.  It is recommended that you check with a loan provider and if you have any questions ask them before the loan process starts.

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