FHA Loan: Cons
Here are some FHA home loan disadvantages: An extra cost – an upfront mortgage insurance premium (MIP) of 2.25% of the loan's value. The MIP must either be paid in cash when you get the loan or rolled into the life of the loan. Home price qualifying maximums are set by FHA.
FHA is generally better for people who don't have as much cash in savings. Allows for smaller down payment with some caveats (insurance for the entire life of the loan). Conventional is better if you have more savings and therefore can put more money down.
One of the main advantages of FHA loans is the lower down payment requirement. With a credit score of 580 or higher, you could qualify for a down payment as low as 3.5%. Even with a credit score between 500 and 579, you might only need a 10% down payment.
Some reasons a seller might refuse an FHA loan include misconceptions about longer closing times, stricter property requirements, or the belief that FHA borrowers are riskier.
Common reasons for FHA loan denial include low credit scores, high debt-to-income ratios, insufficient income, insufficient funds for a down payment, and properties not meeting FHA guidelines.
FHA mortgage insurance will increase your payments and the overall cost of the loan, even if the base rate is lower than for other loan types.
FHA loans require borrowers to pay a mortgage insurance premium, which is usually much higher than private mortgage insurance on conventional loans. Conventional loans generally have lower interest rates than FHA loans and can be easier to qualify for because they don't have minimum credit score requirements.
Can I rent out my FHA home after the first year? Yes, after fulfilling the initial one-year occupancy requirement, you can rent out your FHA home. However, if you plan to purchase another property with an FHA loan, you will need to meet specific conditions and justifications for maintaining the original FHA loan.
FHA Rule 75 states that 75% of the rental income must exceed the monthly mortgage for the property to be self-sufficient. This percentage must be at least enough to cover the mortgage payment, known as PITI (Principal, Interest, Taxes, and Insurance.)
In summary, here's what we found: You need to make at least $54,000 per year to afford a $200,000 house. You need to make at least $81,000 per year to afford a $300,000 house. You need to make at least $109,000 per year to afford a $400,000 house.
Since your home must meet FHA property minimums, the appraisal process may include more requirements than a conventional home loan. The appraisal is required to be performed by an FHA approved appraiser and may have additional inspections which could result in a higher appraisal cost.
The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.
FHA Mortgage Rate Predictions for 2024
The National Association of Realtors takes a less conservative approach, predicting rates could fall as low as 6.1% in 2024.
Reduce your loan term
Making the equivalent of two extra mortgage payments per year, for example, will knock off 9 years and 4 months from the total term of your loan. A shorter mortgage term also means that you'll own your house outright sooner.
For instance, the minimum required down payment for an FHA loan is only 3.5% of the purchase price.
Are there income limits for an FHA mortgage? There's also no maximum income requirement for an FHA loan, so you don't have to worry about earning too much to qualify. These loans are ideal for those who want a lower down payment, and for those with lower credit scores.
In general, it's easier to qualify for an FHA loan than for a conventional loan, which is a mortgage that isn't insured or guaranteed by the federal government. Here are some key differences between FHA and conventional loans: Credit score and history: FHA loans allow for lower credit scores than conventional loans.
The FHA approves loan amounts based on factors like your credit score, living expenses, assets, debt-to-income ratio, household income, and the value of the property. As of 2025, the FHA maximum loan limit for a one-unit property is $524,225 in low-cost areas and $1,209,750 in high-cost areas.
Credit score requirements
Most first-time home buyer programs require a minimum credit score, often around 620, to qualify for conventional loans. However, some programs, like FHA loans, are more lenient, allowing scores as low as 580 or even lower with higher down payments.
But the main goal is to evaluate whether the home is in good condition and if it's safe and livable for the borrower. Although the FHA minimum property requirements are strict, they're not prohibitive. In fact, most homes will pass an FHA appraisal, so don't let these requirements scare you off FHA loans.