The main cons of FHA loans are mandatory mortgage insurance premiums (MIP) that can last the life of the loan, strict property requirements that exclude many fixer-uppers, loan limits that restrict high-cost areas, and potential seller reluctance due to stricter appraisal rules, making them less competitive than conventional loans for some buyers, notes this Experian article and this Mortgage Equity Partners article.
FHA Loan: Cons
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. Interest rates are higher than with conventional loans (based on relaxed borrower eligibility requirements)
An FHA offer is less competitive because of what it signals to the seller. FHA buyers in general are putting 3.5% down because that is all they can afford. So they are often unable to close at all if there are problems with the appraisal, unless the seller drops the price.
Cracks in the foundation, signs of water damage, or evidence of settling can raise red flags. These issues often require a structural engineer's inspection, which can add time and cost.
With its minimum 3.5% down payment requirement, an FHA loan is good if you have steady income but limited savings for a larger down payment. FHA loans can help those with higher debt-to-income ratios (DTIs.)
FHA loans are designed to help make homeownership more affordable for Americans with moderate incomes or lower credit scores. But like any mortgage, FHA loans require the borrower (or seller) to pay closing costs, even though they're backed by the U.S. Federal Housing Administration (FHA).
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
The "3-3-3 rule" in real estate isn't a single guideline but refers to different strategies: for buyers, it's about financial readiness (3 months savings, 3 months reserves, 3 property comparisons) or a financial affordability check (30% income, 30% down, 3x income); for agents, it's a marketing habit (call 3, note 3, share 3) or prospecting (talking to everyone within 3 feet). There's also a developer rule (1/3 land, 1/3 build, 1/3 profit), though it's considered outdated by some.
The FHA 85% rule refers to a past guideline for cash-out refinances limiting the loan to 85% Loan-to-Value (LTV) and a specific rule for identity-of-interest transactions (like buying from family) where borrowers couldn't finance more than 85% of the home's value unless exceptions applied, such as renting from the family member for at least six months prior. While the general cash-out LTV is now 80%, the 85% rule still applies to certain related-party sales, requiring a 15% down payment unless an exception is met, notes FHA.com.
FHA loans will not insure mortgages for properties that are being sold within 90 days of the previous sale date. If a seller bought the home and is trying to resell it within that window, FHA financing cannot be used by the new buyer — no exceptions.
You're disqualified as a first-time homebuyer if you've owned a home in the last three years, have a low credit score (usually <620), a high debt-to-income (DTI) ratio (over ~43%), unstable employment (less than 2 years steady), insufficient income, or if the property itself has major issues, while income limits for some programs can also disqualify high earners, with specific definitions varying by loan type (like FHA vs. Conventional).
For an FHA loan, the minimum down payment is 3.5% if your credit score is 580 or higher, but it increases to 10% if your score is between 500 and 579, allowing for lower credit requirements than conventional loans. While 3.5% is the lowest, you can put more down to lower costs, but the FHA requires you to provide these funds yourself.
While FHA loans can provide increased accessibility for many homebuyers, they may not be the best fit for those looking to purchase a non-primary residence, properties that don't meet FHA inspection requirements, or homes that exceed loan limits.
Increasing your monthly payments, making bi-weekly payments, and making extra principal payments can help accelerate mortgage payoff. Cutting expenses, increasing income, and using windfalls to make lump sum payments can help pay off the mortgage faster.
Seller Assumes Responsibility for Repairs
This is commonly the most direct resolution to an appraisal issue. The seller consents to undertake and pay for all repairs specified by the FHA appraiser before the closing date. The seller should use qualified contractors to carry out the necessary work.
Understanding Mortgage Affordability in Canada
For insured mortgages in Canada, CMHC recommends a maximum GDS ratio of 39%. For a $90,000 salary (which breaks down to $7,500 per month), this means your housing costs shouldn't exceed $2,925 per month.