Is A FHA Loan Really Worth it?

Question

As someone who has very little money to start with, there are a number of ways I can finance my first property and a FHA loan seemed pretty appealing due to the low down payment.

After completing further research the monthly payments seems to be pretty ridiculous with the monthly loan payment,  Interest rates, taxes and premiums.

Can anyone tell me about their experience with an FHA loan. Is the low down payment worth it or would you have used a different method to finance your property?

Will Chamberlin · Answer

Hi Nylisha,

My wife & I went FHA for our first property, a 2 family in NH. We lived in it for a couple years then bought a SFH and moved there. It was definitely some effort but we got in for 3% down. That was before things stalled in 2008 so it hasn't cash-flowed like we thought but has been break even while the tenants are paying down our principal.

I would run the numbers and make sure that whatever route you go the house cash flows if you don't live in it. We were able to charge top-dollar when we lived there but since moving out the rents have been depressed a bit so we are getting less now.

I don't know of the current FHA requirements but I think that now if you put < 10% down you are stuck with PMI for the life of the loan so make sure to factor that in as well. We were able to drop ours at 80% LTV which really helped. As far as the monthly payment, taxes, etc. I don't have actual numbers but I would think that they will be similar regardless of which product you go with. The taxes should be the same as well as the home insurance. If you get a better rate with FHA then it might be cheaper than conventional. That said, you may not be able to get conventional financing with only 3% down.

Overall I would say it was worth it for us since we got a house way earlier than we otherwise would have and still have it 12 years later with a 30 yr fixed, relatively low interest rate loan.

- will

Joe Cantanzriti · Answer

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If you have the capital & credit to bump up to 5% down you could get into a conventional loan and avoid the lifetime PMI that comes with the FHA loan now. Just a suggestion.... but overall FHA loans are a fantastic way to get into property ownership but remember the lower the down payment, the higher your mortgage amount will be no matter what loan product you're using which will affect the monthly payment and overall interest you'll pay over the long term.

Charmaine M. · Answer

@Nylisha Gilbert... i am no expert by any means but i am in the process of closing on my home and i did ALOT of research on the which mortgage product would be right for me. After running all the numbers and factoring my down payment and my game plan, i decided that FHA is quite a "pricey" loan in the long run and i was not willing to put out that extra money.

Besides, the low downpayment, i really don't see very much positives about FHA...but that is just my opinion.

If you are a first time home buyer, there are a lot of options available in NYS, that can help you with DP and closing cost.

Good luck to you!!

Tim Coppola · Answer

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What kind of property are you looking at? I purchased a 3 unit building earlier this year with an FHA loan. True the PMI is a big factor but the rent I'm getting from my other two units covers my mortgage and then some. Not to mention I have a place to live rent free. So for me it was well worth it because I would never have been able to afford this building without the FHA loan.

Good Luck!!!

Account Closed · Answer

Thanks everyone for the advice!!! :)

@Tim Coppola I'm actually looking to purchase a triplex or quad, looks like I'll have to run some numbers again and figure out the best option.

Account Closed · Answer

great information, thanks @Will Chamberlin !

Bryan O. · Answer

Just ask the numbers. When you add in your mortgage insurance are you still getting the returns you are after? If not, it's not worth it. If so, congrats :)

I bought a 3-plex FHA. When I move out, it will still cash flow under management after considering all vacancy, repairs, capex, etc. The numbers worked. If they hadn't, I would have passed on the property. When I get to 80% equity I will refinance and the PMI is gone.

"Do the numbers and the numbers will tell you what to do." -the Real Estate Guys Radio Show

Max Matrin · Answer

During the housing crisis, many first-time buyers had trouble qualifying for loans as a result of really strict standards, and they turned to the FHA .Landers now offer loans requiring lower down payments (south of even 10 percent) and have loosened their credit requirements, though you will likely pay a higher interest rate.

Is A FHA Loan Really Worth it?

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