What are the drawbacks of an FHA loan?

[Joel Custodio]

Hello all! I have heard so much about the FHA loan and how credit score can be marginal and you only need 3 percent down, sounds too good to be true , any insight ? Thanks !

[Bill Gulley]

The MIP insurance, last I looked was about 2 1/4 points and is amortized over the life of the loan, about twice what a 90% LTV conventional loan is, while it is high, it's not a deal breaker.

Another mention goes to the appraisal, they are very tough in some areas, the home really needs to be in very good shape, except for the 203 program for rehabs. Some sellers wouldn't list a house accepting FHA due to the appraisers being so picky.

While it does get you in a home with little out of pocket, might be better to save the other two per cent and go conventional

Also, check USDA if you're in a smaller town or rural.

With either there should be an active "Bond Money" program, some can work with FHA and you can obtain higher loan amounts and closing costs. Realtors and lenders will know.

All of these have occupancy requirements, not for investment properties, initially. :)