Benefits of FHA Loans

FHA Loans are some of the most straightfoward loans to attain which benefits first time home buyers or people looking to make repairs on their home. FHA loans require that an FHA appraiser cunducts an appraisal and that meets certain criteria.  

FHA loans only need a 3.5% down payment on a home, opposed to the 20% required on the conventional loan. The FHA loans easier requirements to qualify is great for a first time home buyer or someon looking to buy a home with less capital.  

Mortgage Insurance

FHA Mortgage Insurance is a "fee" that you pay to insure against the risk of default. It has two parts: the initial, one time premium is 1.75 percent of the total loan paid upfront. It is NOT an out of pocket expense and just added to your loan balance at closing. The other is an annual premium broken into monthly installment and is included as part of the total monthly loan payment.

FHA Mortgage Insurance is not tax deductible and the monthly premiums generally translate into ~1.50% in interest rate. So, the goal with an FHA loan is to refinance into a conventional as soon as you hit the 20% equity mark.

The only way to eliminate FHA PMI is to refinance out of the existing loan into a new loan. If your existing loan originated before June 3, 2013, you may be able to contact your lender directly to drop the PMI.

FHA vs Conventional
Loan criteria and terms Conventional FHA Loan
Credit Score Minimum:  620  500 
Down Payment:  Between 5% to 20%  3.5% for credit scores of 580+ 10% for credit scores of 500-579 
Loan Terms:   10, 15, 20, 30 years  15 to 30 years 
Premiums:  PMI: 0.5% to 1% of the loan amount per year  Upfront: 1.75% of the loan amount Annual premium: 0.45% to 1.05% 
Interest Type:  Variable rate, fixed rate  Fixed rate