Pros and Cons of FHA Loans

Frank Chen

Hi, this is Frank Chen with REIClub.com, the only site you need as a real estate investor. Today I've got quick video on the pros and cons of Federal Housing Administration (FHA) Loans.

What are FHA Loans?

The FHA doesn't lend you the money, they guarantee the loan, so the lender doesn't take on a financial risk by extending you credit. the FHA guarantees that a lender won't have to write off a loan if the borrower defaults — the FHA will pay.

The insurance removes or minimizes the default risk lenders face when buyers put down less than 20 percent. Without further approval from FHA, its approved lenders are authorized to:

Take loan applications
Process loan applications
Underwrite and close the loan

FHA Requirements: http://www.fha.com/fha_loan_requireme…

mortgage insurance – policy that protects lenders against losses resulted from defaults on home mortgages
fha loan limits – variety of housing types, state and county in which the property is located.

loan checklist – information needed by your loan officer

closing costs – only some closing costs are covered, rest to seller

fha dept ratios

fha credit issues – no credit, bankruptcy, foreclosure

Pros to FHA Loans

low down payments – 0-3% down payment
low interest rates
better chance for loan approval
credit score is not highly weighted – but credit is needed
flexible repayment terms – multiple options
work with you – during hard times
lower monthly mortgages
Bankruptcy/Foreclosure – after 2 years you can re-qualify with FHA

Cons to FHA Loans

not for everybody
low limits – may not cover total cost of home
strict mortgage insurance policy – premiums – 1% upfront, .85-.9% annually – 5 years
need established credit
limited options – long-term home ownership

Despite some of the drawbacks of FHA loans, FHA home loans serve perfectly the needs of some clients. So, you should educate yourself about both their cons and pros and check whether you are one of those clients.

If I by chance you are interested in pursuing FHA loans, be sure to go to a lender that is “direct endorsed” with FHA and only deal with people who have been doing this for a few years.

Again, this is Frank Chen with REIClub.com. Please take the time to leave your comments for this video below and please subscribe to our YouTube channel so you'll be automatically notified when we upload more quick video tips for you. Take care and good investing.