FHA Loans: It Is Not Necessarily for Everybody

For the past 80 years, the Federal Housing Administration(FHA) loans has been the prime choice of lower and middle-income families to help them get mortgages for their homes. This government sponsored mortgage scheme has insured more than 33 million homes across the United States since 1934 and after the real estate bust of 2007, has found a new popularity among people who want to get houses but do not want to go through the crush of the traditional lending institutions.

But before you can say GOD-SEND, the FHA does have rules that may not be for everyone. Here are things you need to know before getting an FHA home loan.

1. It has relatively low loan limits. Unlike other mortgage companies, FHA has limits in the amount that you can borrow, which oftentimes mean that the amount might not be enough for your desired home.

2. You need to establish credit. Although you do not need to have a perfect credit history, you do need a credit history that the FHA can look into.

3. It has a rigid mortgage insurance structure. In the 1990's, the FHA began to lose its favor with homebuyers and real estate companies because of its rigid insurance and appraisal structure. A homebuyer must pay a fee up front and another fee monthly. This rule still applies even to those who have sufficient equity in their houses or a 20% loan to value ratio.

4. FHA loans are designed to serve only long-term home ownership. They are the most conservative of loan schemes and have limited loan options.