FHA mortgages have plenty of advantages for all types of borrowers, but as with any loan, there are disadvantages. Depending upon your individual circumstances and the property you wish to buy, these disadvantages may include:
- Housing requirements: Minimum standards for protecting occupants' health must be met and the property must be appraised and inspected to ensure it is structurally sound. FHA loan inspections are known for being especially stringent, so homes that are priced low because they're in need of significant repairs will probably not be an option for financing through an FHA loan.
- Mortgage insurance premiums: This monthly fee, also referred to as MIP, is in place to insure the FHA loan against the losses they may result from defaulting on the loan. Typically, borrowers must pay a 1.75% mortgage insurance premium at closing, and an additional .085% of the loan value each year for the life of the loan.
An FHA mortgage may also not be right for you if you are delinquent on your federal taxes and some other types of debt, or if you've had a recent bankruptcy or foreclosure. You will have to wait three years to apply if you've experienced a foreclosure, or two years after a bankruptcy.