Other Advantages of FHA

Besides a low down payment, FHA borrowers enjoy many other advantages, such as:

  • You can roll many of your closing expenses and mortgage insurance premiums into your loan. This cuts the out-of-pocket cash you'll need at closing.
  • You may choose from either fixed-rate or adjustable-rate FHA plans. (Note that FHA ARMs give you lower annual and lifetime caps— 1/5—than most other ARM programs; that is, your interest rate will not increase by more than one percentage point a year, nor more than five percentage points throughout the life of the loan.)
  • FHA authorizes banks and other lenders to use higher qualifying ratios and easier underwriting guidelines. After you've shaped up your finances, FHA will do all it can to approve your loan.
  • If interest rates drop, and as long as you have maintained a clean mortgage payment record for the previous 12 months, you can do a "streamline" refinancing of your FHA loan at lower interest rates without a new property appraisal and without having to requalify.
  • If you can persuade your parents or other close relatives to offer the down payment to you as a gift, you won't need to come up with any closing-table cash from your own pocket.
  • FHA also indirectly permits sellers to fund your down payment. I recently sold a property to a young single man (age 23). As part of the deal, I donated several thousand dollars to an FHA-approved, not-for-profit housing organization. This housing group then gave the young man the money I had donated—which in turn served as his down payment. (Yes, this technique is currently legal—but under attack from some critics. In many cases, sellers merely raise their price to accommodate the "gift" of the down payment money.)
  • Unlike most nongovernmental loans, FHA mortgages are assumable. Someone who later agrees to buy your property need not apply for a new mortgage. When mortgage interest rates are high, a low-rate assumable FHA mortgage will give you a great selling advantage.
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