Disadvantages of an FHA Loan

For those with less-than-perfect credit, purchasing a home using a FHA loan is a viable option. FHA loans offer high qualifying ratios, low down payments and no prepayment penalties. Despite the advantages of FHA loans, however, there are some disadvantages to consider.

Mortgage Insurance Premium (MIP) Required

Similar to private mortgage insurance (PMI) on conventional mortgages, FHA loans require an upfront MIP between 1.5 and 3 percent of the total loan. FHA loans also require a yearly MIP based on the FHA loan term and the initial loan-to-value ratio.

Owner Occupancy Required

FHA loans require that you live in the property you are purchasing. You will not be able to rent out the FHA loan property.

Maximum Loan Limits

Because FHA loans are geared to those with low to moderate incomes, maximum income restrictions for this loan apply.

Strict Appraisal Process

FHA loans have minimum property standards, and a loan might not be approved until repairs and other alterations to the property are met.

Slower Approval Time

Approval times for FHA loans can vary between 45 and 60 days.