FHA Assumability

When deciding between getting an FHA approved loan or a conventional loan there are many factors that go into this decision.  The primary ones in the past have been

• Down payment.  The FHA loans only require 3.5% down vs conventional loans which typically require between 10% to 20% down depending on rate.  Also FHA allows for down payment gifted from a family member, a governmental agency, or a nonprofit organization.
• Mortgage Insurance Premium.  FHA loans require a mortgage insurance and thus FHA borrowers are required to pay a mortgage insurance premium.  Many conventional loans do not require a mortgage insurance premium if a large enough down payment is made.
  
• Credit Qualification Criteria.  It is easier to qualify for a FHA loan than a conventional loan.
• Total Loan Amount Limits.  The loan limits for a FHA loan are typically less than those of a conventional loan.

One of the other advantages that has often been overlooked is that FHA loans are assumable and conventional loans are not.  In the future this is going to have a significant impact on property owners.  Everyone is expecting interest rates at some point to start increasing within the next year or so.  When this happens, owners who have FHA loans will have an advantage in selling their homes v. conventional loan holders as conventional loans typically are not assumable.  The new buyers from an FHA loan seller will be able to assume the loan at the lower interest rate reducing their payments.  This will greatly expand the buyer pool for sellers with FHA loans as more buyers will be able to afford their monthly payments.