FHA loan downsides – the truth you need before you apply

If you’re hunting for a low‑down‑payment mortgage, the FHA loan looks tempting. But the friendly name hides a few traps that can bite later. Below we break down the most common drawbacks so you can decide if the trade‑offs are worth it.

Higher costs and ongoing fees

First off, FHA loans come with extra charges you won’t see on a conventional loan. The most obvious one is the upfront mortgage insurance premium (UFMIP). It’s 1.75 % of the loan amount, and lenders usually roll it into your financing, which means you start with a higher balance.

Then there’s the annual mortgage insurance premium (MIP). Unlike private mortgage insurance (PMI) on a conventional loan, MIP stays for the life of the loan if you put down less than 10 %. Even if you reach 20 % equity, you still pay it unless you refinance to a conventional loan later.

Those insurance costs can add a few hundred dollars to your monthly payment. Over 30 years that adds up to tens of thousands, so budget carefully.

Loan limits and property restrictions

FHA loans also have strict loan‑size caps that vary by county. In high‑cost areas like London or the South East, the limits may be well below the price of a modest home, forcing you to look farther out or pull more cash.

Besides size, the property must meet the Department of Housing and Urban Development’s (HUD) minimum standards. That means the house can’t have cracked foundations, leaky roofs, or serious safety issues. While that protects you, it can also eliminate many fixer‑uppers that a conventional loan might allow.

Finally, FHA rules require the borrower to occupy the home as their primary residence for at least a year. If you’re thinking about buying a rental or a vacation property, the loan won’t work.

In short, FHA loans give first‑time buyers a pathway onto the market, but they come with higher insurance costs, loan‑size limits, and stricter property standards. Weigh these downsides against the low down‑payment advantage before you sign the paperwork.