July 31, 2015
One of the important selling points of an FHA mortgage loan is the basic differences FHA mortgages have from conventional loans; the lower down payment, more forgiving credit requirements, and a rule that a borrower is able to freely dispose of the property in any way he or she sees fit once the deal is closed and the borrower has taken up residence in the home. But there’s another important difference between some conventional mortgages and FHA loans.
Did you know that under the FHA loan program you cannot be penalized or charged for early payoff of the loan?
HUD 4155.2 Chapter Three has a section that governs what the FHA terms, “pre-payment”. It says that a borrower may pre-pay an FHA mortgage “in whole or in part”. It also says the lender cannot charge the borrower a penalty for doing this except in very specific circumstances. From Chapter Three:
“FHA does not permit either prepayment penalties or due-on-sale clauses on insured mortgages, except for cases in which FHA approves a due-on-sale clause in connection with
–tax-exempt bond financing by state or local governments, or
–the implementation of statutory restrictions on assumptions”
There may be situations where advance notice of a pre-payment is required. According to Chapter Three, if the FHA mortgage was insured before August 2, 1985, “the borrower must provide 30 days written notice of prepayment to the lender or be charged one extra months interest, and the payment must reach the lender by the first of the month”.
If the loan was insured on or after August 2, 1985, “advance notice of prepayment is not required, and if the payment is received after the first day of the month, the lender may, at its option, collect the remainder of that months interest.”
All good details to know if you are planning to pre-pay. Discuss your plans with the lender for additional information on that financial institution’s policies or requirements.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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