November 30, 2023
Do you want to buy or build a home with an FHA loan? When planning and saving, consider what happens after closing day once you accept the keys, schedule the movers, and take possession of your new house. What’s the big issue to remember here?
Future borrowers in the budgeting and planning stages must choose how much cash to pay at closing time. And so far out from that first mortgage payment it may feel tempting to save a bit on your out-of-pocket expenses and finance certain closing costs like the FHA loan upfront mortgage premium.
There is an issue called “cost creep” that some borrowers may experience. Financing one closing cost might not hurt your bottom line too much. And from there some justify adding even more to the loan.
Having enough room in your budget to pay the mortgage each month is only part of the equation. It’s just as important to plan for the (financial) unexpected.
When some borrowers run into financial trouble, they may feel tempted to skip a mortgage payment, especially if the monthly budget is already tight.
But this is not a great approach.
Consider the mortgage advice from the Consumer Financial Protection Bureau (CFPB). The agency’s official site reminds, “Your payment is due on the 1st of every month. If your payment is late, your servicer may charge you a late fee and attempt to contact you.”
Fortunatley, many borrowers have until the 15th of the month to pay without a late fee. Your experience may vary.
Skipping that payment deadline is a bad idea. It may (and usually does) cost you more than you realize. Late fees and the potential damage to your credit are the obvious consequences but there are others to consider.
Some can pay before the 15th and avoid the credit complications that come with missing that deadline.
What about those who do not pay by the middle of the month? Late fees may be levied “for each month that you miss a payment. Additional fees can also be charged if you go into default” and are more than 30 days late.
Any missed payment on your FHA mortgage means it is past due. CFPB reminds consumers that when your mortgage goes beyond 30 days past due, it can be negatively reported to the credit bureaus.
Just one missed payment or late payment on your credit report can reduce your credit scores. CFPB says that’s an issue that won’t help borrowers who later decide to consider an FHA loan refinance or credit later.
It makes sense to give your monthly budget some breathing room, don’t create a “no mistake” financial plan that does not account for unanticipated expenses like a car accident or hospital stay.
Reduce your upfront expenses by considering options such as applying for a local downpayment assistance program. You can also pay for more items on closing day. And don’t forget that even making a larger down payment than the required minimum can help.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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