April 30, 2024
Many articles discuss what you can and cannot do with an FHA mortgage, such as the types of homes you can buy or whether or not you can earn money from a house you purchase with an FHA loan. But there are other issues you should know in the don’t department.
For example, did you know you can finance certain closing costs, including the FHA upfront mortgage insurance premium? However, rules govern that portion of the transaction.
The big takeaway from those rules is that you can’t finance a portion of that up-front mortgage insurance premium.
FHA loan rules (not the lender’s requirements) state that a borrower pays the loan in full or finances it in full at closing time. There are other similar issues to know when you are still planning your mortgage.
No Cash At Closing Time
How many FHA loan articles mention that you cannot receive cash at closing time for an FHA purchase loan except in the form of a refund? That knowledge is a bit more common, but another prohibition related to cash at closing time exists.
Your lender will not permit an FHA loan where the borrower makes the down payment in cash. Loose bills, professionally packaged money bundles, none if it is permitted for your down payment.
You must render payment in the manner acceptable to the lender, typically a wire transfer or some other pre-arranged procedure for down payment money.
At closing time, a personal check is just as unwelcome as cash, and some borrowers (at first) do not understand that a personal check is no good for money down.
You May Qualify To Cancel FHA Mortgage Insurance
This is a contentious issue for some. FHA loans require mortgage insurance for either the full term (for down payments less than 10%) or after 11 years (if you pay 10% down or more).
Without making a larger FHA down payment, you won’t be able to cancel mortgage insurance after 11 years.
How much could you save if you make that larger down payment? For a 30-year FHA mortgage, canceling MIP after 11 years gives you 19 years of home loan payments without the additional mortgage insurance, which can be a substantial savings over that amount of time
Bad Information From Otherwise Trusted Sources?
If you have questions about MIP, it may be smart to ask your participating FHA lender about mortgage insurance premium rules. Why ask after you do research online?
Unfortunately, it’s because you will likely run into bad information when researching these issue. An example of this can be found in a post on Bankrate.com published on February 28, 2024, which makes the following claim:
“FHA mortgage insurance premiums (MIP) are additional fees FHA loan borrowers pay to protect lenders against default or when a borrower fails to repay the loan. These premiums are required of borrowers who make a down payment of less than 20 percent.” (Emphasis ours).
However, at HUD.gov, you can explore HUD 4000.1, the FHA Single-Family Lender’s Handbook, which contains the following, contrary to the Bankrate post:
- FHA Loan Amount at or below $726,200
- Loan-to-Value at or below 90%
- MIP Requirement: Pay for 11 years
- Base Loan Amount at or above $726,200
- LTV at or above 90%
- MIP: 11 years
It pays to research your home loan options more than you think you need. Trusting a single source for certain kinds of FHA loan information is at times a bad idea.
As we see from the above, even the biggest players in the space have issues keeping the rules and requirements current on their official sites.
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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