March 17, 2016
We give a lot of advice both here and in our comments section about FHA home loans. And there’s a lot to give; FHA loan rules cover everything from the acceptable minimum condition of the home to a borrower’s credit requirements for maximum financing. But what does the FHA itself, as a government agency, say about the home buying process?
Our publication is not associated with the FHA in any way, and what follows is the result of our research and examination of FHA-published material. What we have found is definitely information a potential borrower should consider during the planning stages of a new home loan or refinance loan.
An FHA publication titled, Looking For The Best Mortgage has some excellent overall advice for the borrower starting with the old saying, “Shop around”. That advice is good. “Be sure to get information about mortgages from several lenders or brokers. Know how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing just the amount of the monthly payment or the interest rate is not enough. Ask for information about the same loan amount, loan term, and type of loan so that you can compare the information.”
Remember, FHA home loans require a minimum 3.5% down payment from the borrower, which is calculated depending on the sale price of the home.
The interest rate information advice is crucial, in part because there are different types of interest rate options available to you. Fixed rate, adjustable rates, graduated payment mortgages and more are all options you should know about as you shop around. According to the FHA, borrowers should always “Ask each lender and broker for a list of its current mortgage interest rates and whether the rates being quoted are the lowest for that day or week…Ask whether the rate is fixed or adjustable.”
And borrowers should always remember that with an adjustable rate mortgage, if the rate increases, your mortgage payment will increase, too. With that in mind, the FHA advises, “If the rate quoted is for an adjustable-rate loan, ask how your rate and loan payment will vary, including whether your loan payment will be reduced when rates go down.” That downward adjustment question is very important to ask if you are exploring your FHA adjustable rate mortgage loan options. You should also be asking each lender about the loan’s annual percentage rate.
While shopping around for an FHA mortgage (or any type of loan) you should also be concerned with loan fees. The FHA guide urges borrowers to be as informed as possible on FHA loan fees your chosen lender may require. “A home loan often involves many fees, such as loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. Every lender or broker should be able to give you an estimate of its fees. Many of these fees are negotiable. Some fees are paid when you apply for a loan (such as application and appraisal fees), and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs.”
Additionally, the FHA reminds borrowers that while No cost loans are sometimes available from one lender or another, this type of loan can include higher interest rates to cover the no cost aspects of the mortgage. Know the details before you commit–an informed borrower is much happier with the transaction.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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