March 10, 2022
When you are in the planning stages of an FHA mortgage there are some considerations you’ll want to make about which upfront costs to pay out of pocket and when it is smart to consider financing certain costs. What do you need to know about these decisions? We’ll explore below.
Planning your home loan means deciding a number of things including how long you plan to stay in the home.
That factor will play an important part in choices like whether to apply for a fixed-rate mortgage (better for long-term owners who don’t plan to sell at some point) or an adjustable-rate mortgage (better for those who know they won’t own the home for a very long time).
An adjustable-rate loan typically features an introductory rate that changes at the first scheduled rate adjustment. You could choose a home loan that (depending on the lender) has a one-year, three-year, five-year adjustment period, etc.
If you decide to choose an adjustable-rate mortgage be sure to know when the first adjustment is scheduled to occur so you can plan your next move and be ready if you want to refinance or sell before the rate adjusts.
The FHA Up-Front Mortgage Insurance Premium is an expense you should consider when making a decision about a fixed-rate mortgage or an FHA Adjustable-Rate Mortgage. Why? Because you will either have to choose to pay the full amount in cash at closing time or finance the amount in full.
Financing the premium will potentially increase your monthly mortgage payment. Should you pay this upfront?
If you are planning to sell the home or refinance sooner rather than later, do you mind paying the interest in a financed premium in the meantime?
If you plan to keep the home long-term, you should ask yourself the same question–do you want to pay the interest? Or avoid the interest charges on the premium and pay in cash?
These decisions are important because they affect your long-term financial plans.
A borrower who doesn’t think about the implications of decisions like the fixed or adjustable-rate issue and financing certain closing costs is likely to pay more for their loan if they make the wrong choices.
You can get some help in this area by talking to a housing counselor to discuss the economics of home loans and (based on your needs and goals) what might be the best option to choose. Call the FHA at their toll-free number (1-800-CALL FHA) and ask for a referral to a local, HUD-approved housing counselor who may be able to help.
You can also get some information ahead of time by talking to loan officers and learning what current options might work best considering your needs for the loan.
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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