June 4, 2024
Are you a new borrower with questions about how the FHA loan process works? There are important details to learn and remember to get along the way to get the most out of your FHA mortgage.
Borrowing Limits For FHA Mortgages
For FHA loans, HUD 4000.1 says 31% is the highest number for typical FHA mortgages without an Energy Efficient Mortgage add-on. Those loans can technically go higher.
FHA loan amounts are typically guided by the appraised value of the home and the FHA loan limit for your area, among other factors.
It’s possible to be approved for an FHA loan for up to 96.5% of the home’s sale price. That means your downpayment is 3.5%, which is comparatively low. But should you pay only the minimum?
Borrowers interested in saving more money on interest over the loan’s lifetime should make a bigger downpayment.
Ditto for those who want to avoid paying mortgage insurance for the entire term of their FHA mortgage. You can avoid that by making a 10% downpayment.
What To Know About Using Earnest Money
Earnest money is a powerful tool in negotiating, and it’s advisable to have it ready. Don’t skip saving up for this expense. It’s a necessary part of doing business when buying a house.
What is the most important thing to know about earnest money as it specifically relates to an FHA mortgage? Borrowers do not lose their earnest money if the house is appraised for a lower than the asking price and the borrower chooses to cancel the sale.
Insurance Needed To Own A Home
FHA loans require mortgage insurance. You will pay mortgage insurance for 11 years or the loan’s lifetime, depending on factors, including the size of your downpayment on the FHA mortgage.
You may also need to consider expenses such as hazard insurance, homeowners insurance, and related expenses. These can become essential aspects of your new budget as a homeowner.
Will Home Loan Interest Rates Ever Recover?
The question above assumes rates might go back into the 5% range from previous home-buying seasons. But signs point to today’s higher rates becoming a new normal. Is it only a matter of time before the market adjusts to accept this concept?
Waiting for rates to return to previous years’ lower levels is losing its appeal. Many are considering other options to lower costs when buying a home to deal with the expense of higher rates. They accept the higher rates as being here to stay, more or less.
You can manage your home loan expenses by considering options some borrowers aren’t willing or able to offer.
Negotiating seller concessions, offering a larger down payment as mentioned above, and paying more of your closing costs in cash instead of trying to finance them can all help.
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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