In our last blog post we covered some of the fees and costs associated with getting an FHA mortgage. New home buyers should be aware that the asking price of a home isn’t the final amount that will be paid as part of closing the deal. The closing costs, interest rate, lender’s fees and other expenses also factor in. Home loan experts recommend preparing for an FHA loan or its conventional counterpart at least one year in advance. Much of that advice revolves around getting your credit ready, but just as important are the steps required for saving money and making a budget for the expenses connected to buying a new home.
Every buyer has a different set of financial priorities; some want to save as much money on their FHA mortgages as possible over the lifetime of the loan, others are more worried about having a lower monthly payment. Regardless of your decision in this area there are some “hidden” fees sometimes associated with home loans that an FHA borrower should be aware of.
When shopping for an FHA loan and comparing terms with conventional mortgages, it’s very important to take a close look at the FHA requirements concerning pre-payment penalties. If you buy a home with an FHA mortgage and decide to sell it or refinance later on, you’re basically paying off the loan early. The FHA does not allow penalties for these kinds of early pay-offs. The fine print of a conventional loan might. It’s one area to consider if you’re not sure whether to go with an FHA loan or a conventional one.
For those concerned about saving money over the lifetime of the loan, not paying discount points up front could be more costly over the life if a 15-year or 30-year mortgage. Paying the points does take a bite out of your budget, but compare the cost over the life of the loan and see if it doesn’t make sense to pay more now. Many find it worth the expense to pay those points.
Another “hidden” fee to consider is related to the timing and cost of energy-efficient upgrades to the home. You have the option of adding up to $6,000 in approved energy-efficiency upgrades to the property to the cost of your FHA insured loan. Borrowers also have this option when they refinance, but it’s important to consider interest rates when deciding whether to take this option on initial purchase.
Will the interest rates be higher when it comes time to refinance? Or does it make sense to add the upgrades now? The extra interest on $6,000 may not seem like much compared to the rest of your FHA mortgage, but it is a factor to consider. Your energy savings could offset the monthly expense of that extra 6K added to your home loan–how much could you save in utility bills and other payments by installing the upgrades now if they are needed?