If you have never used an FHA home loan before, there are some things to consider when you’re comparing your options.
One of those areas involves your basic needs and goals for the home, and another involves the costs of the loan. A third is related to the choices you have when it’s time to sort out how much to pay upfront and what to consider including in the loan amount.
FHA Loans: Fixed Rate Or Adjustable?
When interest rates go up, it may be tempting to compare your options between fixed-rate mortgages and adjustable-rate or ARM loans.
But don’t look at the rates alone; decide how long you think you may keep the home and make your decision about ARMs afterward.
Why? Because if you plan to keep the home long-term, a fixed-rate mortgage might be the better choice.
The same is true for buying discount points to lower your rate. It may not make sense to do that if you don’t plan to keep the original mortgage long enough for the reduced rate to pay off over time.
FHA Loans: How Much Will You Pay In Loan Fees And Closing Costs?
If you have arrived at an estimate about your loan fees and closing costs on your own, don’t forget to factor in two important resources that may reduce your upfront expenses.
One is state or local down payment assistance programs (check your state government official site to find one near you), and the other is negotiating seller concessions up to six percent of the asking price of the home.
Seller concessions require you and the seller to agree on them and for how much; if you are not comfortable with the idea, try doing some math on a home you might be tempted to buy–run six percent of the asking price and see how much a little negotiation might save you if you choose to try haggling.
The dollar amount may convince some to give it a shot.
FHA Loans: Some Closing Costs Can Be Financed
You could choose to pay the Up Front Mortgage Insurance Premium in cash at closing time, for example. This insurance is typically required of most FHA mortgages, but you can choose to finance this amount into the mortgage.
The real question here is how much doing so might increase your mortgage payments and whether that increase is acceptable to you and compatible with your budget.
There are other considerations; it’s best to save early and try to save more than you think you will need. There are always unexpected expenses to contend with along the way including any required compliance inspections should the property require corrections following the FHA appraisal.
Having some extra money stashed away for this contingency may give you some added peace of mind going into the application process.