FHA Loan Issues You Should Know About
January 15, 2024
What can a new borrower expect from an FHA mortgage? There are important things to know as a first-time home buyer, especially if you are still catching up on loan terms and industry jargon.
The first thing some new borrowers learn about FHA loans is that some terms sound very similar to the newcomer but represent different things. You’ll need to understand some of these important nuances before you commit to a lender or a mortgage.
Appraisal vs. Inspection
First-time home buyers soon learn, one way or the other, that lenders and other industry professionals sometimes use “appraisal” and “inspection” interchangeably.
But these two terms represent two completely separate parts of the home loan process. Borrowers should expect to pay for BOTH, not one or the other no matter how insistent the seller is that the appraisal alone is sufficient. It is NOT.
Homeowner’s Insurance vs. Mortgage Insurance
A homeowner’s insurance policy is one that protects the borrower against problems specifically mentioned in the policy. Mortgage insurance is totally different. It protects the lender if you default on your FHA mortgage.
If you have mortgage insurance, you do NOT have automatic protection or coverage for natural disasters, fires, theft, or other problems. Lenders typically require mortgage insurance, and you may also be required (depending on circumstances) to carry homeowner’s insurance in addition to mortgage insurance. State law, lender standards, and other variables may apply.
Down Payment vs. Other Cash to Close
This is one area where a borrower’s wishful thinking gets in the way of the reality of mortgage loans. Everyone wants to have their non-down payment closing costs considered part of the down payment.
But this is not possible. Your downpayment is a totally separate expense from the lender’s flat fee, appraisal fees, compliance inspections, pest control fees or other costs.
Always Ask When You Aren’t Sure
You should never sign a mortgage agreement or any other binding contract if you have unanswered questions about any detail of the agreement. Don’t be pressured into signing without reading and fully understanding the mortgage contract you’re about to commit to.
Some borrowers may choose to have a lawyer review their purchase agreement before signing to avoid problems related to some of those potentially unanswered questions. That’s your right as a borrower and your participating lender should not have a problem in such cases. If your lender balks at your hiring counsel to review your legal documents, find a different participating FHA lender.
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RELATED VIDEOS:
The ARM is an FHA Adjustable Rate Mortgage
A Few Tips About Your Fixed Rate Mortgage
Monthly Payments Establish Good Credit
The first thing some new borrowers learn about FHA loans is that some terms sound very similar to the newcomer but represent different things. You’ll need to understand some of these important nuances before you commit to a lender or a mortgage.
Appraisal vs. Inspection
First-time home buyers soon learn, one way or the other, that lenders and other industry professionals sometimes use “appraisal” and “inspection” interchangeably.
But these two terms represent two completely separate parts of the home loan process. Borrowers should expect to pay for BOTH, not one or the other no matter how insistent the seller is that the appraisal alone is sufficient. It is NOT.
Homeowner’s Insurance vs. Mortgage Insurance
A homeowner’s insurance policy is one that protects the borrower against problems specifically mentioned in the policy. Mortgage insurance is totally different. It protects the lender if you default on your FHA mortgage.
If you have mortgage insurance, you do NOT have automatic protection or coverage for natural disasters, fires, theft, or other problems. Lenders typically require mortgage insurance, and you may also be required (depending on circumstances) to carry homeowner’s insurance in addition to mortgage insurance. State law, lender standards, and other variables may apply.
Down Payment vs. Other Cash to Close
This is one area where a borrower’s wishful thinking gets in the way of the reality of mortgage loans. Everyone wants to have their non-down payment closing costs considered part of the down payment.
But this is not possible. Your downpayment is a totally separate expense from the lender’s flat fee, appraisal fees, compliance inspections, pest control fees or other costs.
Always Ask When You Aren’t Sure
You should never sign a mortgage agreement or any other binding contract if you have unanswered questions about any detail of the agreement. Don’t be pressured into signing without reading and fully understanding the mortgage contract you’re about to commit to.
Some borrowers may choose to have a lawyer review their purchase agreement before signing to avoid problems related to some of those potentially unanswered questions. That’s your right as a borrower and your participating lender should not have a problem in such cases. If your lender balks at your hiring counsel to review your legal documents, find a different participating FHA lender.
------------------------------
RELATED VIDEOS:
The ARM is an FHA Adjustable Rate Mortgage
A Few Tips About Your Fixed Rate Mortgage
Monthly Payments Establish Good Credit
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