Five Questions About FHA Mortgage Loans
But what loan is right for you and how can you make sure you get the best home deal for the price? Part of the answer involves treating your home loan like a car loan by shopping around for the best deal and making the most informed decision you can about a home, about the lender, and about the loan itself.
1) Is there a financial penalty for paying off the mortgage early?
If you ask a participating FHA lender this question about an FHA mortgage or FHA refinance loan, the answer should ALWAYS be NO.
FHA loan rules forbid a penalty for early payoff and you should not agree to a home loan that does penalize you for paying off the loan early whether that is through completing the loan term but with higher payments, refinancing the original loan, or other means.
2) How flexible are my closing costs?
If you have good credit, haggling over closing costs and/or interest rates is an option you should seriously consider. If your credit is not so good, you may be stuck with whatever the lender decides is best, which is another reason to aggressively shop around for your home loan instead of assuming that all financial institutions will offer you the same terms and conditions.
3) Which credit scores qualify for maximum financing?
If you are worried that your credit scores won’t measure up, ask the lender up front what the qualifying FICO scores are for maximum financing, and also be sure to ask which credit scores require compensating factors such as a bigger down payment. The answers will tell you if you need to keep shopping for a lender.
4) What can we do to lower costs on the mortgage?
Beware the answer to this question if you are new to mortgage lending; there is a BIG difference between getting a lower price point on certain home loan expenses and having those expenses simply rolled into your loan amount where permitted.
Haggling over certain expenses can earn you a lower dollar amount for your cash needed to close, but if your lender simply finances the amounts you’re discussing instead of offering you a price break, what you are really doing is paying over the entire lifetime of the loan for the closing costs you include into the loan amount. If your goal is to save money over the lifetime of the loan, you won’t want to include any add-ons to the loan amount. If you need to save money up front and keep from spending too much out-of-pocket, financing certain costs makes more sense.
5) Which loan costs more, FHA or Conventional?
Sometimes the most direct questions reveal the most helpful information. Ask your loan officer to compare the costs on FHA and non-FHA mortgages and see which loans may or may not help your bottom line based on closing costs, loan rules, the length of the loan term, interest rates, etc.
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