FHA Mortgage Options You Should Know
FHA Loan Types
It’s not just a choice between whether you should build a home on your own lot with an FHA One-Time Close construction loan or use an FHA 203(b) loan to buy an existing home. Borrowers also have the option to choose a fixer-upper home and apply for an FHA 203(k) Rehabilitation loan.
You can also choose to purchase an existing home using a “regular” FHA loan (the 203(b) loan is the loan you want in this instance) and apply for extra FHA loan funds to install energy-saving upgrades to the home. This option is called the FHA Energy-Efficient Mortgage option and if you want to consider this add-on to the mortgage, be sure to ask your participating lender about the FHA EEM.
FHA Loan Options
You can choose to make the minimum down payment with an FHA mortgage with a purchase loan or you can choose to make a bigger down payment and cut down the overall costs of the loan through its term. But that’s not an option unique to FHA mortgages, so why mention it?
Because FHA loans, like other government-backed mortgages, are required BY LAW to allow early payoff of the mortgage without penalty. You cannot be charged extra for the privilege of paying off your debt ahead of schedule.
But what about borrowers who want to go the opposite direction--people who need to save more money out of pocket up front on the mortgage? These borrowers not only will not make a bigger down payment, they may need to include certain closing costs into the loan amount. Ask the loan officer about rolling the Up Front Mortgage Insurance Premium (the FHA UFMIP) into the loan amount.
FHA Down Payments & Closing Costs
There is no such thing as a zero-down FHA purchase loan for existing construction, but borrowers do have the option of applying for locally-sourced home loan down payment programs. But there’s another thing you should know in this area--your seller is permitted to contribute up to six percent of the sale price of the home toward your closing costs.
The seller CANNOT contribute to your down payment but the closing cost issue is very helpful for borrowers who need to save more money up front on the loan.
Another issue you should consider is whether or not you are considering keeping the home long-term. If so, you may wish to consider refinancing at some point to get into a lower interest rate or monthly payment. The FHA Streamline Refinance loan is designed to help you do just that and FHA Streamlines are ONLY for FHA mortgages.
No conventional, VA, USDA loans, etc. Only FHA-to-FHA refi transactions are allowed with Streamline loans but these refi options usually require some tangible benefit to the borrower such as a lower rate or mortgage payment.
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