Homebuyer Homework for FHA Borrowers
Planning a Home Loan? Do Your Homework
If you don’t do some basic research about home loans, you might miss some important advice.
That’s fairly standard. But there is a more important reason to take the research stage of your home loan process seriously. Some of the going advice out there isn’t necessarily the right advice FOR YOU. You may need to take some extra time to get GOOD advice.
A good example? Some financial pundits warn first-time homebuyers away from VA and FHA mortgages, saying they cost you thousands more than other types of home loans.
Here is a variation on a familiar argument: “Many first-time homebuyer loans only make you put a little money down, but they cost tens of thousands of dollars more in the long run.” These objections are often based on the FHA mortgage insurance premium requirement.
These commentators advise you to consider the shortest loan term possible, the biggest down payment and higher monthly mortgage payments to get out of the loan as quickly as possible. And they are also rather adamant about avoiding mortgage insurance wherever possible.
But if you need to pay less upfront and want a lower monthly payment, you might consider a 30-year FHA home loan as opposed to a 15-year conventional mortgage which is what some financial pundits seem to consider as the “ideal” home loan in terms of total cost.
Running the Numbers
While it’s true that the mortgage insurance premium for a $300,000 FHA loan will run above $100 a month, the quote above assumes that everyone’s goal for their home loan is to save as much money over the course of the mortgage as possible.
But some borrowers prefer a lower down payment and a lower monthly payment. That makes the FHA loan program a more realistic option for these applicants.
And it’s a bit disingenuous to make a fuss about the “tens of thousands of dollars” you might spend over the course of a 30-year mortgage on FHA mortgage insurance premiums.
A 2018 CNBC article titled “My Starbucks Habit Cost Me $2,300 A Year” notes that the article writer would spend, at the rate mentioned in the article, some $17,000 over a 30-year period, the same as an FHA home loan.
That’s literally “tens of thousands of dollars” on coffee alone. For the same duration is the FHA mortgage you might be considering.
Do a Homework Assignment
Don’t take all of your home loan education from a single source. Did you know that in addition to articles and online mortgage calculators, you can also get advice directly from a lender, realtor or even the FHA itself?
You can call the FHA at their toll-free number (1-800 CALL FHA) to request a referral to a local, HUD-approved housing counselor who can advise you on planning and preparing for a mortgage.
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