What You Can and Can't Do with Your FHA Home Loan
May 8, 2024
Many articles that open with “what you can and cannot do with a home loan” (including some of our own) trend towards “you can buy a home but not an investment property” and “you can use an FHA loan to buy a house, condo, manufactured home, or duplex.”
However, other issues are associated with FHA loans, specifically those you should know about in the “what you can and cannot do” department. For example, did you know you can finance certain closing costs, including the FHA upfront mortgage insurance premium?
You can’t finance a portion of that premium; you must either pay it in full, or finance it in full at closing time. There are other similar issues to know when you are still planning your mortgage.
No Cash at Closing Time for FHA Loans
Many articles (again, including some of our own) mention that you cannot get cash at closing time for an FHA purchase loan except in the form of a legitimate refund. However, there is another prohibition related to cash at closing time.
You cannot make a down payment or pay closing costs with cold, hard cash. You must render payment in the manner acceptable to the lender, which is typically a wire transfer or some other pre-arranged procedure for down payment money.
And at closing time, a personal check is viewed just like cash. Some don’t realize their personal check is no good at closing time for money down.
FHA Loans Allow You to Cancel Mortgage Insurance
This is a contentious issue for some. FHA loans require mortgage insurance for either the full term of the loan (for down payments less than 10%) or after 11 years (if you pay 10% down or more).
Without the higher down payment, you can’t get the option to cancel mortgage insurance after 11 years. For a 30-year mortgage, that makes 19 years without paying mortgage insurance, which can be a substantial savings.
Bad Information?
If you aren't clear, it’s essential to ask your lender directly about mortgage insurance premium issues. There is plenty of wrong information out there. For example, while researching this article, we found a post on Bankrate.com published on February 28, 2024, which claims:
“FHA mortgage insurance premiums (MIP) are additional fees FHA loan borrowers pay to protect lenders against default or when a borrower fails to repay the loan. These premiums are required of borrowers who make a down payment of less than 20 percent.”
However, at HUD.gov in the online version of HUD 4000.1, the FHA Single-Family Lender’s Handbook, we learn:
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RELATED VIDEOS:
Sometimes It Pays to Refinance
Don't Forget Your Closing Checklist
Your Home Loan is Called a Mortgage
However, other issues are associated with FHA loans, specifically those you should know about in the “what you can and cannot do” department. For example, did you know you can finance certain closing costs, including the FHA upfront mortgage insurance premium?
You can’t finance a portion of that premium; you must either pay it in full, or finance it in full at closing time. There are other similar issues to know when you are still planning your mortgage.
No Cash at Closing Time for FHA Loans
Many articles (again, including some of our own) mention that you cannot get cash at closing time for an FHA purchase loan except in the form of a legitimate refund. However, there is another prohibition related to cash at closing time.
You cannot make a down payment or pay closing costs with cold, hard cash. You must render payment in the manner acceptable to the lender, which is typically a wire transfer or some other pre-arranged procedure for down payment money.
And at closing time, a personal check is viewed just like cash. Some don’t realize their personal check is no good at closing time for money down.
FHA Loans Allow You to Cancel Mortgage Insurance
This is a contentious issue for some. FHA loans require mortgage insurance for either the full term of the loan (for down payments less than 10%) or after 11 years (if you pay 10% down or more).
Without the higher down payment, you can’t get the option to cancel mortgage insurance after 11 years. For a 30-year mortgage, that makes 19 years without paying mortgage insurance, which can be a substantial savings.
Bad Information?
If you aren't clear, it’s essential to ask your lender directly about mortgage insurance premium issues. There is plenty of wrong information out there. For example, while researching this article, we found a post on Bankrate.com published on February 28, 2024, which claims:
“FHA mortgage insurance premiums (MIP) are additional fees FHA loan borrowers pay to protect lenders against default or when a borrower fails to repay the loan. These premiums are required of borrowers who make a down payment of less than 20 percent.”
However, at HUD.gov in the online version of HUD 4000.1, the FHA Single-Family Lender’s Handbook, we learn:
- Base Loan Amount
Less than or equal to $726,200 - Loan-to-Value
Equal to or greater than 90% - MIP
11 years - Base Loan Amount
Greater than $726,200 - LTV
Equal to or greater than 90% - MIP
11 years
------------------------------
RELATED VIDEOS:
Sometimes It Pays to Refinance
Don't Forget Your Closing Checklist
Your Home Loan is Called a Mortgage
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