Answers to Five Important FHA Loan Questions
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How Much Can I Borrow with an FHA Mortgage?
Borrowers should use an online mortgage calculator to determine how much loan they can afford, based on the idea that the loan should not exceed a certain percentage of their gross monthly income.
For FHA loans, that is typically 31% (at least on paper.) Your loan amount is dictated in part by the appraised value of the home and the FHA loan limit for your area.
How Much Should I Borrow?
Just because you can borrow up to 96.5% of the home's sale price (the other 3.5% is your down payment) doesn’t mean you should.
Borrowers interested in saving more money on interest over the loan's lifetime or who want to avoid paying mortgage insurance for the entire term should consider making a 10% down payment instead.
Do I Need Earnest Money With an FHA Mortgage?
Earnest money is a powerful tool in negotiating, and it’s advisable to have it ready. Don’t skip saving up for this expense. It’s a necessary part of doing business when buying a house.
The thing to remember about earnest money? You won’t lose it if the house is appraised for a lower than the asking price and you choose to walk away.
Do I Need Special Insurance to Own a Home?
The lender will require you to carry mortgage insurance on your FHA loan for either 11 years or the loan's lifetime, depending on factors including how large your down payment is.
You may also need to carry hazard insurance, and homeowners insurance is an important part of your new budget.
Should I Buy a House Even When Interest Rates Are Higher Than Normal?
This is a bit of a loaded question since it assumes that rates may fall back into the 5% range we all got used to in years past. Indications point to a possible new normal at higher levels, and it may only be a matter of time before the market adjusts to accept this concept.
The idea of waiting for the rates to drop back to the levels we expected in the past is losing its appeal for some house hunters. If that describes you, consider taking other steps to cut long-tail costs when buying a home to offset higher mortgage rates.
You can do that by negotiating seller concessions, making a larger down payment (see above) and paying more of your closing costs in cash rather than financing them.
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