Factors Increasing Your FHA Loan Costs
April 28, 2025
How Long is Your Loan Term? Financial Implications of a 30-Year Mortgage
While a 30-year mortgage offers lower monthly payments than a 15-year loan, it also means paying interest over a much longer period. This extended repayment can result in significantly more total interest paid, even with the same interest rate.
Borrowers focusing solely on the lower monthly payment of a 30-year FHA loan might not fully realize the total borrowing cost until much later. Is your goal to save money over the lifetime of the mortgage? Consider a 15-year option as an alternative.
Buying Loan Discount Points
Loan discount points are paid to the lender at closing time. This is done in return for a lower interest rate. Your lender may offer you this option, which is typically wrong for those who don’t plan to keep the home long-term. Don’t pay for points when you know you’ll outgrow the home sooner rather than later.
One point typically equals 1% of the loan amount. While paying points can lower your monthly mortgage payments long-term, they represent an additional upfront cost.
Whether purchasing discount points is wise depends on how long you plan to stay in the home and the difference in interest rates between with and without points. If you plan to move relatively soon, the upfront cost of the points might outweigh the long-term savings. Borrowers need to analyze their individual circumstances and calculate whether purchasing discount points makes financial sense.
Hidden Costs of Closing Delays
Delays in the closing process can also lead to unexpected costs. Suppose the closing is delayed due to issues with the lender, the seller, or other parties. In that case, you might incur additional expenses such as extended rate lock fees if your initial interest rate lock expires. You might also face temporary housing costs or penalties if your move is delayed.
The Potential for Increased Costs Due to Special Assessments
If the property you purchase with an FHA loan is part of a homeowners association (HOA) or a condominium association, you could be subject to special assessments. The association levied these fees for unexpected expenses, such as major repairs. Special assessments can be substantial and can arise unexpectedly, increasing the overall cost of homeownership.
Informed Borrowing is Key
While FHA loans offer an affordable route to homeownership, prospective borrowers must look beyond the initial appeal. Are there natural disaster insurance issues to think about?
Does the lender charge an interest rate you feel is too high? Shopping around for the right lender is an essential aspect of this process. So is learning about the other various factors that can increase the overall cost.
Poor credit scores, rising interest rates, lender fees, required property inspections and repairs, the long-term commitment of MIP, and other often-overlooked expenses can make an FHA loan more expensive than you expect. Anticipate those added costs as early as possible.
FHA Loan Articles
November 12, 2024Escrow is an important feature of most typical FHA loans. An escrow account is a third-party account where borrowers deposit funds designated for property taxes and other uses. Requirements to use escrow accounts typically stems from a need to protect all parties involved in the transaction
November 2, 2024When it’s time to consider buying a home, the Federal Housing Administration (FHA) offers two popular options. One is the traditional FHA purchase loan many use to buy a house in the suburbs. But not everyone wants to buy an existing property. Some want more control over the design and configuration of the home.
The other FHA construction loan option, the one-time close mortgage, comes in here. This option is for those who want to approve floor plans, have a say in the types of materials used to build the home and choose its features.
October 31, 2024When buying a home for the first time, it helps to know how long the process can take. How do you know if your appraisal report is delayed if you don’t know how long the FHA allows for the process to be completed? How long does it take to get from the final offer to closing day? A “typical” FHA loan process may take up to 45 days from start to finish. Several factors can influence this timeline.
October 30, 2024Just because an FHA loan is designed to be more lenient with FICO scores and require a lower down payment doesn’t mean the house you buy with that loan is less than ideal. Did you know that FHA loans have minimum property standards to ensure the home is safe and livable? Those standards require the home to have an “economic life” for the entire term of the loan so you can freely sell the property later on if you choose to do so.
October 29, 2024Buying a home with an FHA mortgage is a major life decision, and preparation is essential before you start house hunting or consider making an offer on a property.
How to get started? In the early stages, establishing your budget and how much work you need to do on your credit is key. But once you have gotten past the initial phase of that planning you’ll want to consider the house itself and what you want from it.
