FHA Loan Articles
Is There a Fee for Prepaying My FHA Loan?
When it comes to FHA mortgages, borrowers still need to read the fine print and ask questions, but fortunately they aren't subject to some of the same worries conventional or sub-prime borrowers may have to deal with; FHA loan regulations don't allow some "fine print" clauses-especially those giving the loan officer too much power over the borrower.
Consider the FHA's rules concerning early payments. When you apply for an FHA loan you might believe you'll stay in the same property for a long time. After all, who's thinking about another move when they buy their first home? Later down the line, situations may change; you may land a new job in another city or simply grow out of your first home. When the time comes, you may need to sell that first property and make a new application for an FHA home loan.
When homeowners sell or refinance a home, they are paying off the original loan early. Many sub-prime loans require the borrower to pay a penalty for prepayment. While this requirement is included in the contract, home loan paperwork is often lengthy and requires strict attention to the entire document. It's very easy for a first-time home buyer to feel overwhelmed by the documentation and miss important details including a prepayment penalty.
State laws often require your loan officer to provide you with advance notice of such penalties before you sign, but for those seeking FHA loans, such prepayment penalties are not allowed. FHA home loans may not contain prepayment penalties or a due on sale clause--except in specific circumstances where a due on sale clause is allowed when it's connected with the use of tax-exempt bond financing. A due-on-sale clause usually dictates you pay your loan off in full when you sell the home rather than signing a loan over to the new owners.
FHA mortgage rules governing pre-payment penalties protect the borrower from unnecessary fees, hidden expenses, and financial hardship. When a borrower comes to the FHA in good faith, FHA loan rules insure a fair deal for both the bank and the home owner. FHA regulations do prohibit a fee for prepayment of an FHA home loan, but you may be required to pay a sum if you pre-pay an FHA loan on any date past the first day of the month. In these cases you may have to pay interest until the end of the month. Whether or not you pay that interest is left to the lender's discretion and this practice is allowed under FHA rules. If you want to refinance or sell your home, make sure you pre-pay the FHA loan on the first of the month to avoid paying additional interest fees.