FHA Loan Planning for Borrowers

July 7, 2022

One of the first things a new borrower learns is that the planning stage of a home loan is a very  important part of the journey. Sorting out a home loan needs includes deciding about the type of home you might want, price ranges, and how large a down payment you want to make.

And then there are the important choices to make on things such as how you feel about the long-term occupancy of the home. 

Do you plan to sell within a short amount of time or will you own the home for many years? These issues can affect your loan choices, especially whether there are questions about buying discount points or choosing an adjustable rate mortgage.

Planning for your home loan means deciding in advance on things like how long you are able to wait if there are repairs or corrections to be made, and how much you are willing to spend out of pocket on up-front loan costs.

FHA Fixed Rate vs. FHA Adjustable Rate Mortgages

Why choose an adjustable or fixed rate mortgage? Those who choose an adjustable rate do better when they have a reason to do so.

What does this mean? If you are not planning to keep the home for the long term and choose to take advantage of lower interest rates offered in the introductory period of an FHA adjustable rate mortgage (ARM) you may have an advantage over a fixed rate mortgage. 

That is a good motivation to choose one. But you’ll want an exit strategy to deal with the rate adjustments that follow.

If you don’t have a plan to deal with those rate adjustments or aren’t sure it’s a good idea to choose one, a fixed-rate mortgage may be a much safer bet. Adjustable rate mortgages should be viewed as a tool to help you achieve specific goals which often include selling or refinancing when the rates begin to adjust.

 The FHA Loan Down Payment

The down payment is a serious issue. If you don’t have a specific amount to save it can be difficult to save that money. It’s good to have a specific amount in mind as early as possible. And your down payment could be affected by your FICO scores. It’s a good idea to shop around for a lender willing to work with your FICO score ranges.

FHA loan rules require a minimum 580 FICO score to qualify for 3.5% down (the lowest FHA loan down payment) but lender standards may be higher. Be sure to ask the lender how much higher. If you pay more down on the loan, your loan will be more affordable over its total lifetime. But do you plan to keep the home for the full loan term?

FHA Loan Closing Costs

 FHA loan rules impose an important rule-there is a big difference between your down payment and other closing costs. When you pay your closing costs, that money is not counted toward your down payment. These expenses are separate. 

The good news? You can negotiate with the seller to get help toward closing costs, which potentially frees up money you can put on toward your down payment. If you plan to do this ahead of time you can get comfortable with the idea long before you actually need to have that conversation.

Property Types 

Some FHA home loan options require more time than others. Building or repairing a home with an FHA loan will require additional time for the labor, the inspection of that labor, etc., Even something as common as permit approval times may affect how long your transaction takes.

If you are buying an existing construction home your process may be shorter, but if repairs or corrections are required as a condition of loan approval you may experience some delays as a result.

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