Budgeting to Buy a House With an FHA Mortgage
Here is a list of items you should plan and save for. Be advised that this is NOT a complete list, as you may encounter expenses that others do not. But it’s a good place to begin planning and saving.
Save Up for Your FHA Loan Down Payment
The lowest down payment possible is 3.5% of the purchase price of the home. But if your FICO scores fall outside the range that qualifies for this down payment, you may have to save 10% of the purchase price instead.
That’s one reason why it pays to start working on your credit at least a year before any home loan application.
Save for the FHA Loan Up Front Mortgage Insurance Premium (FHA UFMIP)
While borrowers can finance the FHA UFMIP, you should at least run the numbers and see how paying this in cash may affect your monthly mortgage payment.
The same is true of any closing cost you may need to have financed. How much does your mortgage payment go up each month with each add-on to the mortgage loan amount?
Anticipate Certain Costs
You may or may not have to pay a pest inspection fee, a compliance inspection fee, costs related to the title, and even legal fees if you choose to hire a lawyer to review your legally binding real estate contract.
Saving early for these expenses is smart, and if you wind up not needing those savings later on you can always apply the money toward your down payment or other house-buying costs.
One important area some overlook in the early budgeting and planning stages? Moving expenses. Do you need a moving truck to move into your new home? Will you move your own goods or pay a moving crew to do it for you?
Consider Seller Concessions
In a housing market with less competition for the existing inventory, you may be able to negotiate with the seller for up to six percent of the sale price of the home in seller concessions. These concessions are the seller agreeing to pay closing costs on the home loan up to six percent of the asking price.
In a more competitive housing market, this may not be an option as sellers may have plenty of offers that don’t require them to pay such closing costs. If you are counting on that six percent break in closing costs, you may need to do some homework on the housing market to see if seller concessions are off the table due to heavy competition for homes in the area.
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