Adding Things to Your FHA Loan
February 15, 2024
Some borrowers don’t realize they can add things to their FHA home loan to avoid paying upfront for certain expenses they wish to pay off over time.
While add-ons to your FHA home loan can drive up the monthly payment, that’s a good trade-off for saving money upfront for some borrowers. For others, higher monthly payments are to be avoided. If that describes you, avoid adding on to your loan wherever possible.
Choose your add-ons carefully, and never forget to ask the lender how much each addition to your mortgage may increase your monthly payment.
Can I Finance the FHA Up-Front Mortgage Insurance Premium?
Yes, but with caveats. You must either finance the total amount or pay the total amount at closing time. You can’t finance a portion of the premium.
Can I Finance my Down Payment?
The short answer is no. FHA loan rules require a minimum cash investment from the borrower, which must be paid in cash at closing time as specified by the lender. You can receive down payment assistance from third parties, but that assistance must meet FHA and lender requirements.
Can I Finance Energy-Saving Improvements to my New Home?
Yes. There is an FHA program called the FHA Energy Efficient Mortgage, which allows extra loan money for approved upgrades to the home. You can add this amount to the loan without affecting the FHA loan limit since the money is applied after the basic FHA loan package is approved.
Can I Apply for a Larger Loan Than I Need and Take the Excess Cash at Closing?
No, Home loan money typically does not pass through to the borrower, and you can’t use a home loan like a personal loan. Any amount left over after the loan transaction reverts to the lender with a reduction in the loan amount in kind.
That is true of energy-efficient mortgages, FHA construction loans, and FHA renovation mortgages like the FHA 203(k) rehabilitation mortgage.
How Does the Lender Finance My Closing Costs?
You may receive a higher interest rate to compensate for closing costs. “Premium pricing” can allow you to include more in your mortgage, but as always, you should compare the costs of a loan with and without it.
------------------------------
RELATED VIDEOS:
There's a Difference Between APR and Interest Rates
Choose Your Mortgage Lender Carefully
Getting Started With Your FHA Loan Application
While add-ons to your FHA home loan can drive up the monthly payment, that’s a good trade-off for saving money upfront for some borrowers. For others, higher monthly payments are to be avoided. If that describes you, avoid adding on to your loan wherever possible.
Choose your add-ons carefully, and never forget to ask the lender how much each addition to your mortgage may increase your monthly payment.
Can I Finance the FHA Up-Front Mortgage Insurance Premium?
Yes, but with caveats. You must either finance the total amount or pay the total amount at closing time. You can’t finance a portion of the premium.
Can I Finance my Down Payment?
The short answer is no. FHA loan rules require a minimum cash investment from the borrower, which must be paid in cash at closing time as specified by the lender. You can receive down payment assistance from third parties, but that assistance must meet FHA and lender requirements.
Can I Finance Energy-Saving Improvements to my New Home?
Yes. There is an FHA program called the FHA Energy Efficient Mortgage, which allows extra loan money for approved upgrades to the home. You can add this amount to the loan without affecting the FHA loan limit since the money is applied after the basic FHA loan package is approved.
Can I Apply for a Larger Loan Than I Need and Take the Excess Cash at Closing?
No, Home loan money typically does not pass through to the borrower, and you can’t use a home loan like a personal loan. Any amount left over after the loan transaction reverts to the lender with a reduction in the loan amount in kind.
That is true of energy-efficient mortgages, FHA construction loans, and FHA renovation mortgages like the FHA 203(k) rehabilitation mortgage.
How Does the Lender Finance My Closing Costs?
You may receive a higher interest rate to compensate for closing costs. “Premium pricing” can allow you to include more in your mortgage, but as always, you should compare the costs of a loan with and without it.
------------------------------
RELATED VIDEOS:
There's a Difference Between APR and Interest Rates
Choose Your Mortgage Lender Carefully
Getting Started With Your FHA Loan Application
Do you know what's on your credit report?
Learn what your score means.
