When you start shopping for a car, you might be more concerned with additional features and specialty paint jobs than you are about the monthly bill. Unfortunately, the wrong financing can cost you dearly. Compound interest never sleeps, which means that you might be paying much more than you should if you work with the wrong lender. I want to help you to make great financial decisions, which is why I created this website. However, if you can remember a few tricks and keep those payments to a minimum, you can drive away with the car of your dreams without breaking the bank.
FHA loans differ from conventional loans in several ways. However, their different characteristics are most evident during the closing process. Closing on an FHA loan is not a complicated process, but there are some do's and don'ts that can improve your experience. Learn about some of them here.
Credit Reevaluation
With a conventional loan, a high credit score is required, whereas, with an FHA loan, an individual with a lower credit score still has the opportunity to become a homeowner. However, lower standards do not mean nonexistent standards. As part of the closing process, the lender may reevaluate your credit score. If there is a significant change between your current score and the score at the time of the initial approval, the loan terms could change.
Mortgage Insurance
With a conventional loan, the borrower is not required to provide and maintain mortgage insurance once a certain amount of equity in the home has been met, such as 20%. So, if the borrower provides a 20% down payment at closing, they don't have to carry the insurance. With an FHA loan, you will be required to show documentation that you have mortgage insurance, no matter the amount of down payment you provide for the purchase. You are also required to maintain the insurance through the life of the loan.
Tenancy Requirements
If you plan to secure an FHA loan, ensure your goal is not to secure the loan for a rental property. With an FHA loan, a part of the requirement is that the borrower also be an occupant of the property. So, if your plan is to buy the home and rent it out, the FHA route is not going to work, at least not initially. The terms of your loan will provide you with details on how long you have to stay in the property. Once this occupancy requirement is fulfilled, you can rent the property.
Health and Safety
Since the Federal Housing Administration plays a large role in the buying process, they do want to ensure that the property any borrower is purchasing with an FHA loan is inhabitable. As a result, with an FHA loan, the property appraisal is required to detail any existing or potential health or hazardous concerns that exist with the property. With a conventional loan, this step is not always necessary depending on state law.
The above represent just some of the differences you can expect with an FHA loan. Speak with a loan specialist for further detail about any differences you can expect with your loan closing process.
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