By Jason Boone
In 2014 there are a lot of home buyers who are on the “rebound” financially after the recent housing crisis since their credit scores recently took huge hits due to foreclosure, short sale and bankruptcy.
FHA mortgages have been the “savior” for many people who thought they wouldn’t be able to own homes again but the reality with FHA mortgages is that they aren’t always the right option for home buyers especially when you weigh the hidden costs.
You Will Pay More For Mortgage Insurance
Banks are willing to offer FHA loans to people with credit scores that are as low as 580 because, they know that one of the requirements for someone to obtain an FHA loan is that they will pay higher mortgage insurance than someone who has a conventional loan.
For example: let’s say that you purchase a $300,000 home and you pay a low down payment of 3.5%, you expect to pay up to $5,066 up front in closing costs and then close to $4,000 per year in mortgage insurance.
What A Higher Loan Balance Really Means
Yes, FHA loans look ideal because, you can get into a home by putting practically nothing down but the reality is that by using a smaller down payment when purchasing a home you can expect a higher monthly down payment.
Example: On the same $300,000 home you will be financing $240,000 if you put down 20% and obtain a 30-year fixed conventional loan.
With an FHA loan you will put down 3.5% on the $300,000 home and this means your mortgage payment will be close to 20% higher with an FHA loan especially when you add in the cost of mortgage insurance.
Think About The Long Term When Choosing An FHA Mortgage
Let’s fast forward in time and say that you purchased that $300,000 home in Bend thanks to an FHA mortgage and you put down 3.5%.
Your monthly mortgage payment for the principal and interest of the loan would be about $1,400 more per month and when you add mortgage insurance to that monthly payment your total monthly payment would be over $1,700 per month or close to 50% higher than what it would be with a conventional mortgage.
Ultimately choosing an FHA mortgage is up to you but before you sign the loan document for an FHA mortgage it’s important to weigh all of the costs involved.
For more Real Estate tips or to view the latest Bend Oregon Homes for sale contact me, Jason Boone, Principal Broker at Duke Warner Realty | Skjersaa Group by calling me at (541) 383-1426 or by emailing me at Jason@sgbend.com.