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In past decades, it was believed that a FHA mortgage loan was a FHA mortgage loan no matter what type was chosen, because they weren't many options available. But that is not true anymore because of the many FHA mortgage loan products available today. So before choosing a FHA mortgage loan, it is very important to decide which one is right for you.
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Finding the right FHA mortgage loan means balancing your mortgage options with your housing requirements and financial picture, now and in the future. Also the right FHA mortgage is not just having the lowest interest rate but much more than that;. And this “much more” will be determined by your personal financial picture. Whether or not your financial picture reflects an ability to pay FHA mortgage payments on a monthly basis can be evaluated by answering the following questions:
- what does my current finances look like? Income, savings, reserves, debt, etc.
- Is my outstanding debt payments a large percentage of my income?
- Do I expect my finances to change in the coming months and years?
- Do I plan to or will I be able to payoff the mortgage loan before I retire?
- How long do I intend to keep my home anyway?
- Will I be comfortable with an adjustable (rate?) mortgage payment?
The answers to these questions will provide basic information which may help you to better determine your financial picture and home buying ability. Your next step is to decide on two key options:
- Mortgage length, and
- Type of interest rate (fixed interest rate or adjustable interest rate).
The length of a FHA mortgage loan is generally a minimum 15 years; but can be 20, 25, or a maximum 30 years (some lenders have offered 40 and 45 year terms, but they weren't, and still aren't very popular). While selecting a fixed or adjustable interest rate you should be aware of certain facts. 1) The adjustable interest rate on a FHA mortgage is more risky because the rate will change. 2) The fixed-rate loan offers more stability because it is locked-in after closing.
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Although you will be able to pay off a shorter-term loan more quickly, you must be sure that you can comfortably afford to pay the higher monthly payments before opting for the 15 year term. Long-term fixed-rate loans are popular because they offer certainty, and many people find that the payments are easier to fit into their budgets. Although, in the long run 30 year loans will cost you more in interest, you will have more available capital during the loan term when you need it, and you will be less likely to default on the loan should an emergency arise.
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In view of the above mentioned considerations, it is clear that the key to selecting the right FHA mortgage loan is how the new debt fits into your overall financial picture. Having payments fit comfortably within your budget is most important when taking on a big-ticket item expense such as a FHA mortgage loan.
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