Thinking of an FHA loan? Here’s how to Save some Money
Over the past year or so, FHA loan standards have changed to the point where borrowers that qualified for a conventional loan were better off going that route than getting an FHA-backed loan. This mostly has to do with the changes in FHA’s mortgage insurance premiums (MIP — its version of PMI), which make the cost of the FHA loan, over its life, more expensive.
Many borrowers, however, don’t have a choice. Whether they lack sufficient down payment funds or a healthy FICO score, their only choice is to go with a government-backed loan. If you fall into that category, read on for a way to save at least a little money when you go with the FHA loan.
HAWK
“Homeowners Armed with Knowledge,” or HAWK, is a program that FHA announced in the spring. It offers incentives to borrowers who agree to an educational and counselling program before purchasing a home.
These incentives include a reduction in the cost of the upfront MIP payment, a reduction in the annual MIP requirement and, maybe even a reduction in your monthly MIP payment. The latter depends on your payment history over the first 24 months of the loan.
How HAWK Works
HAWK is for first-time buyers only. If you haven’t owned a home within 36 months before applying for the FHA loan, you’re considered a first-time buyer.
You’ll be required to attend several counselling sessions. These sessions must be with an FHA-approved agency. You can find them on HUD’s website.
The first six-hour session must occur before you sign an offer to purchase a home.
The second required session must be undertaken before closing on the home purchase. Only one hour of counseling is required. During this session the counsellor will go over all of the loan information and requirements and talk about the various costs of homeownership.
The third session occurs after you close on the home. This is a one-hour counselling session in which you’ll learn how to budget your money and get advice on how to deal with a financial emergency.
Your Savings
Now, if you complete all the counselling requirements and avoid 90-day late pays on your house payments during the first 18 months you own the home, you may be given a 0.15 percentage point reduction in your MIP.
HUD figures that the HAWK program will save the average buyer “ approximately $325 a year – or almost $9,800 over the life of their loan.”
Let me know if you have questions about HAWK.
