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Does it make sense to make additional payments when you have a FHA loan?

by caseykulig161 from , Massachusetts. Mar 19th 2014 Reply


Michelle Curtis Loan Originator NMLS 401173 (EmbassyFundingLLC)
#77 ranked lender in Florida - 2,240 contributions

Absolutely! If you make additional payments designated to go towards principle you will reduce the principle balance more quickly and shorten the term of your loan. Depending on when you got your FHA loan, once you reach 78% loan to value your MI would come off. If you took out your FHA loan recently and you were told you have MI for the life of the loan, you can refinance into a conventional loan as soon as you get your principle balance down to 80% loan to value or less.

Mar 19th 2014
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Richard Shapiro (RShapiro)
#12 ranked lender in Massachusetts - 71 contributions

That is a personal decision but my suggestion would be to bank your cash. If you have enough to make additional payments, saving it would be preferred. If you had an emergency, it would be difficult to get that $$ back since you have paid it into the mortgage. While banking it, you will have immediate access to it if needed. After a while if you have saved enough, your home has increased in value perhaps you can then use the cash to refinance and get rid of the Mortgage Insurance.

Mar 19th 2014
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Jarred Minieri (jarredminieri)
#11 ranked lender in Rhode Island - 20 contributions

Hi Casey, Making additional payments towards principal will reduce the balance and term of any loan. But just to clarify a point. If you have slightly older FHA loan (meaning your case # on your FHA loan was pulled prior to June 2013) your mortgage insurance would be scheduled to come off once you reach a 78% Loan to Value Ratio (based upon the original appraisal when you took your loan) or a minimum of 5 years. But just do not be misled that making additional payments to get under that 78% LTV ratio will make your mortgage insurance come off quicker on an FHA loan, it wont. Your mortgage insurance will stay on your loan for the term specified when you took your loan (This will be on a form in your closing documents). You cannot "accelerate" this process on an FHA loan. Although, you can explore the options of refinancing into a conventional loan. Even if you don't have 20% equity in your home yet and wound up with a conventional loan with Private Mortgage Insurance (PMI), that PMI is removable once you have 20% equity on a conventional loan. You can have an appraisal done any time to determine that and it uses current value of the home compared to your current loan balance. Depending on how much equity you have now, you may even not need to have any mortgage insurance anymore at all? If you'd like more information on the above, have any further questions or want to discuss in more detail and see what your home is currently worth, feel free to give me a ring. I am a local lender here in Seekonk, MA and I can do a complimentary analysis for you. Thanks, Jarred. (866) 640-5513 or jarred@betterfinancing.net

Mar 19th 2014
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Michelle Curtis Loan Originator NMLS 401173 (EmbassyFundingLLC)
#77 ranked lender in Florida - 2,240 contributions

by refinancing into the conventional loan at 80% loan to value or less you will no longer have to pay monthly MI.

Mar 19th 2014
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Jarred Minieri (jarredminieri)
#11 ranked lender in Rhode Island - 20 contributions

My contact info is (866) 640-5513 or e-mail: jarred@betterfinancing.net

Mar 19th 2014
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David Drakeford (david_drakeford)
#0 ranked lender in California - 63 contributions

It depends on what your specific goals are for this property and loan. If you have a loan term goal for this home and plenty of cash reserves will a stable job and income, then yes because you would be accelerating your loan by reducing the balance faster which would build equity quickly allowing you to get rid of your pmi. If you have limited cash reserves, not so stable income or if you intend to sell the property in the near future, it would make more sense to save your money for emergencies or even other financial investing. Give us a call, we'd love to assist with meeting your goals. 800-446-9043 ext 801

Mar 19th 2014
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William J Acres (William_Acres)
#73 ranked lender in Arizona - 8,726 contributions

As you can tell by the varying responses, its' not an easy question to answer.. for most that is.. My attitude is this.. CASH IS KING!! The more money you can keep in your bank account the better.. if you think of a home with a mortgage against it as an investment, and you run the test to determine how safe and stable your investment is, then the "paying extra" to the mortgage strategy would fail every time.. if you lose your job and are unable to make the payments, would the lender let you slide because you have paid all this extra towards the principal, and your equity position is high?? NO!! If you lose your job and wish to tap into that equity, can you just write a check against your home?? NO.. not without applying and without a job, your denied. In fact, if you paid $250K for your home , put $200K down and only borrowed $50K, and you lose your job the next week, you could lose your home to foreclosure if you don't make the payments.. regardless of how much equity you have.. Your cash is better off in a brokerage account where you can earn a higher rate of return than what you pay in interest on a mortgage.. This all being said, there's something about the feeling people get by owing a home free n clear.. if your not disciplined enough to take the extra monies you would have applied to a mortgage and deposit it into a brokerage account, then you might actually be better off paying extra on the mortgage. Just have a good understanding of how in-accessible the equity is in the event of a hardship, and how venerable you are If your unable to make payments.. .. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714 WilliamAcres.com

Mar 19th 2014
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Edward Fallon (edfallon)
#92 ranked lender in Pennsylvania - 143 contributions

You have choices. If your FHA loan is a little older, you can reduce the principal balance and eventually have the MIP drop off. However, do you know what the value of your home is now? Depending on what you bought the home for and how long you have owned it, you may have enough equity to refinance out of the FHA mortgage right now. Another option would be to invest the money instead and use it in the future to pay down your mortgage.

Mar 20th 2014
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