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FHA and Prepayment question

We have financed our loan as FHA and had some questions .We went with the builder's preffered lender due to the incentives given by them.On the Truth In Lending disclosure,I noticed that the lender has checked for the disclosure which states that there might be a penalty if we pay the loan early.This I assume pertains to Pre-payment penalty.I was under the impression that FHA loans do not have any pre-payment penalty.Secondly,are the APR's usually a lot higher than interest rate.I was given rate at 5.000% but the APR was in the high 5.5's.Would appreciate if anyone can answer these. by johnquam from Palm Bay, Florida. Oct 16th 2009 Reply


Leo Harvey (LHARVEY)
#7 ranked lender in Pennsylvania - 142 contributions

A lot of lenders will check that there may be a pre-payment penalty on FHA loans because of the 30 day interest payment requirement at loan satisfaction even though the loan has not accrued the interest. To make it simpler to understand let's say you re-finance your FHA loan again and close on the 2nd day of the month. Your existing loan will be paid off on the 6th day of the month( assuming 3 day recission). The payoff amount will include interest for the entire month which could be interpreted as a penalty. To avoid compliance issues with RESPA this disclosure is made to the borrower. FHA loans do not have a pre-payment penalty.APR rates are always higher than the note rate because they include most of the costs incurred to close the loan. This is one of the most confusing documents in the loan process to most borrowers.

Oct 21st 2009
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