I am applying for a FHA home loan. The mortgage broker says the rate is 6.5% but the document states APR 7.5%?

Posted on Sep 19, 2012 in FHA Information

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Question by aginzo: Can you include closing costs into a FHA loan?
I am buying my first home here in Orlando, sildenafil Fl and I was told you can finance your closing costs within your FHA loan. Does anyone know out there that has come into this situation? Any Florida mortgage brokers out there?

Best answer:

Answer by Sw33tz
yes, you can. =)

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Question by George: I am applying for a FHA home loan. The mortgage broker says the rate is 6.5% but the document states APR 7.5%?
The broker says my rate will be around 6.5% but they have to state APR 7.5% because it has to includes Mortgage insurance because of not putting 20% down. Is this correct? I understand I have to pay the PMI but should my APR be around the 7%? The loan is around $ 400K 3% down.

Best answer:

Answer by Beverly S
It’s not just the mortgage insurance- it’s any closing costs involved which are classified as interest- so any points etc. are added to the APR & that rate is your 1st years combined rate. However, site a whole 1% difference seems excessive to me. Mine are usually about 1/2% higher. Sounds like they are hitting you pretty hard on closing costs. Also, mind I don’t like the sound of your broker saying your rate will be “around 6.5%” tell him to Lock it- FHA rates are rising 6.5 % is actually really good right now. Good luck!

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  1. the APR would also include fees, points, etc

    I’m guessing you are paying some points.

  2. Unfortunately APR in residential lending must include all costs to the borrower. This could include discount points. On an FHA loan MIP is required regardless of the amount of the down payment. PMI is only applicable to conventional loans as is the 80% or 20% down perspective. Youor broker doesn’t know what they are doing if they told you it was because you didn’t put 20% down. Your payments are based on the 6.5%. APR is simply a way to reflect what the cost of the loan is over a given period of time and amount. If you want to see how complicated the government makes this calculation determination check out the link to the FDIC source.

  3. If the mortgage interest is 6.5%, your APR should be 6.7%. Any higher and you are right to worry.

  4. If the PMI payments are included in the mortgage loan then yes the lender may write it out that way. However, I have not seen that done and I would have a long detailed talk with them to understand why they do it that way and then do the math yourself to see if the APR actually works out to that once PMI is added to the loan amount.