If You Are Buying With an FHA Loan and Think It Is 15 or 30 Years, Read This
If you are buying a home with an FHA loan and you think your only choices are 15 years or 30 years, this is for you. Carol thought the same thing, and one sentence in the FHA guideline changed the question she asked her loan officer.
Meet Carol
Carol is a fictional, illustrative homebuyer near Goose Creek, SC. She stands in for a situation that comes up often: a buyer who has a payoff timeline in mind, looks at the term options she has seen, and assumes loan terms only come in five-year steps. Fifteen, twenty, twenty-five, thirty. Her timeline fell between those steps, so she figured she would have to bend her plan to fit the menu.
That assumption is common, and it is understandable. Round numbers are easy to print on a flyer or put in a calculator dropdown. But an easy-to-print number is not the same as a rule.
What the FHA guideline actually says
Section II.A.2.d of the FHA guideline says this:
"The maximum mortgage term may not exceed 30 years from the date that amortization begins. FHA does not require that mortgage terms be in five year multiples."
There are two sentences there, and each does a different job.
The first sets a ceiling. Thirty years, counted from the date amortization begins, is the longest an FHA mortgage term can run.
The second removes a limit people assume exists. FHA does not require terms to be in five year multiples. So the guideline itself does not force a buyer onto a list of 15, 20, 25 or 30.
A ceiling is not a menu
This is the part Carol missed. She read 30 years as one of two or four items on a menu. The guideline treats it as an upper limit. Below that limit, the five-year habit is a habit, not an FHA requirement.
That matters because the term you choose shapes the whole loan. In general terms, a shorter term means you pay the loan off sooner and pay less total interest, while a longer term spreads the balance out and usually makes each payment smaller. The right balance depends on your budget and your goals, and you cannot weigh it well if the only options on the table are the ones somebody else picked.
What Carol does with it
Carol stops shopping from a list and starts from her own timeline. She decides the payoff length she is truly aiming for, and she asks her loan officer this:
"The FHA guideline, Section II.A.2.d, says the maximum term is 30 years and that FHA does not require terms in five year multiples. Can you show me my loan at 30 years and at the exact number of years I am aiming for, side by side?"
Then she requests a Loan Estimate for each term. That second step is important. A conversation is easy to forget. Two Loan Estimates are on paper, and you can set them next to each other and compare the terms, the costs and the payments line by line.
How to compare the two side by side
Once you have both Loan Estimates, check these things:
- The loan term on each one, so you know you are comparing the lengths you asked for.
- The payment on each, and whether it fits your monthly budget comfortably.
- The closing costs listed on each, to see whether the term changes them.
- How long you realistically plan to stay in the home and what you want the loan to accomplish.
You are not trying to find a trick. You are trying to see your real options clearly enough to choose one on purpose.
One honest caution
The guideline tells you what FHA permits. It does not promise that every lender offers every possible term or prices each one the same way. That is exactly why you ask for the comparison in writing. Your qualification also still depends on the usual things, such as your income, credit and the property. This article is educational, not a loan approval or a commitment.
What you can do today
Write down the number of years you are aiming to pay the loan off. Ask the question above, word for word if you like. Request a Loan Estimate for 30 years and for your target term. Then compare them.
If you want help running that comparison, I am glad to walk you through it. I am Jason Sharon with Home Loans Inc, and I find the path. Call me at 843-LOW-RATE.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: If You Are Buying With an FHA Loan and Think It Is 15 or 30 Years, Read This
