Hi everyone, my sister and I are working on getting pre-approved for a house. Our credit is decent, and the loan officer says we might get a $450,000 loan with a 6.3% rate. It’s a 30-year FHA loan.
I don’t know much about interest rates, so I’d love to hear your thoughts.
Our combined income is $160,000.
Has your loan officer reviewed the payment details and their closing fees?
Yes, around $7,500 is needed for closing, and my job will cover $3,500 of that as part of an employee benefit.
Are there any fees for origination or discount points?
Why are you going with an FHA loan? Is it because of a low credit score or a high debt-to-income ratio? If neither of those applies to you, an FHA loan might not be the best option, even if you’re making a low down payment.
My credit score is 720, and I’m planning a down payment of $40,000. I thought a conventional loan was only suitable if I had a 20% down payment. However, my loan officer mentioned that we could apply for both options regardless.
720 is excellent. Will a purchase price of $450,000 be sufficient for you?
I believe so. I could even manage with $400,000. $450,000 felt a bit steep. Am I actually being taken advantage of, or is this a fair deal?
The rate may not appear very favorable, but there are several factors that haven’t been addressed. Additionally, being pre-approved for a rate today doesn’t hold much significance. The main priority should be to find a home first, then shop for the rate. 
Should I just allow this process to continue?
Don’t worry about the interest rate until you’ve found a home and have an accepted offer. Before that, anyone can present you with various options, but they won’t hold any real value.
Obtain a good faith estimate for your monthly mortgage payment from any lender and request three quotes before signing any documents. This estimate should include principal, interest, taxes, insurance, PMI, and other costs.
He hasn’t provided any written information containing numbers, not even in text messages. The only numbers mentioned were discussed over the phone.
One piece of advice is to avoid purchasing a home at the maximum mortgage amount for which you are pre-approved, as this may result in becoming house poor.
Are you inquiring if the rate is acceptable? It’s best to shop around and compare, as that will give you the best chance.
You’ll be paying more than $40,000 a year for your mortgage, which seems quite high given your $160,000 income.
Allocating 25% of their income to the mortgage isn’t ideal, but it’s also not problematic.
Insurance and taxes are very important in this context.
Apologies if this is a silly question.
Not silly; I’m just pointing out that it matters more than most people understand.