Is a 5.35% interest rate worth it?!

[Corderos SMith]

Longtime reader first time poster. So my finace and took the first step towards purchasing a home. We recently got an estimated FHA loan approval for $125,000, our lender said she can use a tsahc (Texas state affordable housing corporation) grant that will put up to 5% towards the downpayment, which is only 3.5% because the FHA loan.

The dilemma is that the tsachc requires a 5.375% interest rate on the loan! Is the interest rate a little ridiculous or does it even out because its basically no money down. I can always refinance right? Should I visit other lenders?

By the time we plan to buy around Mayish of next year I will have about $10,000 saved up. We're located in the DFW area so as you know deals go fast ! Any help is appreciated.