Jeff Ragan asked: So, you want to buy a home. I congratulate you. Now, you need to know what first time home buyer programs are right for you. Where do we begin?
Let’s get down to the basics. First you want to have your credit file in order. By this I mean, no collections or late payments in the last 2 years.
Assuming this is the case, you can begin shopping around for some first time home buyer programs. There are plenty out there. But, for the sake of time and space in this article, I’m going to share with you two options. FHA and VA.
Once you get a feel for these two programs, you will have the knowledge to talk the talk and walk the walk. There are others programs however.
FHA FIRST TIME HOME BUYER PROGRAMS Now, hands down the FHA is one of the best first time home buyer programs. Why? It has relaxed credit standards over the conventional loan and also has a low down payment feature.
First let’s talk about the credit requirements. In the past FHA would let you buy a home without any credit score at all. Now they seem to be requesting a score around 620. This is still lower than a conventional loan which requires 700 and above.
A credit file is not all that hard to build if you do not have one. Talk with a large national lender about this. Look for a loan officer that has years of experience with FHA home loans. He/she can give you some ideas.
When it comes to a down payment, FHA since 1934 has offered this 3% low down payment option. This makes it possible for you, the first time home buyer to get into a home with very little money.
In fact, the down payment can even be a gift from a relative or charity. I’ve written other articles about down payment assistance, which are awesome when you see how they work. You can in effect buy a house with no money down.
FHA loans do have MIP or a mortgage insurance premium of 1.75% of the loan amount. You have to pay this up front at the loan closing. This amount is added onto your original mortgage amount. So it increases your payment by about .55% of the loan amount until you pay off the mortgage.
If you ever go to sell a house that has FHA mortgage insurance on it, or pay off the loan early you may be entitled to a refund of this insurance premium. Check with your lender about this.
VA FIRST TIME HOME BUYER PROGRAMSNow the VA loan program is even better. However, you must be a veteran to take advantage of these first time home buyer programs.
When it comes to credit, the VA loan works much the same way as the FHA home loan. So I’m not going to spend much time on this. VA loans may allow a little bit lower credit score.
With the VA home loan, the down payment and MIP is a horse of a different color.
VA loans require NO DOWN PAYMENT. Yes they are 100% financing. Again this is a benefit for veterans only.
The mortgage insurance premium is another reason the VA loan is for first time home buyers. They do not have any MIP to be paid. HUD guarantees the loan 100%. However, there is a VA Funding fee which could range from 0-3% of the loan amount. If the veteran is injured in combat and can have this documented by the VA, then it is 0% funding fee.
So unlike the FHA loan which your loan amount and payment increases slightly, with a VA loan the payment amount does not increase, but the loan amount may increase because of the funding fee.
This is the best loan option if you ask me.
Let me tell you a brief story about a VA loan I did several years ago. There was this really nice couple with one child that wanted to buy a home.
They came to me for a mortgage. After talking with them I learned he was a veteran. When I discussed the benefits of a VA loan they got excited.
He was an injured Vet and had the paperwork to prove it. He had been permanently injured in the face because of shrapnel.
So a long story made short, they bought a house for $97,000 with no money down and no VA funding fee. If I recall the maximum out of pocket he put into the deal was less than $600.
Now they are buying a home for less than what they were paying in rent. Again, what VA offers is one of the greatest of all first time home buyer programs.
Explore all your options when looking for a mortgage. Ask questions of your loan officer. Be sure to get your education first, then go looking.
Gina
