Home buying is often a very expensive process. Most first time home buyers try to secure financing as quickly as possible so they can purchase their new house. However, securing financing can be extremely stressful for first time home buyers. After all, there are many offers to consider, many financial programs to evaluate and many offers with different terms and conditions. Before you agree to any offer, make sure you understand every aspect of the contract and that you fully understand the cost and commitment. Here is what you need to know when considering a loan for your new home purchase.
First, if you cannot qualify for a zero down payment, there is a good possibility that you will qualify for some type of payment assistance. Loan programs designed to assist first time buyers are available from both the federal government and from your local real estate agents. The federal government offers the FHA Secure Credit Certificate program which allows first time home buyers to borrow up to the full amount of closing costs up to the maximum amount of Equity. In this article (issued in June of 2021), we discussed the options that first time buyers have under the FHA program and some things that you should definitely not do.
A. Using Gift Funds – If you’re unable to obtain down payment assistance through the federal government, you may qualify for a gift fund from a family member or a friend. In order to qualify for a gift fund, you must meet certain requirements. In most cases, you will need to be a U.S. citizen, at least 18 years old, and currently not delinquent on your mortgage. In addition, you must meet income requirements based on the average gross monthly salary in order to receive the maximum gift fund.
B. FHA Loans – Qualifies for a FHA Loan is often difficult if you have a poor credit score. Fortunately, there are third party companies that specialize in providing mortgages to first time home buyer. These companies will often require that you meet special requirements in order to secure your loan. However, the costs associated with these services can often offset the benefits. In addition, if your credit score is truly bad, the mortgage rates that come from FHA loans are generally better.
C. Fannie Mae Home Ready Loan – Qualifies for a Fannie Mae Home Ready Loan requires you to have cash available to make the initial down payment. In most cases, this cash is rolled into a mortgage at the same time that the loan is processed. In addition, your income will need to be documented as well as your debt to income ratio. As you may know, a Fannie Mae homebuyer loan has very restrictive guidelines, and they generally don’t allow individuals with bad credit to qualify.
D. Government Housing Office – There is a program that is similar to the Fannie Mae program. This program is called the First Time Home Buyer Assistance Program (FOWBA). Qualifying for this loan program requires that you make the full payment on your first time home buyer mortgage loan. In many cases, this includes paying a portion of your closing costs. This is money that you do not have to repay until you have completed paying off your first mortgage.
E. Mortgage Credit Counseling – A loan that is supported by federal money allows first time home buyers to get their mortgage loan approved. To qualify, you must agree to a plan that helps reduce your monthly payments. Usually, the monthly payments involved in this type of loan are only twenty-five to thirty percent of the loan amount. The lender is also required to submit documentation showing that your monthly payments will be at an affordable level. If you do not qualify for this type of loan, the lender may offer you another type of loan that has a higher interest rate, although you will pay more interest overall.
F. Settlement or Refinancing Loan – With the assistance of third party organizations, you can get a payment assistance program that reduces your mortgage loan amount. You can also request assistance from a lender to reduce the overall amount of your loan. These programs can give you a lower interest rate on your first mortgage, or provide you with a tax credit relief. Most lenders offer both kinds of payment assistance programs. It is important to compare loan offers to find the best solution for your personal situation.