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The Right Financing For First Time Buyers
First time buyers often have little to no credit depth, lower credit scores and a limited amount of resources for the down payment and closing costs. FHA mortgages addresses each one these issues. Let's start with credit depth. Often a first time buyer is younger and hasn't had the time to establish the traditional trade lines that an older borrower may have such as repayment history of student loans, car payments, and credit cards. FHA underwriting guidelines allow for what we term "non traditional credit" to be used. Non traditional credit is where a person is obligated for repayment, but the repayment history isn't necessarily reported on the credit report. Examples include rental payments to a landlord, cellular phone bills, utility bills like gas/electric and cable TV bills.
Credit scores are always important and used in underwriting loans. FHA allows for scores as low as 580. In certain circumstances, they may even go below this number with a file that warrants an exception if the file is manually underwritten. Today we are finding most conventional mortgage guidelines are requiring a 620 credit score or higher. FHA is moving towards risk based pricing. This means lower credit scores will have to pay a higher mortgage rate but the tradeoff is homeownership will still be possible. Another HUGE advantage of FHA is that they allow for a non occupying co-borrower to go on the loan and qualify with the borrower. Together, all borrowers become one for underwriting purposes. This means we take the income and credit of the co-borrower and combine it with that of the owner occupant borrower. We always default to the lower of the combined credit scores for underwriting. Imagine the possibilities of a self employed or non employed borrower combined with a much stronger co-borrower with a strong income.
Lastly, let's address money for the down payment and closing costs. Currently, FHA 203B loans require borrowers to put 3% of their funds into the transaction. The minimum down payment is 2.25% and the other .75 percent would be for a contribution towards closing costs or escrows for the total of 3%. Here's the good part-the 3% can be a gift from a relative or a qualified charity. Many of the down payment assistance providers (DPA) such as Nehemiah and Genesis are able to make the down payment a reality. The underwriting provisions regarding charity down payment providers are changing. I suggest you act quickly if you intend to explore that option.
Loans Are Available to Those in Chapter 13 Bankruptcy
Learning about FHA mortgage loan options will allow more borrowers to become homeowners. The opportunity to get a deal exists in today's real estate market. Real estate markets Minnesota to Arizona, and everywhere in between offer buyers to purchase real estate at discounted prices. If you are a buyer, "it's time to party like it's 1999", as the prices have been rolled back almost ten years.
Many prospective homebuyers with credit problems have been told they can't qualify for a mortgage because of a personal bankruptcy. There is a difference when qualifying for a mortgage-chapter 7 vs. chapter 13. Almost every mortgage program will require 2-4 year of time to have elapsed since the bankruptcy was discharged. They require a longer period with the chapter 7.
FHA mortgages look at things a little differently. If you have a chapter 13 bankruptcy and you've made the past 12 months payments on time, you are going to eligible for an FHA loan for either a purchase or refinance. The key point is how you've been paying your bills. If you've been paying as scheduled, and you qualify based on the debt ratio's you may be qualified to purchase the home of your dreams.
When obtaining mortgage financing, make sure the lender/broker you are working with can present you with ALL the financing options. If the company you've selected doesn't offer FHA loans, you may find out that you were waiting in the marketplace when you could have been buying a new home.
As a side note, neither FHA or conventional loans are willing to allow someone who has been foreclosed upon to obtain another loan quickly. You will have to demonstrate that you are worthy of having credit extend to you and that you have rebuilt your credit. VA mortgages are more lenient on having had a foreclosures-it is only 2 years before you are eligible for another VA loan.
First Time Buyer Tips And Considerations
Are you currently thinking about buying your first house? Real estate is a fantastic investment. Don't let the media hype fool you: low interest rates combined with reduced home prices make this an excellent economic environment for first-time home buyers. Here are a few tips to help you along the way.
The first and most important thing to remember is to buy only as much house as you can afford. Just because a lot of young people in your area are buying gigantic homes with acres of property and four car garages doesn't necessarily mean they could afford their mortgages. All you have to do is look at the foreclosures situation to see examples of people who purchased more than they should have.
Adjustable rate mortgages, or ARMs, have been exceedingly popular in the last ten years. When the housing market was on fire a few years ago, banks were giving out loans to practically anyone, regardless of their income or credit.
ARMs made it possible for people to buy enormous homes even though they didn't make a lot of money because they start out with low payments and then balloon as time passes. This is a big contributing factor to the current housing crisis. More and more people who had adjustable rate mortgage loans are defaulting as their homes go into foreclosure. I tell you this not to discourage you from looking at ARMS, but to help you understand the risks. In fact, FHA offers a great ARM that have 1% annual caps and a lifetime cap of 5%. This will beat any conventional ARM offered.
Because the banks are feeling the crunch, credit standards are being raised. If you are uncertain of your credit score, it is wise to check online with a company like Equifax, TransUnion or Experian to find out where you stand before you apply for a home loan. Clear up any financial loose ends and get your score looking the best it can before you start the home loan process. You'll get a better interest rate and have more leverage with lenders. It may even allow you to get 100% financing. Yes, you can still obtain 100% financing and you don't have to be a veteran.
As far as your down payment is concerned, you may want to come up with as much money as you possibly can. Why, you ask? PMI, or principal mortgage insurance, will add to your monthly payment until you've paid for twenty percent of your home. Even if you can't get that much money together, and most first time home buyers simply can't, try your best if you want to avoid PMI. As an added bonus, a nice down payment improves your chances of getting your loan in the first place.The good news is that your PMI might be deductible. You have to have an adjusted gross income of under 100K to deduct it all otherwise it will phase out when it reaches 110K.
You will pay half a percent to one and half percent of your loan value every year until it reaches approximately 75-80% of either the initial loan balance or of the market value. The rules are different for FHA and conventional loans and vary slightly. Generally,lenders won't tell you that you're eligible to get your PMI dropped from your payment. So, be sure to keep tabs on your remaining loan balance and contact your lender to get the PMI dropped. It will save you quite a bit of money in the long run.
Lastly, first-time home buyers will feel much better about purchasing their new home if they learn about the closing process and closing costs. We teach a first time buyer class where we cover this and much more. We recommend you seek out a similar class in your area.
The home buying process can be exhilarating and overwhelming, but the more knowledge first-time home buyers have on their side, the better off they are. Keep on learning and happy home buying! You will love your new home, and it will be one of the best investments you'll ever make.
Real Estate - It Could Be the Best Investment You'll Ever Make
"The housing market is falling apart! This is a horrible time to buy a home, or sell a home or even LIVE in a home!"
Have you been hearing a lot of news that sounds like this lately? Well, economists love, and I mean LOVE, to spread the gloom and doom. When the economy's going great, they don't get any attention. But as soon as the market changes, everybody's listening to them again. So, when you hear all that bad news, keep in mind that it sells newspapers.
That's certainly not to say the market hasn't changed. It is still changing, in fact. But that makes investing in real estate all the more enticing, if you know what you are doing.
But here's the skinny on investing in real estate. It is one of the best decisions you'll ever make. And guess what? I'm here to tell you that this is actually a GREAT time to buy.
There are very few purchases you will ever make in your life that will actually increase in value while you are using them every day. These are called INVESTMENTS, and anyone that knows anything about investments will tell you that good investors are in it for the long haul.
If you are thinking about investing in real estate in the current market, as long as you choose a property that is worthwhile and maintain it well, it will reward you with plenty of equity over the years. If you are a foolish investor that just wants to get in and out and turn a quick profit, this likely isn't the best market for you.
But if you are thinking of investing in real estate the smart way, using pragmatism and patience, this is a great time to buy. Prices have fallen on homes, and so have interest rates. So, you can lock in a mortgage at a fantastic rate and save money on your purchase price.
Prices will inevitably rise back up, and you'll be sitting pretty with a great interest rate and extra profit from your amazingly discounted price. Since sellers often have had their homes on the market for longer than they've wanted to, they may be willing to cut you a deal. That's all the better for you, and they will finally be able to get on with their lives. Everybody wins, especially your pocketbook.
If you are looking to buy a fixer-upper to rent out as an income property, this economy will benefit you, too. Because lenders are leery nowadays about handing out home loans to people with bad credit, and many people have lost their homes because their adjustable-rate mortgages went through the roof (literally), a surplus of renters is soon to hit the streets.
Just don't be overly eager to flip your investment property. If that's your intention, it might take some time before it sells in this market. But by all means, rent it out.
The economy might be cyclical, but history teaches us that investing in real estate is nearly always a great decision for the long term. Despite what the media tells you, today is no exception to the rule.
Getting a FHA Loan While In Chapter 13 Bankruptcy
Federal Housing Administration or FHA has a few programs to promote house ownership more quickly for those that have had to deal with a bankruptcy.
With FHA loans, home buyers are only required to put down a small down payment to purchase a home. FHA guarantees that if the borrower default, FHA will insure some of the loss on the sum of the loan. This assurance provides lenders and investors the piece of mind they need to make high loan to value loans. Almost everyone can apply for a FHA loan. However, to qualify for the loan, you will have to have a reasonable debt to income ratios. The most standard ratios are 31/43 but can deviate upward or downward based on circumstances. FHA loans are great because a buyer is only required to pay as little as 3% of the purchase price towards all costs. This is changing, and the new number is going to be 3.5%. FHA mortgage loans have no prepayment penalty, and sometimes provide possible leniency during financial difficulty.
There are many types of FHA loans available such as adjustable rate mortgages, fixed rate mortgages, graduated payment mortgages, energy efficient mortgages, mortgages for condominium units, and mortgages for 1-4 units if owner occupied. Choices is what it’s all about-different mortgages for different properties. Seek out a mortgage broker to help you make sure that you are applying for the right mortgage plan. When you get a FHA insured loan, you need to get mortgage insurance. This amounts to approximately .55% of the amount of the loan and is paid on a monthly basis with your mortgage payment. This is to protect the lenders from borrower’s default. FHA is an insured loan.
If you have problems in paying for the down payment, you can try to get a FHA cash down payment grant. There are many grants for those who have low income, first time buyer and moderate income buyers who are seeking for home ownerships. You can check out your local agencies and see if there is any of those grants available for application. If there is, make sure you apply for it as soon as possible. However, you need to be eligible to apply for it as this is not for everyone. Sometimes these grants are restricted to certain geographic areas.
Before approving a loan, FHA will analyze the borrower credit performance. It means they will perform a credit background check to make sure the credibility of the borrower. All of these loans are full documentation only. Like any loan, tt is very important to make sure that once you have been approved of a FHA loan to repay consistently to make sure that you have a clean credit background report. Late payments on the mortgage within 12 months could affect your ability to refinance that loan with FHA. You can get an FHA loan for buying a new property or to refinance your current property but you might not get it to buy a foreclosed property. There is a “flipping” provision that comes into play when dealing with foreclosed homes. Banks and bank management companies may be exempt. Check the current rules before making an offer on a home. The circumstances might change depending on the situation.
Do you know that you can apply for a FHA loan even if you haven’t been discharged from Chapter 13 bankruptcy? The truth is you can have a FHA loan when you have been on Chapter 13 bankruptcy for at least 12 to 13 months. It means that if you are in Chapter 13 bankruptcy and still paying for a mortgage for at least 12 months will good repayment record, the FHA will consider you for an FHA loan. Therefore you can refinance your property or buy a new property with the help of the FHA loan. Most conventional loan products require a bankruptcy to be discharged and there be a 2-4 year waiting period. FHA will get you in a home faster!
There are a few things you need to present to the FHA in order to apply for a FHA loan while in a bankruptcy. One of the most important things you need to is to give full details about why you file for a Chapter 13 bankruptcy and provide the documentation of on time payments. You will have to come clean and tell everything as little details will affect your FHA loan approval. You will probably have to write a letter of explanation explaining why the bankruptcy occurred, and why it is unlikely to occur in the future. Apart from that you must have a stable job as this will ensure that you can make the payments and that you are making an attempt at re-establishing a clean credit report. These factors are very important in determining whether or not you are eligible for the loan.
There are other documents that may be needed for underwriting. You have to state your residence for the last two years, your Social Security Numbers, your employers’ names and locations for the past two years, your gross monthly salary for your current job and your check or savings account information and reports. You will also need to submit you pay stubs and W-2 forms for the last two years. These are just partial of what you need to submit to the FHA. It might be tedious but it is definitely worth the hassle as you will be able buy a property or refinance your current property.
Considering that FHA loans are the most accessible to those who are in Chapter 13, it is worth trying to apply first for an FHA loan if you find yourself in that situation. The FHA lending limits depends on the states so you need to check with your state if you want to know the limits.
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