As home prices continue to decline across the nation, unprecedented opportunities have appeared for the first-time home buyer and for those who are currently looking to buy without first having to sell another home.
Income, credit and the amount of down payment will of course determine the best program to use for an individual borrower.
For this article, let’s take a look at a first-time home buyer who has two years of stable employment and 3.5% or less to put down on a property.
Federal Housing Administration
The FHA, which has changed slightly its guidelines since last year, is looking for a down payment of at least 3.5% from the borrower’s own funds or via a gift from a close relative.
While there is an upfront mortgage insurance premium (financeable) of 1.75% of the loan amount and a monthly mortgage insurance premium, the FHA allows lower credit scores than do conventional loans.
It also discounts the issue of markets with declining property values, unlike conventional loans, which take markets with falling property values into account.
With a conventional loan, depending on where the property is located, a borrower may put down as little as 3%. Credit requirements are much tighter than with the FHA at this level of down payment, and income requirements are about the same, but borrowers will bypass the upfront premium. They must still pay a monthly premium, however.
For the buyer interested in purchasing one of the many foreclosures available these days, specifically ones that need extensive repairs, the FHA has a program called a 203(k).
This is a rehabilitation and repair program that allows the buyer to borrow, in one loan, funds to buy the home that they, themselves, intend to live in, plus enough to do at least $5,000 of rehab and repair work.