First Time Home Buyers
A first-time home buyer is defined as someone who has not owned a home in the last 3 years. Single parents who have owned or resided in a home with a spouse during the last 3 years are also first-time buyers.
A first-time buyer has the option of a conventional loan, FHA loan or VA loan (if qualified). You are not limited to one specific type of loan.
The advantage of an FHA
- Low down payment of 3.5% of the purchase price
- Down-payment is allowed to be a gift
- Great rates, lower than a conventional loan
- Not as picky about your credit score
- More forgiving of derogatory credit items
- Less time to wait after bankruptcy or short sale
- Flexible sources of down payment funds
- Seller is allowed to pay ALL of your closing costs
- Student loan payments do not count against you if deferred for 12 months
- The loan is assumable. If you sell your home and interest rates are higher (they will be) and someone qualifies for and FHA loan, they can assume your loan and your interest rate.
The biggest disadvantage to FHA is that in June of 2012, a change was made to the monthly mortgage insurance. It used to be that you had to have monthly mortgage insurance on an FHA loan for a minimum of 5 years and then it could go away. As of June 2012, monthly mortgage insurance on an FHA loan is for the life of that loan. That means that in order to have it go away, a refinance would be done once there was sufficient equity in the property.
Even with the above mortgage insurance rule in effect, it still makes sense for many home buyers to choose this loan as an option for a lot of reasons. I like to get with you and understand your situation (income, credit, cash to close) and show you the differences so that you understand them and can choose what is best for you.
A conventional loan is any loan that conforms to the guidelines of Fannie Mae or Freddie Mac. Almost every bank and every lender will do a conventional loan. If the loan follows the guidelines of Fannie or Freddie, then they can be sold to Fannie or Freddie.
Things to know about a Conventional loan:
- The minimum down payment is 5% of the purchase price
- The 5% is allowed to be a gift from a family member
- The seller can pay up to 3% of the sale price toward your closing costs
- If you put down less than 20%, you still have monthly mortgage insurance
- The monthly mortgage insurance is LESS per month than on an FHA loan
- The monthly mortgage insurance amount varies on the down-payment and credit score of the borrower.
- You have to keep the monthly mortgage insurance a minimum of 2 years
- In order to get rid of the monthly mortgage insurance after 2 years, certain things need to occur.
- The credit score of the borrower is important on a conventional loan and has an effect on the interest rate and the down-payment required.
- Less forgiving on credit issues.
- Counts 100% of all student loan payments even if they are deferred.
- Longer waiting times after a bankruptcy or short sale
Call us at any time and we will answer your questions. We are friendly and accessible, real people. We are in our 15th year of business, and we love to help. We'll sort out how much house you can buy, get you a pre-approval letter, and even assist you in finding a great realtor to work with if you need one.