First Time Home Buyer?
Are you a first time home buyer? Buying your first home is not as difficult as it seems. There are many advantages of being a homeowner versus a renter. You do not need perfect credit nor do you need a lot of money to become a first time home buyer. You do need income, whether it is a full time job or income from other income sources such as social security income, pension income, or other income sources. You have come to the right website. We offer multiple online advice for first time home buyers and those home buyers who have had prior bad credit, prior bankruptcy, prior foreclosure, prior deed in lieu of foreclosure, as well as prior short sale.
Advice For First Time Home Buyers
Once you have decided to become a first time home buyer, you should due your due diligence and go over your personal finances and personal situation. How much rent are you currently paying? How much of a mortgage payment can you afford? Have you decided what area you want to live? How long do you plan on staying in the area you chose to buy? If you are intending on moving out of the area after a year or so, it may not be a good idea to buy a home. Do you have the 3.5% minimum down payment for a home purchase or can you get a gift for the down payment? You also need to consider that as a homeowner, you will be responsible for repairs and maintenance on your home as well as reserves in the event if something goes wrong like a broken furnace, or broken appliances.
Down Payment And Closing Costs
Down payment is required on home purchases and you will incur closing costs. FHA loan programs require a 3.5% minimum down payment. 5% down payment is required for conventional mortgage loans. Closing costs average around 2% of the home purchase price. However, if you can get a sellers concession towards a buyer’s closing costs, home buyers do not have to worry about closing costs. If you cannot get a seller to agree to give you a sellers concession towards a buyers closing costs, then your mortgage lender can cover most of the closing costs by giving you a mortgage lender’s credit towards a borrower’s closing costs by charging you a slightly higher rate. The down payment needs to be sourced and if you do not have the minimum down payment required, you can get the down payment from a family member and/or relative as a gift. The gift funds cannot be a loan and the donor needs to certify that the gift funds will not be paid back and is solely a gift.
Advantages Of Being Homeowner Versus Renter
There are many advantages of being a homeowner versus a renter. Sometimes your new mortgage on your new home is the same or lower than your current rental payments. One of the major advantages of being a homeowner is that you build equity over the time you own your home where as a renter, the rent you pay is a non recoverable expense. Mortgage interest, property taxes, and other housing expenses are often tax deductible. You are paying your mortgage instead of paying rent to your landlord so your landlord gains equity.
As a homeowner, you can decorate your home the way it suits you and your family without having to ask the landlord for permission. Many renters are not allowed to have pets but as a homeowner, you can decide to adopt any cats, dogs, or other pets without permission from your landlord.
What Do I Do Next Once I Decided To Be A Homeowner?
Once you have decided that you want to be a homeowner, the next step is to seek the advice of a mortgage lender. Mortgage lenders do not charge anything to pre-approve you. Your mortgage lender will ask you to complete a four page mortgage application, also known as a 1003. You need to state your gross monthly income, your asset information such as the money you have on your checking and saving account, IRA’s, 401k, investment accounts, employment information, social security number, date of birth, two years residential history, and complete a questionnaire which asks you about your past and present financial situation. You mortgage loan originator will then run a tri-merger credit report and go over the credit report with you to see if there are any inaccuracies reported on your credit report. You mortgage loan originator will then submit your mortgage application to Fannie Mae’s or Freddie Mac’s Automated Underwriting System for an automated approval. Once you get an automated approval per DU FINDINGS and/or LP FINDINGS, you will be issued a pre-approval letter. You can then hire a realtor and start shopping for your home.
What If I Have Bad Credit? Can I Still Get A Mortgage Loan Approval?
The minimum credit score required for a 3.5% FHA insured mortgage loan is 580 FICO. You can still qualify for a residential mortgage loan with prior bad credit. You can still qualify for a mortgage loan even if you have unsatisfied open collection accounts without having to pay them off. I strongly recommend that you do not pay off old collection accounts because by doing so, you re-activate your older collection account which will drop your credit score. Mortgage lenders do want to see that you have been timely with all of your payments in the past 12 months. One or two recent late payments are not deal breakers but a good letter of explanation will be required. Habitual late payers will have a problem and the worst case scenario, recent late payers might have to show six months of on time payment history. Overdrafts in the past 12 months are normally not allowed. One or two overdrafts will not be deal breakers but habitual recent overdrafts can be a problem. You can still qualify for a residential mortgage loan after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale. There is a mandatory waiting period of two years after the discharge date of a bankruptcy. There is a three year waiting period after the recorded date of a foreclosure and/or deed in lieu of foreclosure. There is a three year waiting period after the date of a short sale which is reflected on the HUD’s settlement date of the short sale.
HUD’s FHA BACK TO WORK EXTENUATING CIRCUMSTANCES DUE TO AN ECONOMIC EVENT
The United States Department of Housing and Urban Development has launch the new FHA BACK TO WORK EXTENUATING CIRCUMSTANCES DUE TO AN ECONOMIC EVENT mortgage loan program last August 15, 2013 where it waives the traditional waiting period after a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale. With the new FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program, a home buyer can qualify for a FHA insured mortgage loan one year after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale as long as he or she has been unemployed or underemployed for a least six months and the cause of the foreclosure, bankruptcy, deed in lieu of foreclosure, or short sale was the result of the unemployment and/or underemployment and the applicant needs to had a reduction of a 20% household income due to the economic event. Also, the FHA Back to Work mortgage loan applicant needs to have re-established their credit after the economic event and have had no late payments. The Back to Work Mortgage Loan applicant needs to have completed a one hour HUD approved housing course and have the certificate signed by the housing counselor. The mortgage applicant cannot formally apply for a FHA Back to Work mortgage loan until 30 days after completion of the HUD approved housing course.
Gustan Cho NMLS ID#873293