Loan Modification

Low Mortgage Rates Providing Incentive for First Time Buyers

By Karen Lawson

Demand for home loans is low, home prices are affordable in many areas, and mortgage rates have reached record lows. These combined incentives are offering first time buyers opportunities for buying homes they may not have been able to afford several months ago. Before encouraging first timers to forge ahead with buying a home, it’s important to emphasize that many people are not buying homes due to concerns about the economy and employment. If you have doubts about either, follow your intuition and consult with a financial advisor before writing your last rent check and making an offer on a home.

FHA Guidelines Designed for Assisting First Time Buyers

Buying a home is neither cheap nor simple process. Conventional mortgage loans require 10 to 20 percent down along with closing costs at an average of another 3 to 5 percent of a new home’s purchase price. For a home costing $250,000, this would require a minimum down payment of $25,000 plus about $7500 in closing costs. This is why many renters can’t become homeowners; the cash requirements are prohibitive. The Federal Housing Administration (FHA) provides loan programs requiring minimum down payments of 3.5% and flexible underwriting guidelines that can be helpful for those with little or compromised credit. Although FHA guidelines also require borrowers to pay an up-front mortgage insurance premium (UFMIP), borrowers can roll this amount into their mortgage loans. FHA provides referrals to HUD approved housing counseling agencies that can help with navigating the home purchase process and finding your best deal on your FHA loan.

FHA Loans Offer Options for Paying Closing Costs

FHA allows buyers to accept cash gifts from friends, family, or funds from government housing finance agencies for meeting down payments and paying closing costs.

Sellers can contribute up to 3 percent of a home’s sale price toward buyer closing costs.

FHA lenders can pay closing costs for buyers in exchange for higher mortgage rates.

These options can help new homeowners avoid being broke from the moment they get the keys to their first homes. Most mortgage loans fail during the second and third year, so it’s important to have sufficient savings for meeting emergencies.

FHA Loans Can’t Help if You’re Not Prepared for Buying a Home

Buying a home only because rates are low can be a foolhardy decision if you’re not financially ready. Using mortgage prequalification calculators can help with estimating in advance how much you’ll need to qualify for an FHA loan. Contact several FHA lenders for mortgage quotes and answers to your questions. FHA lenders want your business and can provide information about FHA loan programs and resources including down payment assistance and homebuyer education sessions.

Full post as published by FHA Mortgage Guide on July 02, 2010 (boomark / email).