Loan Modification

Falling Home Prices Increase Affordability for FHA Borrowers

By Karen Lawson

For home buyers, housing news is both good and not so good with MSNBC reporting prices of existing homes falling to 15 year lows and ongoing coverage of FHA mortgage insurance premiums being raised. For those buying their first homes, the combination of lower home prices and lenient FHA guidelines can make buying a home affordable. Unfortunately, many would-be buyers remain fearful of their job security, and are putting off buying until the economy and related employment figures stabilize. What should you do? We can’t offer any definite solutions, but these factors can help with exploring your options:

• Sufficient savings: FHA loan requirements allow a minimum down payment of 3.5 percent for most borrowers, but you’ll also have to pay for up-front mortgage insurance and closing costs. It’s a good idea to have at least 10 percent of your estimated home purchase price saved toward meeting these costs and any surprise expenses.
• Your readiness for owning a home: Having enough for meeting your down payment and closing costs is important, but money isn’t the only criteria for being ready to purchase a home. What about your career goals now and in the future? If you may relocate soon, buying a home right away isn’t a priority. Are you prepared for the work required for maintaining a home? You’ll need to budget for maintenance, repairs, and for paying insurance premiums and property taxes. If this sounds like a drag, you may be better off renting. If your career requires excessive traveling and/or overtime, you may not have time for maintaining a home.
• Considering your personal perspective: Although concerns about employment are distressing, considering your own employment situation can help with deciding whether or not to buying a home now makes sense. Most homes are financed with mortgage loans of 15 to 30 years duration; no one can predict what can occur over the life of a mortgage loan. If you’ve held your job for a few years and are reasonably certain that your job is secure, this is a good time to take advantage of low FHA mortgage rates and lower home prices.
• Debt management: Higher credit scores can help with qualifying for lower mortgage rates and fewer lender fees. Reducing debt also lowers your debt to income ratios. This ratio is calculated by dividing the amount of your monthly debt obligations by your gross monthly income. The less debt you have, the more financially responsible you appear to mortgage lenders.
• Local economic trends: How are home prices doing in your neighborhood?/ What’s the latest news about unemployment in your area, and in your career field? Keeping up with local trends can help with making your decision to buy a home.

FHA guidelines also allow for cash gifts from relatives or friends, and alternative methods of verifying credit. Lower home prices and flexible FHA loan underwriting offer an excellent incentive for buying your first home.

Full post as published by FHA Mortgage Guide on August 24, 2010 (boomark / email).