Month: May 2009

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.

Conventional Loans

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.

In the current employment market, it is no surprise that many people are wondering what they can do to prevent getting into difficulties with their mortgages if they lose their jobs.

The first thing to do is make sure you are living within your means. This sounds basic, but many homeowners – especially those with very low mortgage rates – have acquired other debt, with payments that, in some cases, are greater than those of the mortgage itself.

Making wise consumer choices will help leave extra funds each month that can be put away for a rainy day
The second action is to set up access to reserve funds, such as a home equity line of credit, to be used only in the case of an employment gap. Applying for a home equity line – let alone any type of mortgage – after employment has ended is an uphill challenge, unless there is another borrower in the household who can qualify on his or her own.

A home equity loan is ideal because the application process is normally much simpler than it is for a standard mortgage and often comes at no cost to the borrower.

With the recent tightening of lending standards, it might be a good idea to find out what your options are before you need them.

Homeowners often reap benefits renters miss out on, such as being able to write off mortgage interest and property taxes. Managing debt – to protect your home by being able to weather a financial debacle should it occur – therefore makes good sense. Check with your tax professional for more details.