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    Expert Lending Tips for First-Time Homebuyers

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    Today, Tripper from Prosperity Mortgage is here with me again to discuss FHA loan programs. FHA loans can really benefit first-time homebuyers.

    It’s not a requirement for first-time homebuyers to use an FHA loan. However, you cannot have another FHA loan if you already have one.

    Unlike conventional loans, which require at least 5% down, FHA loans only require 3.5% down. The mortgage insurance factor is also fixed, so people who have a limited credit score or a lower credit score can save more money.

    Also, your 3.5% down payment can be a gift from a relative. That way, you don’t have to have your down payment saved already.

    Let’s say you purchase a $100,000 home with an FHA loan. You would need $3,500 for your down payment, which you can get as a gift from a relative. You can also take that out of your 401(k) if you’ve been at your job for a couple of years.

    FHA loans offer lower down payments and more assistance for closing costs.

    Even if you have mediocre credit, you can qualify for an FHA loan. Your score can be as low as 580, but you really need a 600 or better in order to use the 3.5% down payment. Optimally, your score would be higher than 640 in order to get a lower interest rate.

    Every loan comes with closing costs. The nice thing about FHA loans and other government subsidized loans is that, unlike conventional loans—which cap closing cost assistance at 3.5% of the sales price—you can get up to 6% of the sales price in closing cost assistance from the seller.

    So, if you buy that $100,000 house and you need $6,000 for closing costs, you could ask the buyer to cover the closing costs. That way, you only have to worry about the $3,500 down payment.

    The seller will look at their net number. In this case, if they give you $6,000, they only net $94,000. Nowadays, a lot of buyers go a little higher with their offer, essentially financing their closing costs. The rule of thumb is $5 for every additional $1,000 that you borrow. So, you have the choice of taking $6,000 out of your savings or paying an extra $30 a month. A lot of buyers would rather go that route and leave their $6,000 in the bank.

    If you have any other questions about FHA loans or purchasing a home, you can reach Tripper at tripper.heckscher@phmloans.com or give me a call or send me an email. I would be happy to help you!

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