For first time Columbia SC home buyer’s, the loan process can be extremely intimidating. When you’re buying a home for the first time, you will likely be bombarded with advice from family members, co-workers, and friends, much of which is either inaccurate or not applicable to your particular needs. Acquiring first-hand knowledge of the loans available to a first time home buyer is the best course of action to take. This means scheduling a meeting with a loan or mortgage officer.
Many first time home buyers utilize the Federal Housing Authority (FHA) loan product. FHA has guidelines that must be met in order to qualify for the loan. These guidelines vary depending on which state you’re buying a house in. Here’s a quick overview of what to expect:
- loan limit as to how much the buyer can borrow
- the down payment must be 100% from the borrower’s funds
- income limits
- the borrower’s debt to income (DTI) ratio must be at a certain level
Additionally, there must be an appraisal conducted on the home the borrower wants to purchase. The appraiser must be FHA certified and will complete a report with FHA specific items on it.
Properties purchased with a FHA loan must meet minimum property standards. Structural and mechanical systems must be in working order including the roof, heating, plumbing, and electrical for an FHA loan to be approved for the purchase of a home. Any deficiencies are noted on an FHA appraisal and must be corrected prior to closing.
First time home buyers may also utilize conventional loan products, generally requiring more of a down payment than the FHA loan. Oftentimes, these conventional loans are not practical for the first time buyer simply because they have not owned a home before and therefore have not been able to build up equity to utilize as down payment when purchasing another home.
Special loan products may also be available for first time home buyers who fit into one of the following criteria: teachers, police officers, firemen, or military. Again, a loan officer will have knowledge of any special type of loans, some of which are found at the local level and offered by municipalities, private organizations, or other banks.
As an example of one of these special loan products, a very popular first time buyer loan for those who serve or have served in the military is the Veteran’s Administration (VA) loan. A certificate of eligibility must be acquired from the VA and presented to the loan officer in order to begin the process. Like the FHA loan, there are certain criteria that must be met and guidelines to follow.
The best way to discover which first time home buyer loans are available and which one is the best one to utilize is to meet with a loan officer. He or she has the knowledge about these loans as well as dozens of other loans that might be suitable. There is plenty of stress and anxiety that goes along with purchasing a home. Relieve some of that by sitting down with a professional loan officer to find out exactly what programs for first time home buyers are available to you. If you need help finding a mortgage or loan professional, we can offer you some assistance, as we have experience dealing with many lenders for many different mortgage situations.
Faced with plunging property values and rising defaults, lenders are charging borrowers higher mortgage rates and adding fees. Not all of these added costs are set in stone, however. If you’re looking for a loan, vigilant shopping and a little haggling can go a long way toward landing a better deal.
Here are some fees you need to watch out for:
Application Fees
Just because an ad says “no application fee” doesn’t really mean there’s no fee to get the loan. Fees paid outside of closing typically include an application fee, an upfront property appraisal fee, and a credit check. They might be disguised as something like a “document processing fee” or “doc fee.”
Risk Adjust Rates
Getting deemed a risky borrower is no longer just a matter of a low credit score. Lenders now consider other risk factors. Buy in an area that has seen values drop precipitously and you can expect a higher interest rate.
Down Payment Penalties
The days of zero down on a mortgage are long gone. Without a down payment of at least 20%, prospective homebuyers will undoubtedly be hit with a higher interest rate and need to pay for more points. (Each point usually amounts to a fee of about 1% of a mortgage.)
Also, if buyers can’t put 20% down, they’ll need to get private mortgage insurance, which typically costs 0.5% of the loan. Shopping around for lenders with more-favorable points and insurance charges can help lessen the blow.
Closing Costs
Closing fees amount to 2% to 5% of a home’s price. Location plays a big role, as taxes and other requirements vary by state. Some states require expensive attorneys to oversee the closing process, while others allow a title agent or escrow officer.
Ask potential lenders for a good-faith estimate of closing costs. Then check in weekly with whoever is handling the closing to see whether there are any changes in either lender or third-party fees.
If you need a place to start looking for a dependable mortgage expert, contact us. We work with many lenders and can give you a few names and numbers to get you started looking for the best home mortgage.
The term “short sales” is used to describe a situation in which a homeowner is at risk of defaulting on their loan, and the lender agrees to sell the property below the original appraisal price in order to avoid foreclosure. Most lenders do not readily agree to short sales, although exceptional circumstances such as a homeowner losing his/her job or the death of a wage-earning spouse may make some of them more open to doing so.
If a property is sold as a short sale, the lender recoups at least a portion of the original loan amount, the homeowner avoids the stress and stigma of foreclosure, and the new homebuyer gets a property below its original appraised price. If a short sale doesn’t work, then the property usually goes into foreclosure.
Short sales may be an emerging trend as the rate of foreclosure is rising dramatically across the nation.
The credit of homeowners may be impacted after a short sale, but it all depends on how the lender reports the outcome. Some lenders report a partial loan repayment as full payment of the debt due, which does not adversely impact the credit of the borrowers. Other lenders report the sale as “settled,” which adversely and significantly impacts the borrower’s credit. The other problem is that the portion of the loan amount forgiven by the lender may actually count as taxable income by the IRS.
In summary, a successful short sale has some potential positive benefits (e.g., homeowners avoid foreclosure, lenders recoup at least a portion of the loan amount, new homebuyers gets a property at below the original appraisal price, etc), but there are also many negative consequences.
Some of these potential negative consequences include: the negative impact on borrower’s credit, negative impact on the value of other similar homes in the neighborhood, and that the amount forgiven by the lender may be taxable event.
Homeowners having difficulty making their monthly mortgage payment may benefit from talking to a real estate agent who is experienced in short sales.
Once upon a time, it used to be that a person with a credit score of 640 could refinance their mortgage and pretty much be assured of getting the best rate on that mortgage. Unfortunately, those days are long gone.
The mortgage credit crisis of 2007 and 2008 resulted in nearly every mortgage loan source redefining “good” credit to mean a credit score of at least 680 and usually 700 or higher. Up until 2010, those credit scores were considered excellent but they have become the minimums just to qualify for many programs.
The one exception to these new rules is the FHA mortgage refinance program, which still defines good credit as any credit score above 640. In addition, borrowers with credit scores below 640 may still qualify for an FHA refinance mortgage loan if their loan is approved through the automated underwriting system.
The FHA loan program can help borrowers with lower credit scores, but that program does come with mortgage insurance which does add to your monthly payments.
If you have less than 20% equity in your home when you refinance, then it definitely makes sense to use the FHA program to refinance if your credit score is below 700. Private mortgage insurance costs have increased dramatically for borrowers with credit scores below 700. In many cases it is not even available (e.g. for three and four unit properties). Also, private mortgage insurance qualifying requirements are so high right now that even the most qualified borrowers are having trouble obtaining private mortgage insurance.
One option if your credit score is between 640 and 680 would be to work with a credit agency to find out why your score is low and take steps to get your credit score to a level above 680. The good news is that this process used to take months but now only takes weeks. One word of caution, however: while there are many legitimate credit repair agencies there are also a number of less-than-scrupulous companies.
For now, and the foreseeable future, 680 is the minimum credit score needed to refinance with Fannie Mae or Freddie Mac without having to get hit with a higher interest rate, and the FHA program is probably your best bet if your score is below 640 – especially if you are borrowing more than 80% of the value of your home.
Remember the proposed requirement from six federal agencies that home buyers make down payments of at least 20 percent if they want the lowest interest rates?
We’ve been keeping you up to date on this issue here, and the latest is, the 20-percent proposal is still alive, but it’s temporarily bogged down in agency reviews of the roughly 12,000 comments filed by interest groups and individuals.
It almost certainly would not be ready for adoption until the first quarter of 2012. Even then, there would be a mandatory one-year lag before the requirement could take effect, pushing the issue into 2013 — well after the presidential and congressional elections.
The controversy comes at a politically sensitive time for President Obama. Housing continues to be a lead weight holding back the economic recovery. His polling numbers are plunging, plus key segments of his political base — unions, community and economic development groups, and consumer activists — oppose any move to force working families to come up with more cash to buy a home. The six agencies’ rule — even in proposal form — is likely to be an attractive target for the president’s opponents next year.
Bottom line: Don’t expect to see a 20-percent rule in the near future. Even independent regulators don’t operate in political vacuums. They’ve either gotten the message already or they will soon.