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3 Great Loans For First Time Home Buyers
Much has been made of the mortgage crisis and financial meltdown. Many lenders and investors have pulled out of the mortgage business or tightened their lending requirements so much that less and less people qualify for home loans. Especially first time home buyers…
But there are still mortgage programs out there, and today we’ll discuss three great mortgage programs for first time home buyers.
1) FHA Loans
The Federal Housing Administration (FHA) is a division of HUD. FHA loans are loans meeting FHA program criteria made by approved lenders. FHA insures those lenders against loss in the event of default on those loans. The insurance allows lenders to make loans with more flexible underwriting guidelines (higher LTV, lower credit scores, etc.) which make these home loans ideal for some first time home buyers.
FHA funds the insurance from a mortgage insurance premium (MIP) charged to the borrower. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment.
FHA loans are attractive to first time home buyers for the following reasons:
- low down payment – 3.5%
- lower credit scores allowed
- seller help is allowed – up to 6%
- gift funds are allowed to cover down payment/closing costs
FHA loans are not restricted to first-time homebuyers or those with low- or moderate income.
Anyone who can meet the liberal underwriting criteria can obtain a FHA loan. But the relatively loose lending requirements and lower down payment make the FHA Loans great for first time buyers.
You can read more about FHA loans here >>>
2) Conventional 95
Conventional loans are loans made by private parties and non-government lending institutions without any government insurance or government guarantee against loss for the lender.
Conventional loans that conform to the eligibility guidelines for purchase by Fannie Mae or Freddie Mac are considered conforming loans. Fannie Mae and Freddie Mac have maximum loan limits for loans they will purchase, which is adjusted annually.
Most people don’t think of Conventional loans when it comes to first time home buyers, if the buyer has good credit scores, then this 95% loan can be the best option.
Because the loan to value (LTV) is above 80%, the loan will require mortgage insurance(MI). The insurance can be paid annually, and applied to the monthly mortgage payment, or it can be paid for upfront by either the lender or the buyer. The mortgage insurance required is private (not from the government) and is usually less expensive than FHA insurance, making this loan an attractive option for first time home buyers with excellent credit.
Some of the features of the Conventional 95 are:
- low down payment – 5%
- seller help up to 3%
- no upfront mortgage insurance
- credit score of 680 generally required
You can read more about Conventional loans here >>>
3) VA Loans
VA loans are made by approved lenders, but are guaranteed by the federal Department of Veterans Affairs. This guarantee is similar to mortgage insurance in that it protects the lender against loss in the event of the borrower’s default. The veteran borrower is charged a non-refundable upfront funding fee, which can be financed, instead of a mortgage insurance premium, for the guarantee.
Veterans and can take advantage of this great loan product, with its flexible underwriting guidelines and $0 down payment, making it perfect for first time home buyers.
A VA loan is available only to veterans of the armed services, those currently on active duty, and their spouses; however, the loan is assumable by non-veterans.
In order to obtain the loan, the applicant must obtain a Certificate of Eligibility from the VA. This will determine whether he is eligible for a VA loan and whether he is eligible for a loan with the full guarantee.
You can read more about VA loans here >>>
Are you a first time home buyer? What loan programs have you considered?
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