FHA and VA Loans for First Time Buyers:
First time homebuyers often experience the most difficulty coming up with a significant down payment - but everyone should have the opportunity to buy a home. For this reason, the Federal government has developed two loan programs to assist homebuyers that have a little or no down payment. These programs are called the Federal Housing Administration (FHA) and the Veteran's Administration (VA).
These programs are not solely intended for first time home buyers; your home loan advisor will be able to determine if you qualify and if so which program is acceptable for your needs. FHA and VA loans can be especially advantageous when combined with a Housing Finance Agency program or Mortgage Credit Certificates first time homebuyer program.
Who is Eligible for a First Time Buyer Loan?
First time home buyer programs are designed to help borrowers who may not have enough money to pay the full cost of the down payment or the closing costs on a mortgage. These programs make obtaining a mortgage more cost effective. There are even programs specifically for residents of each state. First time home buyer programs are available to those who have not owned a home for the past three years.
Fixed Rate Mortgage (FRM):
One of the many types of home loans offered to borrowers is called a fixed rate mortgage. Unlike an adjustable rate mortgage the monthly payments for a fixed rate mortgage remain “fixed” throughout the life of the loan and It's the best security against rising mortgage rates and higher payments. If you don't plan on moving in the next 7 years or so, the fixed-rate mortgage may be your best choice.
Adjustable Rate Mortgage (ARM):
Adjustable rate mortgages allow the interest rate on your home loan to fluctuate during its life. When financial markets are unstable, adjustable rate mortgages can be risky for home owners because the rate can increase with little notice. On the other hand, this type of mortgage may allow you to purchase a more expensive home.
ARMS may be a good option for home buyers looking for a low rate and low monthly payments; however, if you are planning on staying in your home for more than 7 years, you may want to look into securing a fixed-rate mortgage to protect yourself against rising interest rates.
Your credit score, also called a FICO score, is a number that’s based on your credit report. FICO is the acronym for the Fair Isaac Corporation, the private corporation that created the most-known and widely used credit score model in the United States. The scoring has become widely accepted by lenders as a reliable means of credit evaluation.
A credit score attempts to condense a borrower’s credit history into a single number—the numbers range from the lowest at 300 (a poor credit score) to the highest score of 850 (an excellent credit score). The better your financial track record, the higher your score: a poor financial history will result in a lower number. In essence, the score tells lenders how likely you are to pay your bills.
Mortgage closing costs, also known as settlement costs, are fees charged for services that must be performed to process and close your loan application. Examples of mortgage closing costs include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees. Lenders are required by law to disclose in writing, known as a Good Faith Estimate, your estimated mortgage closing costs and fees as a buyer.
Community Home Buyer Programs:
Community homebuyer programs reduce the down payment the borrower must pay to 3%, which must be the borrower's own funds. The closing costs can be gift funds, a grant, or seller assistance up to 3% of sale price. This type of home loan requires the home buyer to take a class on home ownership in their state. Upon completion of the class, the homebuyer will receive a certificate that reduces the cash requirement and expands the qualification ratios. Community homebuyer programs have been making it possible for many people to have the opportunity to buy a home.
What is Escrow?
Escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of an event. In simpler terms, escrow is where the transaction changes hands and prevents the seller from not receiving the money from the sale and prevents the buyer from not receiving the home that was purchased. Escrow is important to both buyers and sellers during the mortgage process.
Annual Percentage Rate (APR)
The Annual Percentage Rate (APR) and the Annual Interest Rate are the two interest rates applied to your loan. The Actual Rate is the annual interest rate you pay on your loan (sometimes referred to as the "note rate"), and is the rate used to calculate your monthly payments. The amount of interest you pay, as determined by your Actual Rate, is only one of the costs associated with your loan; there may be others.
The APR includes both your interest and any additional costs or prepaid finance charges you might pay, such as prepaid interest, private mortgage insurance, closing fees, points, etc. Your APR represents the total cost of credit on a yearly basis after all charges are taken into consideration. It will usually be slightly higher than your Actual Rate because it includes these additional items and assumes you will keep the loan to maturity. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.
Mortgage Credit Certificates:
A Mortgage Credit Certificate, or MCC, is a certificate awarded by your local government agency authorizing the home loan borrower to take certain federal income tax credits. The credits awarded help to free up funds and make the monthly home loan payments more affordable for the homeowner. First time home buyers are typically the candidates eligible for an MCC, but in special cases this requirement may be waived. Discuss this with your home loan advisor to see if this is an option for you. Purchase price requirements also vary state to state and should be covered in conversations with your home loan representative.