Learn the Lender Lingo! (#2- Mortgage Options for First Time Home Buyers)

You’re fortunate, not to mention unusual, if you are a first-time home buyer who has the means to obtain a Conventional mortgage. Commonly the biggest stumbling block is down payment.

For the majority of home buyers, their first purchase will not be their forever home. I generally tell buyers to consider their first home to be the downpayment on their dream home, simply an investment to build a little equity.

Normally a first time buyer is limited in both price range and mortgage options. Having said that, there are more choices available to you than you might think.

The RIS Media post below outlines several mortgage options available to first time buyers but there is one other opportunity here in Arizona, that I feel you should be aware of. The Home-in-5 down payment assistance program is available in Maricopa County, the Greater Phoenix area, including both East and West Valley cities and towns. There is also a downpayment assistance program available for home purchases in Pinal County, farther East and South. These are grants, no repayment required, with certain conditions but very generous ones.

Contact Bill Salvatore, Your Valley Property Team for additional information
or call or text: 602-999-0952

Also consider help with closing costs. Find a link at the bottom of this page (Who Pays for What) to explain closing costs, what to expect and a rough accounting of both buyer and seller fees, as well as a few available options for cash-back programs that we offer to help you with your closing costs.

Loan Options for First-Time Homebuyers
from RIS Media

Affordability is a big issue for renters looking toward homeownership. Beyond the purchase price, putting together a 20 percent down payment is a big roadblock for many people.

It doesn’t have to be that way, however. While 80 percent of millennial renters say they can’t afford to buy a house, according to an Apartment List survey, there are various options that they may not be aware of.

You’ve probably heard of Federal Housing Administration (FHA) and United States Department of Veterans Affairs (VA) loans, and of Fannie Mae, a government agency that backs mortgages, but there are other programs to help buyer into their first home.

FHA / VA / Fannie
FHA loans are insured to give lenders a layer of protection. They typically have competitive interest rates, smaller down payments and lower closing costs than conventional loans. A low credit score can still warrant only a 3.5 percent down payment.

Editor’s Note: FHA mortgage loans are by far the most popular with first-time home buyers. A home purchased with an FHA mortgage must be occupied by the mortgagee i.e. home buyer.

The VA guarantees home loans that help active military members, veterans and surviving spouses. VA loans don’t require a down payment or minimum credit score.

Editor’s Note: a VA loan is obtained through a lender and not directly from the Veteran’s Administration.

Fannie Mae and Freddie Mac are government-sponsored entities that back home loans for low-to-moderate income families. Down payments can be as low as 3 percent.

Editor’s Note: FNMA (Fannie Mae) and FDMC (Freddie Mac) do not directly lend money or originate mortgages. They are guarantors and secondary market investors only.

USDA Loan
The U.S. Department of Agriculture, or USDA, focuses on homes in rural areas and guarantees the home loan. (contrary to popular opinion) borrowers don’t have to buy or run a farm.

A credit score of 640 or higher typically gets an applicant streamlined processing. A lower score is allowed but may require extra documentation about payment history.

Good Neighbor Next Door
This program sponsored by the U.S. Department of Housing and Urban Development helps law enforcement officers, firefighters, emergency medical technicians and K-12 grade teachers buy homes.

A 50 percent discount off a home’s listed price is available through the program in areas labeled “revitalization areas.” Buyers must commit to living in the home for at least 36 months.

Editor’s Note: a revitalization area is defined on HUD.gov. “Revitalization Areas are HUD-designated geographic areas authorized by Congress under provisions of the National Housing Act. Revitalization Areas are intended to promote “the revitalization, through expanded homeownership opportunities, of revitalization areas.” The criteria for designating an area as a Revitalization Area relate to: 1. Household Income, 2. Homeownership Rate, and 3. FHA-insured mortgage foreclosure activity. HUD-owned single family properties located in a Revitalization Area are eligible for discounted sale through special programs.

FHA Section 203(k)
If a fixer-upper fits more easily into your budget, a Section 203(k) rehabilitation program loan that’s backed by FHA can help. It considers the value of the home after you’ve made improvements, and lets you borrow the money for these fixes, rolling it into your mortgage. The down payment can be as low as 3 percent.

Editor’s Note: In our current market of low inventory and high buyer demand, the 203K has regained a bit of popularity. Home buyers facing numerous multiple-offer situations, are open to considering a home that is in need of a face-lift. The appraiser will remit two separate values for the home, one as-is and one as remodeled. For this type of loan you may have to negotiate an extended close date as you will need to obtain estimates from contractors for all the work to be done. View this a little more effort with the possibility of a lot more equity.

Reprinted with permission from RISMedia*. ©2020. All rights reserved. *Original article may have been modified to meet AZ Real Estate Commission regulations and REALTOR guidelines. Modifications are identified as Editor’s Note.