STILL RENTING BUT WOULD RATHER OWN YOUR OWN HOME?
Many first time buyers are confused about how to take advantage of today's low prices, and don't have the cash reserves to make necessary repairs. Prices of foreclosed homes are so tempting, but required repairs are intimidating! Read on!
First, let's learn about FHA and how buyers have been purchasing homes with little or no money for many years.
FHA (Federal Housing Administration) is the government-insured mortgage program that allows purchasers to buy a home with little or no money down and has been a favorite among first-time buyers for many years. FHA insures the loan to minimize the lender's risk, and therefore doesn't require much up-front cash from a buyer. Here's how it works!
First, the home you intend to purchase using FHA financing must be your primary residence and you must intend to reside there. Then, the first thing you should do is get pre-qualified to determine the maximum mortgage amount a lender will lend you, depending on your income and current debt. This is to make sure you are shopping in the right price range. Pre-qualification is free and can be done over the telephone. In today's mortgage climate, it's critical to get pre-qualified by a local, reputable lender so call me for recommendations. Once you have your maximum mortgage amount, we go to the next step!
FHA requires a buyer to demonstrate access to 6.5% of the purchase price of a given home. Let's say you are considering a home priced at $100,000. Your closing costs will be estimated at $3,000 (or 3%) and the required FHA downpayment is approximately $3,500 (3.5%). Therefore, a buyer will have to show the lender where they will be obtaining the 6.5%.
FHA permits the seller to pay the closing costs on behalf of the buyer, so the required 3% closing costs can be demonstrated by including a provision in the sales contract whereby the seller agrees to cover this amount for the buyer at closing. This provision in the contract satisfies the lender's requirement to demonstrate the 3% for closing costs. So now you're down to needing just 3.5% for the down payment - or just $3,500 to buy a home for $100,000!
Let's say our buyer has chosen a foreclosed property, the home needs repairs, and the buyer does not have the cash reserves to restore the property.
FHA 203K Streamline is a mortgage program which follows all of the above FHA guidelines, but also allows the buyer to increase the amount of the loan to cover the required repairs. First, an FHA approved inspector will view the property and assess a dollar amount to the repairs necessary.
Let's say our buyer negotiated a price of $100,000 for a foreclosed property, but the home requires $15,000 in repairs. The sales price would remain at $100,000 but the amount of the mortgage would be increased to $115,000.
The $15,000 for repairs is held by the mortgage company following the closing, and as repairs are made the contractors are paid by the lender from the money reserved at closing.
Now our buyer has purchased a foreclosed home at a deeply discounted price and rolled the cost of the repairs into their monthly payment. The result is a nicely repaired property with an affordable payment and no post-closing repair expenses!
If you're still renting but would rather own your own home, please call me for details on FHA and FHA 203K Streamline financing. With today's low interest rates coupled with drastically low prices found on foreclosed properties, don't miss the opportunities presented by today's market!