Real Estate: HUD/FHA First-Time Home-buyers Program Offers Opportunity

With prices finally dropping, now is an excellent time to think about buying a home. How do you know if you are ready to make this big purchase? There are programs are available for people through the Federal Housing Authority (FHA) that make buying your first home much easier and more affordable; even if your credit is not perfect.

The most attractive feature of the FHA first time buyer loans are the low interest rate. Currently the interest rate is about 5.25 percentfor a 30-year fixed mortgage. Another good advantage to the FHA loan program is the low down payment. Most first time buyers don’t have 20 percentdown sitting in the bank, so the FHA loan is a great solution.

Currently, FHA loans require a 3percentdown payment. (There is legislation pending that may make the requirement go down to 1.5 percent.) The greatest advantage to the FHA loans is that because the U.S. government is ensuring the mortgage, the lender is more likely to give you loan terms that will allow you to qualify for the loan. Another great feature of the FHA loans are that you don’t need perfect credit to qualify for them; even a past bankruptcy may not limit your ability to qualify for a loan.

Also, if you experience hard times in the future, FHA-insured loans offer more options for borrowers to avoid foreclosure. FHA also offers adjustable rate mortgages that are based on the Constant Maturity Treasury Index. The adjustable rate mortgages offer lower payments in the beginning of the loan, and gradually increase over the life of the loan.

These loans are good for people who need lower payments initially, but will be able to afford more in the future. The FHA ARM loan may be a less risky alternative to proprietary ARM loans. Another loan unique to the FHA program is the Rehabilitation/Purchase Loan that allows you to combine the purchase and repair of a home that needs a lot of work.

As you can see, FHA loans offer many alternatives to conventional mortgages. FHA recommends comparing a conventional loan side by side to an FHA-insured loan to weigh the advantages and disadvantages of both. As with any loan that allows a low down payment, FHA loans do require mortgage insurance. An upfront mortgage insurance premium of 1.5 percent is required at closing as well as an annual mortgage insurance premium.

The annual mortgage insurance premium is .5 percentof the loan amount, and is split into monthly payments included in the mortgage. For more information on the purchase programs offered through the federal government, please go to www.hud.gov and click on buying.

These are also programs for teachers, firefighters, and veterans.

To obtain a loan through FHA, all prospective buyers must attend housing counseling with a HUD-approved non-profit credit counseling agency. If you are interested in setting up a First Time Homebuyer’s housing counseling, you can go to
www.debthelper.com to set up a class, or search www.hud.gov to find a non-profit credit counseling agency in your area.