FHA Program is Great for Buyers with Less-Than-Perfect Credit

Today, the mortgage industry is in disarray with the Sub-Prime Meltdown but there are still many great loan programs for first time home buyers with less-than-perfect credit. FHA is here to the rescue! FHA offers great 30 year fixed and buydown programs which makes the thought of home ownership more than a pipedream. First of all, there are no credit score requirements and each borrower is evaluated on a case-by-case basis and you have every opportunity to present the merits of your qualifications to real human being not a machine. For example, if you had bad credit in college and you have worked hard to improve your credit and you have made on time payments on your obligations for the last year, you have a good shot of being approved. Also, if you have no credit history at all but you have non-traditional credit such as rent, phone, electric, phone, cell, etc and you have made on-time payments for a year on 3-4 accounts, you will probably get approved. Obviously, you have to meet income and other requirements, but lately I have spent countless hours assisting buyers in cleaning up their credit so that they can buy a home within the next 6 months-1 year. I have a credit consultant who works with my credit-challenged borrowers and he has been able to help them substantially improve their credit so they can get approved for a good loan program such as FHA. Bottomline, if you want a great 30 year fixed program with a low rate, then you have to do some work. Just help me help you and home ownership will become a reality.

Finally, there is a Bill called the Expanding American Homeownership Act of 2007 waiting to be passed which would revamp the current FHA platform which would allow FHA to raise current mortgage limits and offer zero down payment options. It is a great starting point to bring good news to first time home buyers who need a safe, fair and affordable FHA alternative to the exotic subprime market.

How to Find a Good Mortgage Lender

The internet can be a blessing and a curse. Many buyers are now doing a ton of research online to get information on buying their first home which is great but I think they are overdoing a bit and missing the most important factor..a reputable lender. First of all, it takes many years of experience to understand and structure programs and if you do not meet one guideline, your loan is done..finished. My point is that many loan officers these days are promising great loans with unbelievable rates without doing their homework and the result is a time-bomb waiting to happen. These days the competition is fierce and they will tell you anything to get your business. For example, you apply for a special zero down bond loan program in your area which offers a grant and you are excited about the getting into a new home with a low payment and no money out of your pocket. Then, 2-3 weeks later you call the loan officer for status on your loan and he doesn't return your calls. Hmmmm....What is going on??? I will tell you. He found out you didn't meet one of the guidelines such as income requirement, the deal blows up, and he is hiding out in a bunker nowhere to be found. What about the low rate you locked into and the no closing cost promise? Kiss it goodbye. Now, you are scrambling for your life trying to find another loan officer and program days before closing. Don't get me wrong, there are a lot of good loan officers as well as bad ones, but you need to talk with somebody with experience in first time home buyer loans and who has your best interest at heart. I have had many people come to me right before closing after having a bad experience with a lender and I wish they would have not bought into "the too good to be true promise."

Secondly, do your research on the programs but don't apply to every online lender in the universe so you can't remember which ones you applied to and what programs they offered. Bookmark or save the best websites so when a loan officer calls you about your application, you have an idea why you contacted them.

Finally, you MUST ask for a Good Faith Estimate of the closing costs and get a "Total Cost Analysis" of the best 3-4 programs side by side so you can make the best decision on which program will work for you. Make sure you understand what the lender is actually charging you because they can low-ball standard charges such as title insurance to make it appear that their closing costs are lower. Go over every cost line by line and if you don't understand a cost then don't be afraid to ask about an item..it's your money. Another thing is don't get caught up in who has the lowest rate and closing costs in the world. You must look at the lender qualifications as well as the best program options based on your financial and personal goals. Many online lenders offer below market rates and costs but they may not deliver the loan you asked for and they may bait and switch before you close your loan. Believe me it happens more times than not and that is what gives mortgage brokers a bad name. In the end, trust your gut feeling..it is usually right..and you will get what you paid for and more.

Improving your credit score can save you from losing your home

The housing market was hot 2-3 years ago and many first time home buyers with lower credit scores in the 580-599 range bought homes with 2 year higher interest rate arm loans. In the last year or so, these arm loans are adjusting to the full rate market rate in the 10-12% range and borrowers who could not refinance to a better program are not making their payments and many homes are going into foreclosure. As a result, lenders are tightening up their guidelines and today you may not get a zero down loan with a credit score below 600. Many loan officers did not do a good job of explaining the pitfalls of these programs a couple of years ago and now the homeowner is paying the consequences, but there is good news. You must get on the road to homeownership early in the process so you can improve your credit to qualify for an excellent first time home buyer program. I encourage people with less than perfect credit to run a mortgage credit report and seek a consultation from an experienced loan officer at least 6 months-1 year before buying a home. You may be only 20-30 points away from qualifying for a great loan which usually requires a 600 credit score. FHA doesn't even have a credit score requirement but if you have had credit problems in the past, you will need to have a very good payment history on at least 4-5 accounts in the last year. Let's take a look at an example which a borrower is purchasing a $200,000 home and they have 2 loan options based on a 599 credit score. The first option is a sub-prime 5 year adjustable rate mortage loan, 5% down payment, 9.50% rate and the second option is an FHA 30 year fixed program, 3% down payment, 6.00% rate. The payment on the sub-prime loan is $1,504 interest only and the payment on the fha loan is $1,199 which is a $300 month difference in payment and you will not be paying off any principal on the sub-prime loan because only interest payment is required. You could refinance this loan into a more traditional mortgage after 1 year as long as you make your mortgage payment on time and you pay off any collections and/or judgements. The problem with this scenario is the fact that most people who take this loan program have $5,000-$10,000 collections which they didn't have to pay off to qualfiy for the sub-prime loan and they don't make a dent to pay off these account during the next year and they can't refinance into a "good loan." Now, they are stuck and they fall behind on the high interest only mortgage payments and they are forced into foreclosure proceedings. Don't get a band-aid loan and take on more debt just to buy a home because you think you need to be a homeowner right this second. You could pay thousands of dollars more in interest and you may lose your home. So, please do your homework and contact a real professional early in the process and clean up your credit to qualify for a great loan program.

Create a budget before buying a home

Many first time home buyers come to me with unrealistic expectations about the mortgage payment associated with a certain purchase price. For example, I had one person request a $700 payment for a $200,000 loan and I can work magic to get the payment down but Houdini couldn't get this done. I asked the buyer some more questions related to his finances and I was able to determine that he had too much debt and alas the reason for the super low payment request. I put my financial counseling cap on and worked out a solution which he was able to pay off a car with only a year left on it which created $500 per month cash flow as well as eliminating some expenses from his budget which gave us another $250 per month cash toward the mortgage payment. Now, he was able to afford $1,450 per month payment and I was able to customize a 30 year fixed zero down payment of $1,550 per moth which was still a little tight. I had one more rabbit to pull out of the hat. I explained to him that he could take less taxes out of his check because he will be getting some good tax benefits from mortgage interest and real estate tax deductions. He then said, "why would I give up my tax return which is one of the main reasons I want to buy a home?". I told him even if he doesn't get any more money back from Uncle Sam, he would still build wealth when his home goes up in value every year. For example, if his new home appreciates at 5% per year for 5 years, his home would be worth $255,000 or more..a $55,000 increase in his net worth. Remember, he will be putting zero down and paying no closing costs out his pocket. My point is that you must sit down, look at your income and expenses, and work out a budget for your new home and determine what cuts could be made and what could be the maximum payment you can afford. Then, you can find out which loan programs and payment options will fit your budget. Finally, be realistic about the price range of your first home and don't think you are going to get the Taj Mahal. You may have to buy a modest starter home at first but in a couple of years you can put down a large down payment and bump up to the home of your dreams.

Choosing the right first time home buyer program

Choosing the right loan program can be a daunting task for a first time home buyer but it real boils down to 3 factors: 1. How long do you intend to live in the home? 2. What payment can you afford? 3. What are your short-tem and long-term goals? If you intend to live in the home a long time then you may opt for a 30 year fixed rate mortgage and you want to stay away from an adjustable loan or ARM. You may want an ARM if you intend to stay in the home a shorter time period and you want to match the term with the length of time you expect to stay in the home. For example, if you will stay in home 5 years, then you would do a 5/1 arm which the rate is fixed for 5 years. Rates on ARMs are usually lower and the shorter the term of the ARM the lower the rate. One of the biggest concerns for a first time buyer is their monthly payment and everybody wants to buy a big home and keep their payment very low but you may not be able to do this with a 3o year fixed loan. If you want to stay in the home a long time and want a more stable program, then you may want to take a look at the buydown loan or interest only loan to lower your payment. The interest only loan sometimes gets a bad rap because people feel they will lose money if they don't make payment toward principal every month. But you have to remember, most of the benefits of owning a home comes from the increase in value and you don't pay that much down on principal in the first 5-10 years of a mortgage anyway. For example, if you purchase a home for $200,000 and it appreciates at a rate of 5% per year, your home value will go up $10,000+ every year but you will only knock down your principal a couple of thousand per year. If you do a zero down payment and the seller pays closing costs, I can't believe anybody can argue with making $10,000 a year on a zero investment! Sometimes, I have clients who have a fixed payment they can afford in their head such as $1,000 per month and I may be only able to get their payment down to $1,100 on a great program but they still balk and say "the payment is too high". You have to be a little flexible and if a $100 is going to make or break you then you can take a little less out of your paycheck to absorb the higher payment. Remember, you will get greater tax benefits by owning a home and it probably won't hurt you at all to take a little less taxes out of your check . Finally, I customize loan programs based on each buyer's unique short-term and long-term goals. For example, I may have a couple which one is still in school and one is working but they want to stop burning their money on rent payments and get into a home now. Let's assume they have excellent credit, no down payment, and the one in school will have a good job a year from now. I may suggest a Power5 Option ARM which has a super low interest rate of 2.375% (APR 8.01%) to get them into the home and I would refinance them a year later into a more traditional fixed rate type of loan depending upon how long they may stay in home. Also, I may give them a no closing cost option so they would not have to pay closing costs again. You see, there are thousands of loan programs with thousands of closing costs and points scenarios and you need to consult a trusted mortgage advisor who will help you determine what are your best strategies to manage the biggest debt you will ever have in your life.

Home Opportunities Program Great if you are a Teacher, Fireman, Police Officer, or Healthcare worker such as Nurse

If you are a teacher, fireman, police officer, or nurse you may want to check out the Home Opportunities first time home buyer program. You can have no credit history or credit score low as 600 and qualify for a great rate. Today's rate is 6.125% (APR 6.26%) with zero down payment. There are no income restrictions and the seller can pay 4% of the loan amount in closing costs. Also, you may be able use stated secondary income from a side job which is not reportable and will not be verified. For example, if you are a teacher and you moonlight as a tutor, you may be able to use this cash type of income to qualify for the program. Finally, I am offering $500 off closing costs and please ask me about the My Community Give-Back Program which $100 from every closed loan will go to the 503(c)(3) arm of your organization.

This first time home buyer loan program is available to public employees* which is defined as any of the following:

1. Teachers-a certified teacher or administrator at an accredited or state recognized private or public school.
2. Law Enforcement-Firefighters-employees of a law enforcement agency or fire department administered by an agency or subdivision of a state or local government. You can be a sworn law enforcement officer responsible for crime prevention and detection, law enforcement, criminal incarceration or a sworn member of a fire department involved in fire suppression or prevention, emergency medical response such as paramedic, hazardous materials response, management, or response to terrorism.
3. Certified Healthcare Workers-Employees of a certified, accredited health care facility, or a licensed health care worker who is a medical resident or fellow, a nurse, a nursing assistant, pharmacist, pharmacy technician, physician's assistant, medical technician, or therapist.

Please contact me at 847-516-5743 if you are unsure whether you qualify for the program.

*Definition of Public Employee applies to both public and private professions.

Rent vs Own

If you are a renter then you should consider all the facts about owning a home before you snuggle down comfortably in your rental abode thinking you have it great. If things are so great then why do most renters have no serious money in the bank? The fact is you are throwing money into the furnace and I will tell you why. First of all, you don't get any tax breaks for renting so Uncle Sam gives you back squat. Secondly, your apartment is not your asset so you will not reap any benefit when the building goes up in value. Lastly, every cent you pay toward rent goes into your landlord's pocket. Also, most first time home buyers think if they are paying a low rent payment then they are better off renting instead of buying a home which is far from the truth. Check out the rent vs own video which explains the numbers in black and white why it is better to own your own home unless you live at home for free. I thought I could live at home forever until my dad said "get out". Today I thank him for kicking me out because I would have never have met my wife if I did not venture out on my own. So, unless you plan on living with your parents until you are old and gray then I would advise you check out the American Dream of owning your own home.