I Am a First time Homebuyer. Is There a Special Loan for Me?
Many lenders participate in the Community Home Buyer’s Program, sponsored by Fannie Mae, which is specifically tailored for the first-time homebuyer. This type of loan provides financing for low-to moderate-income buyers who might not qualify for a loan on traditional criteria. Under this loan program, you do not need to have a credit history and it allows you to show a willingness to pay by presenting paid utility bills, payments to a landlord, and other sources of credit or services.
An important feature of the Community Home Buyer’s Program is the 3/2 option. This means that you can buy a home with only 3% down of your own funds, instead of the usual 5%, and the reaming 2% can be a gift from relatives or borrowed from friends. Other loan requirements, such as your income-to-debt ratios, are relaxed under this program and you are not required to have a specific percentage of the purchase price in reserve or checking account as required for a conventional loan.
The disadvantage of this program is that there are limits on the amount of the loan you may apply for. To qualify for a loan, you must earn no more than the area median income (with exceptions for specified high-cost areas). You may want to check with your local bank to see if it offers this loan program and what the loan limits are for your area. You can learn more from the Fannie Mae Web site, www.homepath.com (or part of www.fanniemae.com).
What is difference between the Community Homeowner’s Program and an FHA Loan?
FHA loans are insured by the Federal Housing Administration (FHA) and are made by qualified lenders which have been approved by the Housing and Urban Development (HUD) agency. The minimum cash down payment is 3% of the value of the home and part of this amount can be used for closing costs. Under a convention loan, or the Community Homeowner’s Program, (a Fannie Mae loan program), the 3% downpayment may be used for the purchase price of the home only. Qualifying standards for an FHA loan typically remain more lenient than for a conventional mortgage. One drawback of the FHA mortgage is the size of the loan allowed. FHA limits are currently $172,632 for most areas, and $496,342 for Alaska, guan and Hawaii. One of the biggest differences between the conventional, Community Homeowner’s Program loan and an FHA loan, is the payment of the mortgage insurance premium (PMI). Under the FHA program, an up-front payment of 1.5% of the purchase is required, although it can be added to the loan. Conventional lenders collect the PMI premium monthly. FHA requires that a home qualify under its standards, which might include requirements such as the roof needing to have a certain amount of economic life remaining.
Copyright © 2004 Sandy Gadow This column may not be resold, reprinted, resyndicated, or redistributed without the written permission of Escrow Publishing Company.