With the recent rise in mortgage insurance premiums by FHA, many folks who are a first time homebuyer are finding it hard to figure out if they can still qualify for a first time homebuyer program. First, let’s straighten some things out; you do not need to be a first time homebuyer in order to qualify for a FHA insured mortgage. However, FHA, as mandated by Congress has had to raise its premiums in order to stay in existence. FHA has been around since the 1930s and is very important and is still and will remain to be a great resource for homebuyers, regardless if they are trying to use a first time homebuyer program or not.
Here are some positive features to point out in regards to FHA and why it is still a valuable resource for a first time homebuyer program.
• Has been in existence since the 1930s and is regarded as one of the most successful government programs ever.
• Make sense underwriting, the best analogy I find is comparing to having to prepare for a case that is going to trial. All the documentation, letters of explanation, etc. are your evidence that is presented to the judge. I.E. the underwriter. Tell the story, present the case, you have a much stronger chance of getting your loan approved and closed.
• Are not so credit driven as much as Fannie Mae and Freddie Mac loans. FHA loans look more on the total picture, cash, credit, income, and job stability.
• FHA loans, especially with a first time homebuyer program, are all about protecting the homebuyer.
• No pre-payment penalties.
• No income restrictions
Here are some things that I consider cons to the program:
• Recently FHA has introduced mortgage insurance for the life of the loan. Meaning a home owner will eventually have to refinance into a Conventional Loan product in the future.
• Mortgage insurance is the same for all borrowers, regardless of credit score, debt to income ratio, down payment, or utilizing a first time homebuyer program.
So let’s compare to a very similar program that I believe is a great alternative to FHA and can be utilized with a first time homebuyer program.
The Fannie Mae My Community Mortgage is a great alternative and will help open the door for many more future home owners. Here are some key features of the My Community Mortgage and how it can be utilized with a first time homebuyer program.
• Has a minimum borrower contribution (own funds) $0 required for a purchase or limited cash out refinance. For a 1 unit property on a fixed rate mortgage.
• Has various acceptable sources of funds for a down payment/ and or closing cost which include, personal gifts, gifts or grants from a qualified entity, employer assistance, and community seconds.
• Borrower income limits are 100% of the AMI except for higher cost area where it is 115% in non-metro areas.
• Pre purchase homebuyer education is required if all borrowers are first time home buyers or if borrowers are relying on non-traditional credit to qualify.
• For owner occupied principal residence only 1 – 4 units.
• Mortgage insurance is based on credit scores and loan to value.
• A Combined loan to value of up to 105%, this means a second loan can be obtained to help cover down payment and all closing cost associated with the loan.
• Up to 30% of qualifying income can come from boarder income (relatives or nonrelatives)
• Projected rental income may be used as qualifying income; 75% for a 2-unit; 65% for or a 3 or 4 unit.
For those wishing to use a first time homebuyer program, both FHA and the Fannie Mae My Community Mortgage are two of the best loans available for a first time homebuyer program. If you would like more information on how to qualify for these programs or have any questions in general, we are here to help. Please feel free to contact us at (775)824-3640 or email us at AaronDeHartteam@summitfunding.net.