Lots of home buyers get a FHA loan especially first time home buyers with limited credit history. This is a good loan product that is backed by Housing and Urban development. This loan allows buyers to buy with a minimum of 3-1/2% down payment. This down payment may be gifted, or come from a grant or down payment assistance such as the bond program. This helps lower income buyers participate in the home buying process.
Since FHA allows buyers to buy with a low down payment and often have little to no money of their own invested in the property, the risk of foreclosure is higher. Therefore mortgage insurance is required. Mortgage insurance protects the bank incase the borrower defaults. Unless a borrower puts a minimum of 10% down on a FHA loan, the mortgage insurance remains on the loan for the life of the loan. Consequently, a borrower with a strong credit history and a high credit score may decide to use a conventional loan where the mortgage insurance will fall off after the value reaches a 78% loan to value or the borrower requests it at an 80% loan to value.
FHA charges an upfront fee, currently 1.75% of the loan amount as well as a monthly fee. Recently the government lowered this fee from 1.35% per month per annum to .85% per month. This is a huge savings for buyers using a FHA loan.
How this equates. I will use a 100,000 loan for ease of numbers. Note the savings on a $200,000 loan are double.
100,000 loan with a 1.35% per month per annum fee is $112.50 added to the loan each month.
100,000 loan with .85% per month per annum fee is $70.83 added to the loan each month.
This makes the monthly mortgage payment more affordable. This is a substantial savings over the life of the loan.
If you are looking for an experience realtor to help you buy a home, sell a home or invest in real estate, please call me at 405-213-2992 or visit my website at http://www.sandiwalker.com
In Oklahoma City, we have an organization, Neighborhood Housing Services, LLC., that provides grant money to first time home buyers who meet certain income guidelines. This program allows up to $14,999 in grant money depending on purchase price of the property. This money can be used for down payment, up front mortgage insurance, closing costs, and principle reduction. The buyer does need to have some personal investment in the home—FHA loans will require a 1.75% investment while all other loan products will require a 1% investment. Meaning the buyer will need to have some of their own money. Example on a $100,000 house—$1750 with a FHA loan.
The grant allow the buyer to obtain a 90% to value loan. FHA guidelines state that if the original loan amount is 90% or less of the sales price then the mortgage insurance stays on the loan for 11 years rather than the life of the loan. Also if the buyer is able to do a 15 year note rather than a 30 year note, the monthly MI drops greatly but that is the subject for another blog.
The amount of down payment assistance will be calculated as follows:
- 10% of purchase price+UPMIP+closing costs——less seller or lender credits, additional DPA such as OCHFA, tax proration’s, etc. up to $14,999. Attached is a calculation scenario.
The minimum required investment the DPA recipient is 1% of the purchase price but will increase to 1.75% when the lender requires 3.5% down payment on FHA loans.
- DPA recipients must meet the First Time Homebuyer definition–could not have owned a house in the past 3 years.
- Front & Back end ratios cannot exceed 30%/41% using NHSOKC’s income calculation
- Maximum purchase price cannot exceed 95% median purchase price limits- $126,000 existing-$195,000 new construction
- Loan Discount fee, Lender’s inspection fee and Underwriter fees are no longer allowed
- Household income limits of 80% median income will remain the same
- Five year (affordability) period will remain the same. Meaning you need to live in the home for 5 years or will need to pay back a proration amount of the DPA.
The current down payment contract expires July 31, 2014. There may be additional changes to the program.
If you have questions regarding down payment assistance or real estate in general, please contact me, Sandi Walker. I would love to discuss helping you buy your first home. www.sandiwalker.net or 405-213-2992