There was an article last week in SmartMoney Magazine about how the housing bust has transformed the real estate market into a first time homebuyer's paradise. "In this market, first-time buyers are getting VIP treatment. Indeed, they're the star players in a nascent market revival."
Real estate market a buyer's paradise
In fact, according to the National Association of Realtors, in the first part of 2009 first-time homebuyers accounted for nearly half of all home purchases, which is far greater than in the past. There are a number of reasons why:
- The new $8,000 tax credit for first-time homebuyers
- Fewer homeowners are buying new homes, because depressed prices make it difficult to sell the homes they have
- With prices as much as 30% lower than they were at the peak of the bubble, homes are now much more affordable for first-time buyers
- Mortgage interest rates, for those who qualify, are still near historic lows
Down payment options
On the flipside, during the mortgage loan feeding frenzy at the height of the boom, many lenders were offering easy 100%, "no money down" loans. Those, among conventional lenders, at least, are a thing of the past. Today, conventional mortgage lenders have much more stringent credit expectations and require down payments of 10 or 20%.
But as I mentioned earlier this month, the FHA still guarantees loans with as little as 3.5% down. That's why, according to mortgage banker Matt Maret, that 90% of all new loans in Maricopa County right now are FHA loans.
The FHA's 203(b) Mortgage Insurance program "provides mortgage insurance for a person to purchase or refinance a principal residence. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, savings and loan association and the mortgage is insured by HUD." Generally, to qualify for an FHA loan you must:
- Meet standard FHA credit qualifications
- Purchase a home priced within the FHA loan limits (currently $346,250 for a single-family home in Maricopa County)
- Have a 3.5% down payment, which can come from a family member or employer. You'll have to pay an annual mortgage insurance premium
The benefits of an FHA loan
According to the FHA, the benefits of an FHA-insured loan include:
- Easier to qualify - Because FHA insures your mortgage, lenders are more willing to give loans with lower qualifying requirements so it's easier for you to qualify.
- Less than perfect credit - Even if you have had credit problems, such as bankruptcy, it's easier for you to qualify for an FHA loan than a conventional loan.
- Low down payment - We have a low 3.5% down payment, and that money can come from a family member, employer or charitable organization. Other loans don't allow this.
- Costs less - Many times, FHA loans have competitive interest rates because the loans are insured by the Federal Government. Always compare an FHA loan with other loan types.
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