New to the home buying process

Re: New to the home buying process

• JaydenUSR member

  

  November 2014

  All things being equal, ie. can go either FHA or USDA, USDA is the better loan. Your payment WILL be lower than FHA at the same rate and USDA sets a max interest rate as well. If the house needs some minor repairs and it appraises for more than your purchase price, USDA will let you raise the Sales Price and hold some money in escrow for the repairs (Not like a 203K rehab loan, much easier.) 

  Report0 Reply
• Sisugal member

  

  November 2014

  Sellers are often reluctant to deal with FHA and USDA as the inspection does need to meet higher standards. (a good thing for you that they must need those standards)
  FHA has PMI for the full 30 years - so that is a negative. However, you can refinance when you have the appropriate equity (but it will probably be at a higher interest rate in the future)
  
  IF you have a good emergency fund in place and have save all of the extra costs associated with buying, moving and setting up a home (see previous posts on this) and have paid off your consumer debt - then (and only then) I would move forward.
  
  FHA and USDA often attract buyers who are shy on savings - and that can be a problem once you are in a home and have a financial emergency of some kind.
  

  Report0 Reply
• scotter77 member

  

  November 2014

  Remember to also work with a Realtor that offers commission rebates (if allowable in your state). Every bit of savings or closing cost offsets help!

  Report0 Reply
• abbylafreniere member

  

  November 2014

  Hello all! Please forgive my ignorance, my husband and I are also new to the home buying process, and we took the first step last week in meeting with a mortgage officer at our local bank. Can anyone help to clarify these initials? FHA vs USDA? Are these programs that can help first time home buyers? Thank you so much!

  Report0 Reply
• Xstatic3333 member

  

  November 2014 edited November 2014

  abbylafreniere said:

  Hello all! Please forgive my ignorance, my husband and I are also new to the home buying process, and we took the first step last week in meeting with a mortgage officer at our local bank. Can anyone help to clarify these initials? FHA vs USDA? Are these programs that can help first time home buyers? Thank you so much!

  FHA stands for Federal Housing Administration.  They offer loans with DPs of as low as 3.5%, but you will need to pay Private Mortgage Insurance (PMI) for the life of the loan.  This payment goes away once you hit 20% equity with conventional loan types.  FHA allows lower credit scores than other types of loans.

  
  

  USDA Loans are only available if you are buying in a rural county.  You also need to be below a certain income level which, at least in my area, corresponds to the lower end of middle class for a childless couple.  No DP is required.  I do not know how PMI works for these loans.  You can check this website: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do to see if you qualify.  

  
  

  Both loan types require your house to pass a very stringent home inspection before purchase.  Things like a bit of peeling paint, which might not matter to you, matter to the lender/insurer.  Therefore, your offer will be less competitive than one from a buyer with a conventional loan.  If you're looking at condos, some complexes will not allow FHA loans (I'm not sure why).

  
  

  I really recommend that people considering these types of loans to take another couple of months to save 5%, which, if your credit is decent, can get you a conventional loan with some lenders.  We did this through a local credit union.  Our PMI payments are about $50 a month lower than they would have been with FHA, and will drop off automatically in a few years (although we're planning to pay down our balance sooner if we can).  Our closing process was also pretty smooth, and we only had to have the home inspected to our satisfaction.

  
  

  ETA Technically the FHA insures loans, doesn't offer them directly.

  Report0 Reply
• schuette2 member

  

  November 2014

  Thanks for all the information! After reading through all this, I think we may need to hold off a bit longer and save up a little more.
  

  Report1 Reply
• scotter77 member

  

  November 2014

  A good tip in life and in business is to always best to keep your overhead low. Build up your savings and buy when it makes financial sense and you're able to do so without stretching.

  
  

  Before picking a Realtor, familiarize yourself with your own tastes and learn as much as you can about the entire process. good luck!

  Report0 Reply