Unless you've bought a home recently, you might not have heard of an FHA loan. FHA loans have been around since the 1930s, and they are insured by the Federal Housing Administration (part of HUD). Thanks to all of the recent financial turmoil, lenders have tightened their requirements for approving conventional mortgages. In many cases, they are requiring buyers to put 10% down and have credit scores of 750 or better. FHA, on the other hand, only requires a 3.5% down payment (which can be a gift from a family member), allows credit scores as low as 680, and the interest rates are very good right now. FHA loans even allow you an option to buy a "fixer-upper" and finance the cost of the improvements! Best of all, there are NO income limits or phase-outs with FHA, so they are definitely an option worth considering for all buyers.
So, here's a quick example. You're thinking about purchasing a $225,000 home this year. If you get an FHA loan, you will need a 3.5% down payment, or $7,875. I can usually get sellers to pay most or all of my buyers' closing costs, so, in this example, the total cash needed to close on the sale will be approximately $8,000 (for the sake of easy math). Then, if you qualify for the home buyer tax credit, you can effectively get your entire down payment credited back to you, making the net cash out of pocket virtually $0! Think you can't afford to buy a home? Think again.
Please remember that each buyer's situation is different, and I encourage you to obtain legal and tax-related advice as needed when preparing to purchase a home. If you think that an FHA loan might be a good option for you, you can read more about them on HUD's website or contact me and I'll refer you a lender who can help!
