First-Time Home Buyers Have Many Options To Buy a Home

Although the newspapers and the media like to scare us with news of the economy, first time homebuyers have an advantage unlike any that has been seen in recent history. Home prices have not fallen any further for the past 4 months – indicating that prices are bottoming out. Interest rates are at their lowest level in over 50 years – with 30 year fixed rate mortgages coming in at under 5%. The combination of low prices and low interest rates is unusual and not likely to be duplicated again in our lifetimes.

In addition, the government has created some terrific programs available only to first-time homebuyers.

The First-Time Homebuyer $8,000 Tax Credit: The First-Time Homebuyer $8,000 Tax Credit:

The Housing and Economic Recovery Act was passed in late 2008. However, Congress expanded the provisions of it the first few weeks of 2009. Whereas money originally needed to be repaid, now it does not – and the credit was increased from $7500 to $8000. If you don’t have an $8000 tax liability, not to worry – you get the difference back in the form of a refund! Here is how it works:
- You must be a first-time homebuyer (defined as not having owned a principal residence within 3 years prior to the date of purchase).
- The home must be purchased between April 8, 2008 and before Dec 1, 2009.
- The credit is 10% of the purchase price up to a maximum of $8,000.
- To receive the full credit, your adjusted gross income must be $75,000 or less if you file singly or $150,000 for a married couple filing jointly. The credit is phased out for AGI’s between $75,000 to $95,000 (filing singly) or between $150,000 to $170,000 (filing jointly).
- If your tax liability is less than the credit, you will receive a refund for the difference!
- You must live in the property as your primary residence for 36 months or you will be required to repay the credit.
- You must purchase the home from an unrelated third party.

FHA Loans:

Although FHA loans are not restricted to first-time buyers, their low down payment requirement and easier underwriting standards make them ideal for most first-time homebuyers – particularly in today’s stringent lending environment. And the interest rates are very competitive. FHA does not make the loan; they insure the lender against default. Therefore, many lenders make it easier for you to qualify.

And FHA is an excellent loan product for a first-time homebuyer. The program is not limited only to first-time buyers, but it is limited to buyers purchasing their primary residence. Investors are not able to take advantage of the favorable terms of an FHA loan. What are those terms?

- You only need put 3.5% of the purchase price as a down payment – and the money can come from a family member.
- It is easier to qualify for the loan. You may still be able to qualify for a loan, even if you have had credit problems or a bankruptcy.
- Interest rates are competitive with conventional mortgages. (However, you should compare interest rates from different FHA-approved lenders to make sure you’re getting a good deal.)
- A buyer with credit problems can take advantage of much lower interest rates than a traditional sub-prime loan.
- You will be required to pay for mortgage insurance which is charged as an upfront premium of 1.5% - 1.75% of the loan amount and then as a monthly fee included in your monthly mortgage payment.
- Some allowed closing costs or credits can be added to the loan amount.
- You must occupy the property as your primary residence – however, there is no time restriction as with the Tax Credit.
- Approved condos and 1-4 unit properties qualify.
- The condition of the property must meet FHA guidelines.
- FHA loan limits apply. These will vary from region to region but have been increased recently to make the loans more widely practical.

FHA 203(k) Loans:

For properties in less than perfect condition, FHA offers a Rehab Program known as a 203(k) loan. This program provides all the benefits to buyers of an FHA loan as outlined above while also funding the cost to repair and rehab a property.

It’s a nice program especially for first-time buyers because you are able to borrow the money you need for any repairs right up-front. And, since you are required to use FHA approved contractors and an FHA approved inspector, you know that the work will be done correctly.

- The property must be an FHA approved condo development or a 1-4 unit property.
- You must occupy one of the units as your primary residence. These loans are not available to investors or rehabbers.
- You only need a down payment of 3.5% of the final loan amount. For example, if your purchase price is $100,000 and your rehab costs are $50,000, you will need a down payment equal to 3.5% of $150,000 – or $5,250. Don’t forget, this money can come from an immediate family member! (FHA loan limits apply.)

Eligible Improvements

As a rule, luxury items are not eligible. However, the homeowner can use the program to paint, add rooms or decks even if the home does not need any other improvements! All health, safety and energy conservation items must be addressed prior to completing any other general home improvements.

The 203(k) program has been around a long time. Many agents and lenders have steered away from it because of the complicated paperwork involved in the program. However, FHA has streamlined the process considerably and it is possible to close a loan in a normal time frame – often in less than 60 days.

Although there is additional paperwork and added inspection fees, many of those can be rolled into the loan. And it provides a tool so that a typical homebuyer can take advantage of the bargains available in foreclosed properties.

Rarely has there been a better time to be a first-time homebuyer. Let me help you - or someone you know - take advantage of the opportunities available in today’s market!

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