January 15, 2019
First-time home buyers often need to save as much cash up front on the transaction as possible. There are ways you can prepare for your FHA home loan in the planning stages that can help you buy your first home with less out-of-pocket costs. Do you know what they are?
First-Time Home Buyers Should Work On Lowering Credit Card Balances Very Early Whenever Possible
One very important factor in qualifying a borrower as a good credit risk when buying a first home? The amount of debt the first-time borrower carries versus the amount of monthly income. Your debt ratio is just as important as FICO scores, and the lower your debt ratio, the better off you will be when the lender goes to approve or deny the home loan application.
It’s a bad idea to carry the maximum credit card balance limit or close to it; new house hunters should be working on paying down those credit card balances long before submitting a loan application for best results. Doing so gives you more bargaining power with the lender-you could be eligible for lower closing costs based on better credit.
Plan On Negotiating With The Seller Over Seller-Paid Closing Costs
Negotiations are intimidating, and many people would rather avoid haggling. But the first-time home buyer who prepares long in advance to haggle can save a lot of money up front. The seller of your new home is permitted to pay up to six percent of the sale price of the home in certain approved closing costs (but never the down payment).
This will help a first-time borrower save money up front on the mortgage loan or at the very least negotiate a deal that is more financially attractive. Don’t miss out on saving this money just because you are reluctant to haggle!
There are plenty of things you can do to prepare for that negotiation including asking a friend to act as a house seller so you can practice your haggling skills. Saving the money is worth the discomfort!
Save Money Early For Your Down Payment, But Also Ask For Down Payment Help As A First-Time Borrower
Many communities have at least one agency that will provide down payment assistance depending on the kind of mortgage loan, the nature of your home loan needs (occupancy is usually a requirement), state law, and other standards.
Get in touch with a participating FHA lender to discuss your first-time home buyer needs. (The website is a private company and not a government agency.)
You can search your local directory listings for down payment assistance programs which must, in order to be FHA-approved, have no expectation of repayment. The down payment gift must be exactly that-a gift.
Family and friends can make a down payment gift too, but your lender will require these funds to be verified according to lender standards. There is no shame in asking for a down payment gift from your loved ones when starting out with your first home. Just make sure you ask your lender what that financial institution’s rules are and pass those rules along to your gift-givers.
In addition to all of this, be sure to work on your credit scores early and come to your first home loan application with no fewer than 12 months of on-time payments on all financial obligations. The results will speak for themselves.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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