First Time Home Buyers Loan Programs Explained

Many of the first time home buyer loan programs are from the government, such as FHA, VA and HUD. Zero down loans, such as the 80/20 carry PMI (private mortgage insurance) and an equity home loan in the package. This article will explain the benefits and the disadvantages of each.

What is an FHA Loan?
An FHA loan is a government loan that requires a 3.5% down payment and a reduced form of PMI on the loan. It is a greatly reduced from PMI, but it is still required on the loan package. It is called MIP (mortgage insurance premium). There is an upfront 1.5% required in escrow for closing and .5% monthly paid for five years if you have a 30 year loan.

Many foreclosure homes are sold through FHA and they have easier qualifying guidelines. FHA is more lenient with credit score guidelines. They allow the borrower to apply for a loan even though their FICO credit score is under 700 and sometimes as low as 600 with a valid explanation of all delinquencies. Like the other government programs, all the less than perfect marks on the credit report need a valid explanation and the buyer needs to show good credit in recent months.

HUD Auction Bids
In order to buy a HUD home, the buyer must make a bid at the weekly auctions. The buyer must be represented by an agent and cannot make the bids on their own. They need to have a prequalification letter, earnest deposit and a signed offer.

The advantages of HUD are that the down payment is a very minimal $500-2000 and HUD will finance all repairs to be done to the property. With the offer, the agent must include the amount to be repaired. This figure is supplied by the HUD office.
Some of the disadvantages of this program are that the homes tend to sell for a high price with competition in the bids. Because of the terms involved many new buyers get carried away with the bidding not realizing they are buying over the value many times. The buyer can also apply for a title one loan (2nd mortgage loan) on the property with no equity involved.

VA Loans Require No Down Payment and No PMI
Many veterans flock to buy homes with the no down payment incentive. There is a funding fee of 0-3.3% depending on the home. The funding fee may be financed with the loan. This first time home buyer's loan program requires no down payment and no PMI. The seller may pay the closing costs and therefore the vet has no money involved in the loan.

Zero Down Mortgage Loans
Most banks carry some type of zero down loans. Check with the bank close by to discover the best rates or look at and compare rates. Zero down loans require perfect credit scores over 700 and preferably 720. The basic loan package is a main loan and a home equity loan attached of 20%. With this type of loan there is PMI included.

PMI remains on the property until there is 20% equity in the property and then the homeowner may apply to remove the PMI. It is not as easy as it sounds, though. It takes awhile to be approved, the guidelines are strict and a new appraisal is required most of the time.

First time home buyer loan programs attract young couples who want to purchase their first home. With these four programs listed there are many opportunities to purchase a home with little cash involved.

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