First time homebuyers and FHA

There are a large number of factors that go into buying a home. For first time home
buyers, it can be an overwhelming experience unless they’ve done their homework and
researched what to expect. Even then the decisions to be made are not always going to be
easy to make.

Finding the right home is itself a daunting task for many. What size, price range, what
about schools in the area, etc? There are a few basic steps that will help you through the

  • Look at your financial picture and determine how much of a loan you can
    afford. This will prevent you from looking at homes that are out of your price
    range. Use this calculator to determine how much you can afford to pay:
    Once you have an estimate of how much home you can afford, you can start
    researching available homes in your area.
  • Determine how much of a down payment you have saved and are able to
    put toward the property. See below for more information on down payment
  • Narrow your search to homes within your budget. There is a simple one page
    checklist you can use: Make copies
    and it with you when you are looking at potential homes. The checklist will
    give you a lot of different features to look for, many of which may not be on
    the top of your mind as you’re shopping unless you have a reference like this

Most first time home buyers do not have a large amount of money saved and are not
able to make a 10% or 20% down payment. The FHA has a program that is ideal for the
majority of first time buyers who simply do not have the resources to put toward their

Take an average $200,000 home as an example. To purchase this home you will need
to consider several factors, not the least of which is how much can you afford to pay for
your home? Your housing payment will be made up of four parts: principal, interest, real
estate taxes and home owner’s insurance.

How much of a down payment do you have? If you choose a Conventional mortgage,
on a $200,000 home you can expect to put down at least $20,000 to $40,000 in addition
to closing costs. Compare that to an FHA loan requirement of 3.5% plus closing costs.

Assuming closing costs run around 4% of the loan amount, the total you would have to
come up on each of these two loans would be:

  • Conventional at 20% down plus 4% closing costs: $48,000
  • FHA loan at 3.5% down plus 4% closing costs: $15,000

Again, for most first time home buyers these days, a Conventional loan is simply not an
option. The costs associated with the down payment and closing costs are simply beyond
their ability to handle.

Once you have done your homework and are ready to make an offer on a property, you
will be required to supply some basic information with your application. Typically, a
lender will want to see your last two years W2s, your most recent pay stubs and they’ll
need to run a credit report to look at your credit history.

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