Programs to Help Home Buyers

by Dan Krell (c) 2009.

Tempted by terrific deals but frustrated by lack of financing, many home buyers are holding back from jumping into the real estate market. However, home buyers who qualify for a mortgage find themselves held back because they do not have the funds for their down payment or closing costs. If you are considering a home purchase this spring but find that financing and personal funds are limited, a few options you may want to consider include the FHA mortgage, the Maryland Mortgage Program, and the American Dream Downpayment Initiative.

While conventional financing has been reduced by increasingly restrictive underwriting guidelines, the FHA mortgage has re-emerged and re-established itself as the mortgage of choice for many home buyers (HUD.gov). The FHA mortgage’s low down payment, flexible underwriting, and provisions for gift funds make it clear why it is a poplar way to finance home purchases:

First, even though the down payment requirement for the FHA mortgage increased to 3.5% last fall, it is still lower than most conventional mortgages. Compared to a 5% or 10% down payment conventional mortgage, a home buyer needs thousands less to purchase a home.

Second, if you experienced past credit problems you may find it increasingly difficult to qualify for a mortgage. However, FHA’s flexible underwriting allows home buyers to have had past credit issues with documented mitigating circumstances and sufficient re-established credit.

Lastly, if you are short on funds, the FHA mortgage will not only allow the seller to contribute up to 6% of the sales price towards your closing costs, a family member may gift you the amount you need for your down payment as well! Of course, the source of funds needs to be carefully documented, but the combination of seller assistance and family gift could allow you to purchase a home with very little money down.

Another home buyer program is the Maryland Mortgage Program (mmprogram.org), offered through the State of Maryland’s Community Development Administration. The Maryland Mortgage Program includes several programs, when combined, can also allow you to purchase a home with little money down. First, the program offers mortgages through Community Development Administration (CDA) financing, which feature fixed, low interest rates. Second, the program offers the House Keys 4 Employees program, which matches contributions from participating employers (up to $5,000). And third, the program offers grant assistance through CDA for down payment and closing costs (either 2% or 3% repayable grant).

A final home buyer resource is the American Dream Downpayment Initiative (ADDI) offered through the Montgomery County Department of Housing and Community Affairs. The program is a government subsidized down payment and closing cost program for first time homebuyers. Since funding is limited throughout the country, Montgomery County has specific eligibility guidelines.
Since each program may have specific eligibility requirements and funding limitations, you should check with the each program provider to see if you qualify; and although FHA guidelines are well established, you should check with your FHA lender for specific credit and underwriting requirements as you may find that many FHA lenders impose additional credit requirements and other limitations on top of the flexible FHA underwriting guidelines. Finally, because interest rates and fees vary from lender to lender, HUD recommends that you compare rates and lender fees.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 23, 2009. Copyright © 2009 Dan Krell

How do you know if you are ready to buy a home?

by Dan Krell
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Did you know that we are in the midst of the best home buyers market in since the 1970’s? Real estate guru and national speaker, Bernice Ross (Realestatecoach.com), thinks so and that’s why she proclaimed 2008 as the “best buyer’s market in thirty five years!”

Ms. Ross asserts that the combination of low interest rates and high inventory makes this real estate market prime for home buyers. She supports her claim by explaining that interest rates have not been this low since the seller’s market of several years ago (when inventory was very low) ; and previously in the 1970’s. Additionally, mortgage interest rates during the previous major home buyer markets were much higher (18 to 20% in the early 1980’s and about 11% early 1990’s).

Certainly, it may seem to be a time filled with home buyer opportunity: Housing inventory is at a level unseen for years, giving home buyers many homes to choose from as well as negotiating leverage in neighborhoods filled with homes for sale. Additionally, interest rates are relatively low making homes more affordable. Furthermore, home buyer tax incentives (including the recent tax credit of up to $7,500) as well as rising area rents may make home buying a viable alternative.

Would economic turmoil put a damper on the excitement that would otherwise be generated by “the best home buyer’s market in thirty five years?” Some financial commentators say “yes.” For example, Luke Mullins states that you should not buy a home unless you have a compelling reason to do so (USNews.com, August 14, 2008). Steve Kerch of The Wall street Journal’s Market Watch (MarketWatch.com, September 24, 2008) reported that the best indicator of economic confidence is the purchase of a home.

The truth is that “the right time to buy a home” depends on the home buyer. Relying on broad sweeping statements (positive or negative) about the real estate market may not be helpful. Many personal and regional factors need to be considered and assessed. Before you decide to buy a home, you might want to examine such issues as (but not limited to) your personal and financial goals, your current financial condition, and your career outlook.

The question, “How do I know if I am ready to buy a home?” is answered by HUD’s (HUD.gov) “100 questions and answers about buying a new home.” If you can answer yes to the following questions, HUD believes you may be ready to buy home: Do you have a steady source of income? Have you been employed on a regular basis for the last 2-3 years? Is your current income reliable? Do you have a good record of paying bills? Do you have few outstanding long-term debts, like car payments? Do you have money saved for a down payment? Do you have the ability to pay a mortgage every month, plus additional costs? Other experts add these questions as well: how long do you intend to stay in the area, do you have emergency funds available, are you ready for the responsibility of homeownership, and do you live within your means?

In addition to consulting with your personal financial adviser and accountant, HUD recommends you attend home buyer counseling to help you determine if you are ready to buy a home.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 13, 2008. Copyright © 2008 Dan Krell.