Mortgage Advice & Articles
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First Time Home Buyer Guide

July 16, 2014

First time home buyer? It can be tough to come up with enough cash for a down payment on a home, but. help is available. Home loans with low down payments requirements along with state and local programs for first time buyers can make a first home purchase more affordable.

FHA Loans

FHA loans are home loans backed by the Federal Housing Administration, a government agency that insures lenders against losses on mortgages issued through its loan programs. FHA loan programs enable mortgage lenders to provide mortgages that require smaller down payments. With an FHA loan, most applicants need just 3.50 percent down. On the other hand, conventional (non-government) mortgage loans generally require five to 20 percent down (and with smaller down payments, they charge higher fees and impose stricter guidelines).

There are a few things to know about FHA loans. Borrowers pay two types of FHA mortgage insurance premiums. The first is called the up front mortgage insurance premium, which can be added to the loan amount or paid at closing. The second segment is called the annual mortgage insurance premium. The annual premium amount is prorated and added to monthly mortgage payments. The amounts of the up front and annual premiums are calculated as percentages of the original mortgage amount borrowed. LendingTree's network of FHA approved lenders can provide mortgage quotes and information about FHA loan requirements.

First Time Home Buyer Programs

First time home buyer programs help by offering "silent" second mortgages or grants that can be used for a down payment or closing costs. "Silent" second mortgages generally require little or no repayment until the homeowners sell, refinance or move out of the home. With some programs like HUD's Good Neighbor Next Door program, if the borrower meets certain criteria, such as remaining in the house for at least three years, repayment may not be required at all.

These programs have eligibility requirements and are offered through state housing finance agencies and local housing organizations.The National Council of Housing Finance Agencies lists all state housing finance organizations in its directory. Mortgage lenders and real estate pros can help connect first time buyers with available programs.

Many state and local governments also offer interest subsidies through mortgage credit certificates (MCCs). If you have a moderate-to-low income, you may be eligible.

Finally, conventional lenders may offer community home buyer programs from Fannie Mae (My Community Mortgage) and Freddie Mac (Home Possible). There are income and other restrictions, but they require only three percent down and have reduced mortgage insurance rates -- cheaper than FHA's.

Conventional Home Loans and Private Mortgage Insurance

Conventional home loans with less than a 20 percent down payment require private mortgage insurance, which is paid for by mortgage borrowers. Private mortgage insurance is not the same as hazard insurance coverage that protects homeowners from losses caused by fire or theft. Private mortgage insurance is similar to FHA mortgage insurance; it protects mortgage lenders against losses caused by defaulted home loans.

Private mortgage insurance is automatically canceled when your loan balances is paid to 78 percent of the home's purchase price. You can also request cancellation earlier -- when your mortgage balance hits 80 percent of your home's purchase price -- if your account is in good standing. If your home's value has increased to the point that your balance doesn't exceed 80 percent of the current property value, you can drop mortgage insurance by refinancing.

Check with real estate pros and LendingTree's network of mortgage lenders to learn more about affordable home loans and first time buyer assistance programs.

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