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Thursday, August 28, 2008
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Thursday, August 28, 2008
The Best FHA Home LoansBy: Jeffrey Ragan
For many, finding the best FHA home loan should not be a problem. Although there’s a number of different kinds of FHA homes loans, in this article we’ll talk about just 2 of them. For most first time home buyers this will suffice.
The first will be the FHA 203b home loan. Now if you’re into technical stuff and want some good bedtime reading go ahead and get a copy of the Department of Housing and Urban Developments (HUD) handbook 4155.1 REV.4.
It’ll surely bore you to death but at least you’ll see where I’m coming from when sharing this information with you.
The reason we’ll talk about the 203b is most likely, this is the best FHA home loan and used most often.
THE BEST FHA HOME LOANS (203b) EXPLAINED
So what does 203b stand for? That is the section number under which the underwriting guidelines can be found in the National Housing Act.
The main thing for the first time home buyer to know is this type of loan program is a great way to start down the path of homeownership.
The US Government has this loan program in place to build stronger communities and to help people become homeowners. Also it aids the US economy. Think about that for just a moment. The more homeowners in a neighborhood, the stronger a community becomes. Homeowners have pride of ownership and take good care of their properties.
To qualify for this type of FHA loan is really quite simple. There are certain credit requirements, income and other things to consider. For the most part, this is best way to get started.
Many mortgage people might try to steer you away from this kind of loan product. Do your homework. Take it from me; this is not nearly as hard as people make it out to be.
For many Loan Officers, they just do not know how FHA loans work or just resist the extra efforts involved helping you to become qualified.
If you meet with resistance when asking for information on FHA 203b home loans, move on. Find someone you trust and that has knowledge of the product.
There is much more to this loan product. If you want to learn more about how this can help you visit the HUD website.
MY FIRST HOME LOAN WAS A 203b
If you recall, when I was telling you my experience on the home page of my website, my first home was purchased under an FHA 203b home loan. Now, I didn’t know that at the time because all I was looking at is the $570.00 down payment.
FHA 203b loans require a 3% down payment. In my case, the purchase price was $19,000.00 so my 3% down payment equaled $570.00. So all I could think about was that I was going to become a homeowner for a small amount of money. In fact it was equal to about 2 months rent for me. Now this was back in 1978 so homes are a little costlier now of course.
Yet still today, first time home buyers are getting into FHA loans with $3,000.00 or more. I strongly feel if you have $3,000 - $5,000 your dream of home ownership could be just 30 days away.
THE BEST FHA HOME LOANS (203k) EXPLAINED
The other FHA loan is called the 203k. This loan product is used far less often since it requires more for you to qualify.
The way this loan product works is it allows you to both buy and repair a home with borrowed money. Again, the same 3% down payment requirement applies.
Where this is different, you can buy a house in need of repairs. The total repairs must equal at least $5,000.00. Like the 203b home loan you must plan to live in the property as your primary dwelling.
So you get to add the cost of repairs on top of the purchase price of the home.
A HUD licensed Consultant will meet with you at the property to complete a Work Write-Up of the repairs to be made on the house.
There will be mandatory repairs which will bring the home up to HUD’s minimum standards. Also there’ll be some recommended repairs the borrower would like.
You can act as your own general contractor, take estimates and use these to determine costs or you can hire the work out to a licensed professional.
The HUD licensed Consultant will need to be paid for this service up front before closing on your loan. This fee is normally somewhere from $400-$1,000 dollars.
The repairs must begin within 30 days of closing on the loan and should not have any delays longer than 30 days otherwise your loan may be called in to be paid in full.
The money for repairs is held in escrow until the work is completed. You can take 5 draws during the construction process.
The real downside to this kind of a loan, if you plan to do your own work, you must have sufficient funds to make repairs before taking a draw. In other words, you get reimbursed for completed work only. So you will have bought and installed the materials before getting paid.
You do not get paid for your labor. Although when you begin, you use the estimates for both labor and materials to determine your overall loan amount. So in a sense, you sort of get paid for labor. Many use these excess funds to make additional improvements on the house.
So then really, one of the best FHA home loans is the 203b talked about just above.
If using the 203k loan, most people use a contractor since he uses his own money to make the repairs and takes draws as needed.
Like the 203b loan, there’s more to this loan product as well. To find out more on the best FHA home loans visit the HUD website or request my FREE 14pg Guide “10 Critical Steps for First Time Home Buyers” at my website.
Jeff Ragan is a senior loan officer interested in helping people understand the mortgage process.
Too many people have been taken advantage of by unscrupulous loan officers. His website has dozens of informative pages to help FIRST TIME HOME BUYERS save time, money and mistakes. Feel free to visit his website to learn more.
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