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FHA Loan Information & Creative Financing

As a real estate agent , I run across many people who have questions about mortgages and financing in general.

In this section , I am going to cover a few hot-topic items related to financing.

• FHA Loans
• 0% Down Loans
• Government Grants
• Buydowns
• Land Contracts and Seller Financing

FHA Loans

FHA Loans for the past few years have been mildly popular, but in recent light of the subprime meltdown, they're starting to gain popularity.

As of recently, I've been trying to get as many buyers as I can pre-approved with FHA loans as there are several great benefits over a conventional loan.

These benefits include :

• Low Down Payment
• Possibility of a very low interest rate
• Higher closing cost % paid by seller
• Sub-Prime borrowers can stil qualify for a GOOD loan

One of the biggest drawbacks with FHA loans is the maximum loan value.
The current MAX loan value for FHA in Pickaway county is $233,700
For the vast majority of home buyers in our area, this is more than enough , $233,700 is in the top 10% of home values in the area.

0% Down Loans

Once in a while, I will get a call or a question concerning 0% down loans. Some people believe these loans do not exist, or are a very poor decision.

While I always think it's a good idea to have money down for a property, not everyone is in a position to put 5%, 10% , or 20% Down.

A 0% down can have a good interest rate, with favorable terms, and many times are fixed over the course of 30 years.

Many of these loans will require that someone (Buyer or seller) pay a certain amount of closing costs.
Closing costs are the fees associated with buying the home outside of the actual home itself.
These are things like the appraisal, survey , title work and loan underwriting fees.

Closing costs can vary quite a bit, and it will depend on what kind of program your in , and what the lender is charging for.
If the seller is willing to pay for the closing costs , and you're in a 0% down program, you are able to purchase the home with NO MONEY DOWN. Although, you will be paying for this ability over the course of the loan.

Government Grants

Government money DOES EXIST when buying a home, there are 3 programs available I am a fan of, although there are usually limited funds for each type.

Circleville City Grant
The city of Circleville currently has a first-time homebuyer grant program available.
In this program, you are required to attend 2 , 2-hour or 3-hour classes where you are taught the basics of home ownership. Upon competition you are issued a certificate of completetion of the program.

After you have completed the program, you now can enroll in the grant program.
The grant program will pay up to $15,000 towards the purchase of a new home.
There are guidelines to be in the program, they include income, time since last owned property and several other factors.
$10,000 of the grant is allocated towards the down payment, and $5,000 goes towards the updating and upgrade of the property to current city codes. Unfortunately, if a property is in poor condition , it will most likely not pass the grant program.
If you own the property for a total of 5 years, the loan is forgiven.

Pickaway County Grant
The Pickaway county grant is almost identical to the Circleville City grant, with the exception of location. With the county version of the program , you can purchase a property outside the city of Circleville. The income requirements are similar, and you will also have to go to the classes.

One of the main differences between the county program versus the city program is that the county program issues up to $25,000 in assistance to the first time home buyer. Of this money , up to $20,000 is allocated towards the down payment, with $5,000 going to the upgrade and update of the property.

Ohio Bond Program

I have been involved in quite a few transactions involving the OBP. In fact, a client of mine is under contract with the bond program, and will have to pay very little to purchase the property.

According to the OBP's website (ohiohome.org) The grant program does the following.

"In addition, OHFA also offers down payment and closing cost assistance to eligible borrowers,
which can greatly reduce their out-of-pocket expense. Homebuyers can choose between a down payment
assistance grant in an amount equal to 2% of the home's purchase price, or a second mortgage
in an amount up to 4% of the purchase price of the home secured by the first mortgage single family bond loan."

"The 4% down payment assistance program is a second mortgage with a 20-year term.
The interest rate for the second mortgage will be up to 2% higher than the related
OHFA first mortgage. For example, 5% first mortgage and 7% second mortgage.
The 4% second mortgage down payment assistance may only be used with an OHFA
First-Time Homebuyer Program first mortgage."

In short, the bond program can offer a percentage of the purchase price towards closing costs.
Criteria must be met in order to apply for the program. Most local lenders have knowledge of this program and can help you out.

Buydowns

Buydowns are relatively simple in how they work with a mortgage.
A buyer (Or seller for that matter) can opt to have the interest rate reduced on a loan many times by paying the bank an up-front fee.
The fee is usually based on the price of the property, known as points.
Points are a percentage of the property price.

IE 1 point = 1% of purchase price.

As always, you will need to check the numbers and see if they work for you. There is usually a break-even point (In between 5-7 years in most cases) where the buydown starts to benefit you.

Land Contracts and Seller Financing Land contracts and seller financing are both in huge demand in our local area. In fact I personally get about 5 calls a week from interested buyers of homes with land contracts.

Land Contracts, and Seller Financing are very similar with a few differences between the two. Land Contracts in short allow a purchaser of a property to make payments on a regular basis of a property to the seller.
The seller allows the buyer to take possession of the property during the payment period, while the owner remains legal ownership of the property.
After a set period of time, the buyer is required to finance the property with a conventional loan, or buy the property.

Land contracts are popular because they allow many "Less Than Perfect" Credit buyers to have the ability to own the home after first occupying the property. Buyers need to realize that although Land Contracts are a option to get to this goal, the seller benefits greatly with a land contract purchase.

In most cases , a buyer will pay a higher interest rate over a standard loan. In addition to this , the property purchase price may be higher than a comparable house, also , the seller usually retains the legal ownership of the property. In some contracts, the buyer may forfeit all payments or principal if they miss any payments.

Seller financing is similar to a Land Contract, but it involves a much broader spectrum of loan types, payment plans and overall setup. They can vary greatly, so it will depend on how it's set up in a particular deal.