The Mortgage Scoop

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Why would someone prefer a FHA loan or Conventional loan I was asked by a client this week.  Great question, since FHA loans had virtually disappeared as an option for Minnesota first time home buyers until a year ago, most people–including Realtors–no longer know about the virutes of FHA loans.

Here are 5 great reasons why home buyers in Minnesota would use a FHA loan:

1. Small down payment requirements.  The minimum down payment is 3.5% as of January 1, 2009.  You can not get a loan with a smaller down payment requirement in Minnesota unless you qualify for a special first time buyer loan, in which case 3% could be the minimum.
2. All the money needed for the down payment money can come as a gift from a relative.
3. Credit score requirements are much lower.  580 is pretty much the lowest score that will get approved for FHA, on a Conventional loan in MN you would need a 680 score if you only have the minimum down payment.
4. If the borrower doesn’t have enough income to qualify, they can qualify by adding the income from a co-borrower even if that person is not going to live in the home.  This is called “non-occupying co-borrower.”  The most common example would be parents who own and live in their own home signing as co-borrowers for one of their children to help them buy.
5. Sellers can contribute up to 6% toward the buyer’s closing costs and pre-paid expenses.  3% is the limit on a Conventional loan.

Notes about the 5 reasons

FHA itself does not have credit score requirements at this time.  But, all the major lenders have created their own minimum score in an attempt to avoid bringing in a bunch of new, troubled loans.

While the seller is allowed to pay up to 6% toward costs, in Minnesota the standard is still usually 3%, this applies to first time buyers or experienced buyers.  Now that the down payment requirements have increased, I expect that more buyers will begin trying to negotiate to receive at least 4%, which is what is needed to cover costs lately, especially on the lower priced homes (under $150k).  Eventually, sellers will relent and start paying 4% if enough buyers need it to get in.

As one of the featured partners on the Minnesota Real Estate Show, you can listen to Alec Grebis every other Saturday from 3-5pm on KTLK 100.3 FM talk about Minnesota mortgages,  down payment assistance programs and grants with mn first time buyer loans.

January 11th, 2009 | Tags: FHA | Category: Loan Programs, Mortgages | Subscribe to comments | Leave a comment | Trackback URL