| Not long ago, the large majority of home loans, | | | | Are FHA loans only for first time home buyers? |
| whether you are talking about Austin or anywhere in | | | | No, anyone can use an FHA loan to buy a home. It is |
| the USA, were conventional loans. FHA for many | | | | important to know that FHA loans can only be used to |
| years had made up a very small portion of the home | | | | purchase a primary residence. The loan does not allow |
| purchasing process. But in the last few years FHA | | | | investment property purchases. |
| loans have soared and now account for 7 out of | | | | How do conventional loans compare? |
| every 10 loans. Let's look at why that transformation | | | | Conventional loans are great for people with higher |
| has occurred and which loan might be best for you as | | | | credit scores and larger down payments. With a down |
| you look to buy a home in the Austin area. | | | | payment of 20% they avoid paying mortgage |
| Why are FHA loans so popular as of late? | | | | insurance (often referred to as MI or PMI) making for a |
| The answer is simple, the mortgage collapse of 2008. | | | | lower payment. |
| Before lenders began to go out of business right and | | | | Do I have to have 20% down to use a conventional |
| left the most popular home loans were conventional | | | | loan to buy a home? |
| loans and the main reason was 100% financing. With a | | | | No, you can actually buy a home with as little as 5% |
| credit score of 620 or better borrowers were eligible | | | | down although interest rates are better with a 10% |
| for conventional loans that covered 100% of the | | | | down payment. |
| purchase price. But when many of those homeowners | | | | How is my interest rate determined with an FHA or |
| defaulted and went into foreclosure that loan option | | | | conventional loan? |
| went away along with hundreds of lenders we might | | | | Many people may see this as a big mystery but the |
| add. That left FHA's modest 3.5% down payment as | | | | days of lenders charging higher rates to some and |
| the best method to buy a home for those with limited | | | | lower to others with the same credit scores has all but |
| dollars. | | | | ended. Your interest rate for either type of loan is |
| For what type of buyer would an FHA loan be the | | | | based on 2 things; your credit score and how much |
| best option? | | | | money you are putting down. As mentioned before, |
| Buyers and borrowers with credit scores in the 600's, | | | | FHA is slightly more lenient on buyers with scores in |
| 620 to 680 find that many times FHA will provide an | | | | the 620-680 range than conventional but with either |
| easier approval and better interest rates than | | | | loan you will still receive a better interest rate for a |
| conventional loans. Also keep in mind that FHA only | | | | score of 720 than you will for a score of 660. As far |
| allows loan amounts of about $288,000 in central | | | | as the down payment is concerned, FHA loans offer |
| Texas. So while the purchase price of your new home | | | | the same interest rate no matter the size of the down |
| might be more than that amount, the actual loan | | | | payment while rates for conventional loans are better |
| amount has to be no greater than that figure. | | | | when the down payment is larger. |
| Does FHA still offer down payment assistance? | | | | FHA loans and conventional loans team up to provide |
| Unlike years before when companies like Nehemiah or | | | | the answers for most borrowers today. The "easy |
| Neighborhood Gold could "loan" you the money for the | | | | qualifying" loans though that did not require proof of |
| down payment, FHA no longer works with these | | | | income are long gone with the new mortgage industry |
| programs. The 3.5% down payment (You can put | | | | regulations. Today no matter which loan program you |
| down more if you like) must either come from the | | | | choose be prepared to prove your income through |
| buyers' own funds or a gift from an immediate family | | | | pay stubs and W-2's and in some cases tax returns. |
| member. Often times we will see for instance a first | | | | Good loans are still available to those with good credit |
| time home buyer get a gift of the down payment from | | | | which has kept the Austin home market alive and well |
| their parents or other family member. | | | | even in tough economic times. |