First time home buyers are often among those who use the services of FHA or VA to purchase their home. The Federal Housing Administration (FHA) provides low interest mortgage assistance to homebuyers. The Veterans Administration
provides low interest mortgage assistance to military veterans. Unfortunately, these finance options can rule out many homes that these buyers can afford to purchase.
Can be harder to purchase
For instance, in many states condos are not VA/FHA approved and only fee simple townhomes with a homeowners association or single family homes are. That means a higher cost from the start. Let’s look at each.
FHA home loans
FHA home loans have rather low limits as to what may be borrowed. That means that if the home you are looking at is more expensive, you need to come up with either more down payment money or find another way to finance it. This can be difficult if you don’t’ have much saved or have credit problems.
This leads to another issue: credit. You have to have some credit established to qualify for an FHA loan. It doesn’t have to be perfect, but there has to be some credit history. Another issue can be your monthly payment budget. Many first time home buyers don’t realize that their monthly mortgage payment will include things like homeowners insurance and real estate taxes. An FHA mortgage also includes a monthly fee for private mortgage insurance. You will be responsible to pay an upfront fee at closing, plus 0.45% to 1.55% annually depending on the terms of your loan.
VA loans also require an upfront fee which can vary from 0.5% to 2.8% of the loan amount, depending on factors like your service background, down payment or whether it’s your first VA loan or not. VA loans also require private mortgage insurance if you are putting less than 20% down. Quite honestly, if you have 20% or more to put down a conventional mortgage may just be a better deal.
The VA places a cap on the amount of closing costs you may pay as a buyer. This means that any closing costs over that cap will most likely be rolled into the price of the home. How is this a problem? Well, it raises your monthly payment, and if the appraisal comes in below the sales price, you’ll have to come up with the difference between appraised value and sale price to complete the sale. VA loans take longer to close due to requirements for paperwork and inspection approvals.