It’s not always easy to buy a home. While it’s fairly common knowledge that buying is usually cheaper than renting, it can be difficult to find the financing that you need to make it all happen. When banks and lenders tighten their financing practices, consumers also feel the pinch. If you are trying to purchase a home, these tips may help you to secure financing, opening the door to home ownership.
If you happen to be buying your first home, or can be categorized as a low-income borrower, it’s likely that you will be dealing with an FHA loan at some point. FHA lending is favored by many banks and loan brokers because the terms are more favorable to the borrower in many instances. An FHA loan can be secured with a very small down payment, often as little as 5%. In addition, interest rates are more manageable than many other types of home loans. If you need to know how to finance a house, you need to understand how the FHA program works. The U.S. Department of Housing and Urban Development has pages of educational information, including worksheets that can help you determine what you would qualify for and what payments to expect. To see a full spectrum of HUD and FHA programs, see Housing & Urban Development: HUD.
HUD and FHA are often confused, but they are merely different arms of the same organizations. When you finance a house, you will dealing with the FHA side of the program. HUD is the entity that takes over ownership of foreclosed FHA properties and liquidates them to the public. You can often find deeply discounted properties using the HUD auction program. The process of bidding, however, can be confusing and vague. Either way, verification of income is needed. You can also have a co-signer on an FHA loan, if necessary.
Banks, Credit Unions and Brokers
When an FHA loan isn’t preferable or possible, you will be applying for a conventional loan at a bank or credit union, or going through a mortgage broker. These ways to finance a house can vary a great deal, as each entity will have its own stipulations and guidelines to writing the loan. It’s also important to understand that most loans, even conventional lending, are written by one lending institution and then sold to another company or organization that actually manages the loan ultimately. If those companies are drawing a hard line about what types of loans they will purchase, this will also affect your ability to get approved in the first place.
For example, when the markets squeeze, many loan carriers will not buy any note that is written on a modular or manufactured home. If that is the case, you will not be able to purchase any properties that fit this category. As is the case with an FHA loan, you will be required to show documentation of income, debts and other financial responsibilities to secure a conventional loan. If you don’t meet the predetermined parameters, you may be able to bring on a co-signer to make up the difference.
In a lucrative market, few sellers will be willing to owner-finance a house. However, when numerous homeowners are stuck with properties that cannot obtain any type of traditional financing, people are suddenly more willing to discuss options. The exact terms of an owner-finance arrangement are open to negotiation. However, owner-financiers usually will ask for a down payment of 10-30%. You may be able to work directly with the original owner of the property, making payments every month, or a broker may be hired to escrow each payment and make sure that it gets where it belongs. This arrangement definitely isn’t ideal for everyone, but it can allow you to purchase a home that would otherwise not be permitted by a bank or FHA lender.