There are several different loan types that a person can look into.  The first type of loan is a traditional Conventional Loan.  Conventional loans are fixed rate mortgages that are not backed or insured by the federal government.  These types of loans can be difficult to obtain because of their strict requirements when it comes to down payment, your credit score, your income, and costs like private mortgage insurance.

Conventional loans are either conforming loans or non conforming loans.  A conforming loan complies with guidelines that are set by Freddie Mac or Fannie Mae.  Both of these companies are owned by stockholders and they create guidelines for mortgage lending.  One of these guidelines is the loan limit of $417,000 for single family homes (like I talked about in my last post).  Non conforming loans are usually provided by portfolio lenders and have a set of guidelines that are regulated by a particular lending institution.

FHA Loans (My personal favorite, if you can’t tell) are backed by the federal government.  An FHA home loan offers lower down payment requirements and are much easier to obtain than traditional conventional loans.  They are perfect for first time home buyers not only because of the low down payment option, but flexible credit requirements and they look at your whole financial situation to determine if you qualify.

VA Loans are unique because they are only available to veterans and The U.S. Department of Veterans Affairs guarantees all VA loans.  The VA is not the one who lends the money to borrowers, instead, they guarantee mortgages made by approved lenders.  These types of loans make it easy for veterans to obtain home loans with no down payment and they are so much easier to obtain than any other type of loan.  Before you apply for your mortgage, you need to request eligibility from the VA.  If you are accepted they will send you a qualifying certificate.

If you are  first time home buyer, I hope that this has been enlightening and very informational.  If you are ready to pursue financing for your mortgage needs, please contact us right now and we can get started!

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But most analysts agree that the program is more of a band-aid than a cure-all for the battered real estate market. What’s more, others are quick to point out that the credit must be repaid, which means it’s actually an interest-free loan that could get some homeowners in trouble.

“It’s one of those things that are more complicated than it seems at first blush, said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. “Consumers have to make sure they understand the credit thoroughly.

The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Individual buyers with income of up to $95,000 and couples with income up to $170,000 are eligible for a partial credit.

The Senate Finance Committee estimates that about 1.6 million people will use the credit.

The housing industry pushed for the program. “Breaking the log jam of unsold homes is something we are very much behind,” said Richard Dugas, president of builder Pulte Homes, at a news conference to discuss the program. First time home buyers represented about 20% of the market for new homes in 2007.

Realtors are also behind the credit. “[It] will help chip away at inventory levels, stabilize prices and spur [sales] activity,” said Richard A. Smith, CEO of Realogy, the parent company of both Coldwell Banker and Century 21.

The industry has had success with tax credits in the past. In 1975, Congress passed a $2,000 credit for home buyers (about $8,200 in today’s dollars).

“Buyers flocked to market and cleared out a then-record inventory of homes,” said NAHB president Sandy Dunn. But that credit did not have to be repaid.

And the impact should extend beyond first time home buyers, according to Lawrence Yun, chief economist for the National Association of Realtors. A boost in demand for starter homes means that those sellers will be able to trade up to bigger, more expensive places, and so on up the chain.
How it works

Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home’s sale price, up to $7,500, whichever is smaller.

The credit is good for homes closed on after April 9, 2008 and before July 1, 2009, and can be taken on taxes filed during 2008 or 2009. Even buyers who bought a home before the bill passed, but after April 9, can claim the credit.

Unlike tax deductions, which only offset taxes by lowering taxable income, the tax credit is a straight dollar-for-dollar deduction of your tax bill. So a buyer who would ordinarily pay $8,000 in taxes would pay just $500.

It’s also “refundable,” which means if a buyer’s taxes are less than $7,500, the government will send them a check for the difference. For example, if a couple’s income generates a tax bill of $5,000, the government will refund all of that plus $2,500.

Buyers must to start paying back the loan within two years, at a rate of no more than $500 a year for 15 years. When the the home is sold, any outstanding balance will be repaid from the profit; if it’s sold at a loss and the difference will be forgiven.

And some argue that mortgage lenders will take the credit into consideration, making it easier for buyers to get a loan.

“[The $7,500 reserve] will make borrowers less likely to fall into default,” said Ken Goldstein, an economist with the Conference Board, since it gives them a nest egg should they run into trouble. Still, that assumes that buyers will sock the $7,500 away rather than spend it.

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