Rates remain stubbornly higher than we’d like to see and home prices peaked through Covid leaving many would-be buyers sidelined. I offer optimism to all those who take a minute to understand the market and offer some solutions to help make home buying affordable, even in today’s market.
According to a CNBC survey, a top regret among buyers, especially first-time home buyers, is not clearly understanding how the process works and the options available to them. There are incentives and flexible down payment options to enable first-time buyers and solutions to create affordability across all categories of home buyers. Don’t pay too much or, worse yet, miss an opportunity. Here’s a fast-track education on loans that can help you qualify for that first home and translate to savings for move-up buyers.
Interest Rate Buydowns
Rate buydowns can be permanent, locking a lower rate in for the life of the loan, or temporary, buying a lower short-term rate with a plan to refinance in the future. Rates should head down inside the next 24 months, making a 2/1 temporary buydown an affordable short-term solution.
- A rate buydown is typically a seller-paid cost
- Lowers the monthly payment for the term of the buydown
- A 2/1 temporary buydown allows for a principal reduction should rates drop and the loan is refinanced within the 2-year term of the buydown. Here is more detail on how they work.
Bridge Loans
Bridge loans allow a buyer to use the equity in their existing home as the down payment on a new property BEFORE selling their current home. This feature enables a smooth transition between properties with homes in short supply. Key advantages include:
- Ease of Transition – Purchase a new home before closing on the sale of an existing home
- Timing Flexibility – Act quickly in competitive markets with no contingency on the sale of your existing home
- Monthly Payment Reduction – Exercise the option to re-amortize the new home loan with proceeds from the previous home
Fairway Independent Mortgage Corporation provides this program to our clients with no premium added to the rate. Learn more here.
Enabling First-Time Home Buyers
The Federal Housing Administration (FHA) announced a reduction in the annual mortgage insurance premium this past February on all 3.5% down first-time home buyer (FTHB) programs. Translating that to dollars, buyers can realize a savings of $1,350 annually at a purchase price of $450,000. This is one of several steps taken to make qualifying and affording a home more attainable. Capitalize on the following FTHB incentives:
- Include a non-occupant co-borrower to improve qualifying ratios
- All or a portion of the down payment can be gifted from a relative
- A reduction in mortgage insurance premium on 3.5% down FHA loan from 0.85% to 0.55%
- Minimum credit score of 580 with no associated rate premium.
Less Than Perfect Credit – Let Us Help
While FHA first-time buyer programs offer some credit grace, credit score factors heavily on the borrower’s rate and the associated closing fees on conventional loan programs. Conventional programs are subject to loan-level price adjustments assigned only through automated underwriting. For this reason, a borrower should ALWAYS request a fully underwritten pre-approval from the lender to confirm qualification and the ACTUAL funds needed to close.
- You DO NOT need a perfect score to begin your shopping journey.
- You DO need a fully underwritten pre-approval to know if you qualify and roughly how much you will pay.
- Compete with cash offers by qualifying for Fairway’s Cash Guarantee TMprogram.
Let us offer some insights on credit repair should your score need a lift. Skip the score-boosting hype and make the changes that will lead to a better interest rate and access to programs with lower closing fees.
Fairway has delegated underwriting authority for all FHA loans ensuring upon a Fairway pre-approval, you know exactly where you stand and if there is room for improvement as we proceed through your home-buying process.
Written by Sheila Landis for The Landis Group
