I'm a First Time Homebuyer. What Loans are Available to Me?

The obvious answer is any loan that's available to any buyer, but since the most frequent challenge that we see with first time homebuyers, is that they have little or no money for a down payment. So for purposes of this article we're going to focus on programs that allow for 100% financing of the purchase price.

CONVENTIONAL PROGRAMS

In general, these programs are limited to properties selling for $417,000 or less, and there are are number of them with names like "My Community, Flex 100, Home Possible" or any number of proprietary names that various lenders might attach to them. All of them will finance 100% of the home's purchase price with a single loan, and all have very similar requirements-a minimum FICO score of 620, ability to document one's employment and income history for at least two years, minimum (sometimes no) reserve requirements, etc. They also will allow the home to be purchased "as is" in most cases, as long as the home is in reasonably good condition as determined by the appraisal. This is extremely beneficial if one is trying to buy one of the plethora of bank owned properties currently on the market. By the way, there are some real bargains out there now-the last six first time homebuyer transactions I've worked on, appraised for 5-7% MORE than they are being purchased for! Also, in most cases, the seller is allowed (and usually is willing) to pay up to 3% in buyer's closing costs.
An example of a typical payment for a $200,000 home looks like this:

$200,000 loan @ 6.5%, 30 year fixed $1264.14 principal and interest monthly
mortgage insurance @.59% 98.33
property taxes 208.33
homeowners insurance 58.33
TOTAL $1629.13

FHA LOANS

The typical FHA loan requires a 3% down payment and the maximum loan is about $264,000 in the Sacramento area, but the down payment can be a gift from a relative or, more importantly, can come from an additional ACCESS loan for 7% of the purchase price. That's enough to pay the required FHA down payment and all buyer's closing costs! Another advantage to FHA is that they have no minimum FICO score requirement. In fact, it's possible to obtain a loan even if there are NO accounts on the buyer's credit report. In those cases we will obtain rent ratings, ratings for utility or telephone accounts, car insurance payments or anything else the buyer has been paying regular monthly payments on. We've even used memberships in gyms for ratings!
Here's how an FHA ACCESS payment would look on the same $200,000 first time home:

$203,000 loan @ 6.5% 30 year fixed $1246.53
FHA mortgae insurance @ .5% 80.96
property taxes 208.33
homeowners insurance 61.61
$14,000 ACCESS loan @8.5% 20 year fixed 121.50
TOTAL $1718.93

That's a little higher payment than the conventional one above, primarily because the down payment and closing costs have been financed in this example. Great loan for those with FICO scores less than 620 however!

VA LOANS

Originally developed for veterans returning from WWII, this program administered by the U. S. Department of Veterans Affairs, is THE program for the qualified military veteran or in some cases, the widow of a military veteran! It provides a federal guarantee for a loan to finance 100% of the purchase price of a home up to about a $260,000 maximum and is generally available to active or discharged veterans with more than six months active service. If discharged the discharge can be any discharge that is "other than dishonorable." The benefit runs for the life of the veteran and can be reused multiple times over a lifetime. It has put literally millions of first time homebuyers into their first home! One of the other beauties of this program is that while it has a "VA Funding Fee" built into the loan, it requires NO mortgage insurance.
So check out the VA payment on our $200,000 home:

$204,300 loan @ 6.5% 30 year fixed $1291.32
property taxes 208.33
homeowners insurance 59.59
TOTAL $1559.24

I'll bet it would cost about that much to rent some of the $200,000 homes I've seen lately and one would have to put up first, last and security deposit, etc. Better to get the seller to pay closing costs, not have to go in with any money, and own the home!

There are other ways to finance all of a home purchase, CalHFA, CalVet, CalPERS, etc. all with their benefits and drawbacks, but the three above are the basics. Better for the reader's eyes (and my typing fingers) if we end here for the moment....