Mortgage lenders use guidelines established by FHA or underwriting criteria established by national secondary market investors, primarily Fannie Mae (FNMA) and Freddie Mac (FHLMC) for conventional loans. These guidelines are employed to determine the maximum amount of monthly payment a home buyer may incur and still be able to meet all other monthly obligations and normal living expenses. For conventional financing and for home only loans, the calculation to determine the monthly payment allowance varies from lender to lender.
-
- What can I afford? This question is the first for many people. FHA Underwriting Guidelines are a little more liberal in this aspect than Conventional when looking at total monthly debt divided by total gross monthly income.
- FHA guidelines allow a buyer/borrower to have 33% of their gross monthly income used for a house payment and up to 41% of their gross monthly income for all debt. Depending on income, credit standing, amount of savings and investments, etc., the 41% might be increased in certain circumstances. This is higher than the Conventional guideline of 38% and that should be of benefit to many.
-
- FHA down payments varies depending upon the sales price. For a home less than $50k the down payment is 1.25% of the sales price. For a home between $50 and $125k, the down payment is 2.35% of the sales price. Homes over $125k require a down payment of 2.85% of the sales price.
A lot of people don’t know about the many options for obtaining a down payment. Some of the ways are:
- from a family member or significant other or godparent, etc. (basically someone who has a vested interest in you.) If it’s your significant other, you will need to demonstrate your relationship via a lease agreement you’ve both signed, a utility bill in both your names, and maybe a joint bank account. This is the new millennium and nobody requires you to be married or even a traditional couple. Many of the loans made today are made to borrowers who have "life partners."
- from a family member.
- Got a boat, car, or RV that’s paid for? Borrow some money against that for your down payment.
- 403b, thrift savings plan, or other company savings/retirement account.
- from your retirement/savings plan. (This usually constitutes some tax liability. Contact your tax professional for advice.)
- or other grant/soft second/community homeowner program. There is a super program available currently that may be combined with FHA insured mortgages that “grants” or gives money to individuals for their down payment and closing costs. This is a super deal and is a win-win situation for buyers and lenders alike. It is a not-for-profit agency out of California.