News reports relating to first time home buyers have been a bit dire for the last few years. Numbers have been down since the recession. And even with the markets now recovered, many young buyers aren't jumping into home ownership like they did in past decades. High rents. Underemployment. Stagnant wages. Enormous student loan bills. All of these plagues are keeping many emerging young adults and young families from the American dream of owning a home. And those who are doing well and buying their first homes right now, are doing so with some help from financially secure parents and family members, according to The Atlantic magazine.
Meanwhile, first time home buyers will face still more hurdles as they try to enter the housing market amid big changes being imposed on FHA loans and the qualifying criteria that determines an applicant's approval.
But that doesn't mean the white picket fence dream of home ownership is broken or that you should tuck away your dreams of owning your first home. FHA loans are a great access point for today's new buyer's to enter the market. Low down payments, more flexible qualification criteria and clear and easy to understand rules make FHA financing still a great option for first time home buyers.
Actually, many first time home buyers find that being educated on the FHA rules and requirements, properly preparing organizationally and financially for your loan application and the early months and years ahead as a first time homeowner, can make a first time home buying experience a total success. Just hook up with a great lender and an awesome real estate agent. These are the two people who can educate you in the rules and processes and advise you through the entire home buying experience can make your first time home buying experience a fantastic one you'll never forget.
Here's a look at what you should expect if you're a first time home buyer getting ready to enter the market and apply for an FHA loan. Beginning in September 2015, these new changes to FHA loans and qualification processes took effect:
- STUDENT LOANS: Even if the student loan is deferred, lenders must now use the likely future payment amount against the first time home buyer's debt-to-income ratio for qualification purposes.
- LARGE DEPOSITS: More scrutiny is going to be put on large deposits into a first time home buyer’s bank account.
- GIFT FUNDS: When the buyer is receiving a gift for down payment, the person gifting the money will have to provide a copy of their bank statement and any large deposits in the donor’s account could require documentation proving the money's original source. And the relationship of the person giving the money will also need to be verified as immediate family, with no cousins allowed.
- NON-TAXABLE INCOME: When working with a first time home buyer with non-taxable income such as social security income of child support, the income may now be grossed up to 15 percent. (Previously, it was grossed up to 25 percent)
- SELF EMPLOYED INCOME: If a first time home buyer's self-employed income drops by 20 percent or more from the previous year, stricter underwriting guidelines will be used for the loan.
- JOB CHANGES: Changing careers from one industry to another or changing jobs within the same industry 3 or more times in a year will place more scrutiny on the first time home buyer’s ability to obtain FHA financing. Also, gaps of employment lasting more than six months will require at least six months on a new job before a first time home buyer can be approved for an FHA loan. And, while there used to be some exceptions to this rule based on what caused the employment gap, the exceptions have now been eliminated. Exceptions like "raising a family" are no longer considered an acceptable reason for a period of unemployment.
- APPRAISAL: All appliances being left to the buyer by the seller must be included in the appraiser's inspection and the appraiser must operate and observe the appliances' performance during the inspection.
- SWIMMING POOLS: If a swimming pool is being used to obtain full home value, the pool must be fully operational.
- AUTHORIZED USER ACCOUNTS: If you're a first time home buyer and an authorized user on someone else's credit account, be aware that the payment associated with that account will now be calculated into your debt-to-income ratio. (This rule can be waived if you can document that the primary account holder for that debt has made all the required payments on time for the last 12 months.)
The changes are part of an ongoing effort by FHA to get the loan program requirements more in line with the requirements associated with traditional home loan products. The idea is to continue helping first time home buyers enter the real estate market with affordable down payments and fees, while ensuring those loans are written responsibly in a way that reasonably protects the lending and housing markets from the disastrous effects of poor lending practices.
If you're wondering just how these new rules might affect your ability as a first time home buyer to get into your dream home, give us a call. We will be happy to talk you through the process and help you find the right timing, home and lender for YOUR unique situation.
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