As a first time home buyer there are a number of things about the home which may concern you; After all you’ll be looking forward to owning and living in it for the better part of the next five to seven years. Things like property location, property condition (seen and unseen), school district, shopping areas, room sizes, yard size, purchase price, mortgage payments, interest rates, down payment, dining room chandelier, refrigerator (I lost a deal years ago – as a second year real estate agent – because of a home seller changing her mind about leaving the refrigerator which was originally included with the sale) and range & oven, among others.
The seller’s list of requirements are usually not as long; As stated above they are primarily concerned with full price, little or no complications and speedy closing. If we can use the recent Republican/Democrat negotiations; The most important Republican demand was an extension of tax cuts for the upper two (2) percent of the nation’s tax payers, whereas Democrats wanted a list of things for their constituents, including reduced payroll taxes, extension of unemployment insurance benefits and tax cuts for people earning up to Two Hundred Fifty Thousand ($250,000). In this example the home seller would be the Republicans and the first time home buyer would be the Democrats, based solely on the list of requirements they are negotiating for. Just a little fun with the political stuff. Anyway, back to our story here.
Negotiations will always be a reality in just about any transaction you are involved in, and when the item to be negotiated is the single largest investment you will probably ever make in your lifetime, it is reasonable to assume that – since the stakes are higher – the negotiations will be proportionately tougher. As a first time home buyer who may not have the leverage of a large down payment, top level earnings (not yet anyway) or an extensive credit history, you may need a tool in your limited negotiation arsenal to counteract the seller’s position. That tool is the FHA-Insured mortgage program for single family (1 to 4 family residential) properties.
The FHA-Insured mortgage loan program, when measured against conventional or traditional methods of property financing, provides that a first time home buyer can be approved for a mortgage loan with only 3.5% of the sales price as a down payment (compared to a minimum of 5% for a PMI mortgage or 20% for a conventional mortgage loan), up to 41% of his/her gross monthly income to cover monthly payments of Principal, Interest, Taxes, Insurance and Revolving & Installment Debt (compared to 36% for a conventional loan) and 640 credit score (as compared to 720 credit score for a conventional loan). Although the FHA still publishes (on its website) a score of 580, a majority of mortgage lenders require a minimum of 640 credit score.
So when you, as a first time home buyer, bring your FHA-Insured mortgage approval to the negotiating table the home seller is bound to take notice. Additionally, if you are in competition with another buyer for the same home, you may have another negotiating tool that relates to the “property condition” IF, there is at least $5,000 in needed repairs that the seller may be required to complete per a Home Inspector’s Report or, other similar report such as, a Property Appraisal Report.
Your position may be strengthened if you agree to have the work done yourself pursuant to a FHA 203k mortgage approval, thereby relieving the home seller of that responsibility in return for the seller acepting your offer. When you’re a first time home buyer in a real estate transaction, your negotiating strength lies in persuading the seller that you are capable of obtaining mortgage financing to complete the purchase of his/her property; But in some cases you can use other available programs to strengthen your negotiating position. Make sure to keep the 203k option fresh in your mind when you are thinking of entering negotiations as first time home buyer of residential real estate.
A message to Prime Mortgages readers:
Thank you for your support. We will continue working to provide the most relevant and useful information about current FHA-insured programs and related topics. Please provide any comments, opinions or preferences which you would like us to be aware of. Thanks and God Bless! Javeton
For more about 203k, please visit the HUD website
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