Post-College Home Ownership
First, if you do not yet know the HUGE ADVANTAGES of having homeownership over renting right now, check out my previous article on “The Huge Advantages of Having Homeownership Over Renting”. I would really recommend a home to be your first big purchase (even before a new car or that beautiful rolex or gucci purse you’ve been eye’ing)
After I told a very smart, post-college friend of mine (we’ll call her V) that I work for an FHA-approved mortgage lender, she jokingly asked me, So what, I can buy a house now with 5000 dollars in the bank? Hook me up, Dan! I know that seems silly since the idea of homeownership can be quite overwhelming for a college student with school debt in the way, but if you’re reading this, V, you will be surprised to know, Yes, it’s possible!
While I wouldn’t recommend it right away (see this article here on “How Much House Can You Afford”), it is possible to buy a home with 5000. Here’s why:
1. The Federal Housing Administration (FHA) has what are called FHA insured loans. These loans only require a 3.5 percent down payment. There are additional closing costs (that can be waived, as I will explain later), but if you really think about it, 3.5% is not that much money at all. This incentive is trying to help non-homeowners (with the right credit and income) finally dive into the housing market in order to reverse the recent oversupply of housing.
How much homeloan can I get with 5000 dollars through the FHA (example):
(.035) x (FHA loanORhome value) = (V’s down payment)
(.035) x (FHA loanORhome value) = $5,000
→ $5,000/(.035) = $143,000
……………………….. so, while definitely not the playboy mansion, considering today’s home values, you could find yourself moving into a very nice home 
Or you can always use this formula and save more money till you’re ready to buy that dream home 
Note: Also keep in mind, your loan qualifications also rest heavily on your income, reserve assets, the interest rate, and your current liabilities. Obviously, it will be hard to get a loan if you can’t pay for it
2nd Note: There are limits to the max loan values based on county. Scroll to the bottom to find a link to look up FHA mortgage limits.
2. Here’s $8000, to help you out. Another part of the stimulus package came from President Barack Obama. Signed into law in mid-February, qualified first-time homebuyers can get a tax credit worth up to $8,000. While this doesn’t help you pay for that original 3.5% down, it can help with utilities, taxes and insurance, your first few monthly payments, and yes, the closing costs (usually 3-4000 dollars even with FHA)! The best part is that you don’t ever haev to pay it back.
Note: The credit only applies to those who buy a home on or after Jan. 1 and before Dec. 1, 2009.
2nd Note: If you buy in 2009, you will get your $8,0000 with your tax return in 2010.
3. Usually, loan officers are encouraged not to sell on “rate” since doing so makes you a slave to the market. A real mortgage professional understands that the benefit and savings of every loan is what should really be important to the client, not the rate. Despite that, though, rates actually are at an all time low right now. All you really need to know is that the government bought a bunch of mortgage-related products from Fannie Mae and Freddie Mac and that’s kept the interest rates incredibly low relative to the 90s and th 80s and probably the future as well. Rates are definitely on the rise though, and with inflation, one should expect those rates to rise before the year is over. Low rates make those monthly payments on the home VERY attractive.
So V, yeah, ideally, all non-homeowners ought to buy homes right now. While the government programs available now are definitely helping people get into these homes, in the future, these government controls are going to have a backlash of inflation a lot sooner than you may think. My advice, don’t buy a home you can’t afford (as house values may still be dropping in the future) and continue to save money and invest wisely.
All the best,
Mr. Dan Pham
Shameless Blogvertisement For Buyers:
If you’re interested in getting prequalified, preapproved, or finding out more about whether you qualify for these programs (and even more money-saving programs and professional advice that my clients have access to), go ahead… email me at dpham@mmcdcorp.com or call at (925) 7710-8900 ext 160.
Disclaimer:
All of the information I’ve provided here is for free and not for profit and should not be considered professional financial advice; these are my opinions and selected articles I’ve found interesting.
references:
$8000 First Time Home Buyer Tax Credit: http://www.usnews.com/blogs/the-home-front/2009/05/29/the-8000-first-time-home-buyer-tax-credit-program-expands-5-things-to-know.html
FHA Mortgage Limits: https://entp.hud.gov/idapp/html/hicostlook.cfm
