The FHA requirement is now 3.5% (up from when this question was first posted). I hope you have found your home Karen. If you were hoping to cash in on the first time home buyer credit for $8000, you must close before 11/30/2009, which is the Monday after the Thanksgiving holiday. If you haven't closed by 11/25/2009- you're toast!

Carol Bromm, SRES, CBR
Licensed Associate Broker
Prudential Douglas Elliman
(631) 860-1312

The minimum requirement for an FHA loan is 3.5% down payment of your purchase. On top of that you can qualify for a sellers concession towards your closing fees which may make this seem like 100% financing. There are 3 challenges to this scenario. If you can overcome those yo are on your way to home ownership!
1. You must have cash to put down at contract ( even if you are getting this back at closing)
2. This loan is based on worthy credit and income qualifications.
3. You find a seller willing to accept your offer and allow the sellers concession on the contract.

An important component to the success of this endeavor is to surround yourself with a great team. Choose to work with a realtor and mortgage person that are proficient in these loans and working with buyers such as yourself. This will make your outcome much more successful!
Good Luck! Let us know how you do!

Georgia Westcott
Broker/Owner
The Westcott Group Real Estate Company
17 Deer Park Avenue
Babylon NY 11702
631-661-8888

Yes, now I see, good job. Paying off all that debt is a good move. I still think you need to save some money. You would probably get a better interest rate with 20% down (50K for your $250,000 house) and your payment would be lower (and no PMI). You should be aggressively saving for the next 3 years, you'd probably have 100K saved. In another 3-5 years when this market has bottomed, you will be in a good position to buy.

Non - which is exactly why i did NOT buy recently when I was considering it.
There was 1 specific property that was an excellent deal that I was willing to go out on a limb for. Beyond that - i'm in no rush.

I don't have a lot of savings because i put my money towords paying off all that debt.

Hence - zero outstanding debt, but also very little savings. :)

Sure, whatever, I don't believe you. Just below you said

"after paying off car loans, credit cards, etc - I don't have a whole heck of a lot of savings laying around"

Then you said

"800 credit score, 0 outstanding debt, high income"

How do you have 0 outstanding debt if you have car loans, credit cards, etc? You can't even spell your own name correctly. Helpful hint : Save your money.

NonRealtor - I did exactly that.

Now - which approval letter would you like to see?
800 credit score, 0 outstanding debt, high income - but little savings. I didn't have a problem at all.

Myke
Go to the bank, show them you make 100K a year, and then tell them you can't afford 5% down. What does that show the bank? When they ask, where did all the money go, show them your credit card. Good luck, now I see why realtors want that pre approval letter.

NonRealtor - that's kind of a bad general statement to make.

My income level is just over 100k year. However, after paying off car loans, credit cards, etc - I don't have a whole heck of a lot of savings laying around. Are you saying that even though the homes i'm looking at are in the 250 range, I cannot afford to buy?

If you don't have 5% to put down, you probably can't afford a house, but I guess your realtor has already told you that.

FHA usually requires 3% down. There are some areas that are considered "declining markets" and your lender may require a higher percentage there.
Did you look into SONYMA? If you are a first time homebuyer, and qualify, that may be your best bet.

Check with more than one lender. If you have already had your credit run, you can give the middle score to the other lenders to find out what programs you would qualify for. Obviously you would have to let them run your credit when you decide definitely which lender you are going to chose. You will also want the Good Faith Closing Cost Estimate from the lender too before you proceed.

Make sure you are dealing with a competent mortgage banker. If you qualify for the FHA program with a seller's concession, then I don't see a problem.

In Utah most people are doing Nehemiah combinied with FHA loans which people put no money down. I have been doing them for 6 years and I believe its great program with great rates if this is what your lender is trying to put you in.

Personally, I would never take on any property at 100% financing. I don't care that you may intend to stay there 5+ years, unforeseen things happen all the time, and for one reason or another over the next 2 years you may change your mind and find yourself stuck in a negative equity situation. Then you would have put yourself between a rock and a hard place, and damaging your current good credit rating would be the only way out.

Personally, I like to sleep at night, and would rather downsize my current rental, forego a vacation or two, stop buying clothes and eating out and sit on cardboard boxes instead of leather couches for a year or however long it takes to save up the 10%+ down payment as well as all the Closing costs, avoid PMI and bargain hard.

But that's just me at 22 years old (which is quite a long time ago).

If the program works for you thats the key. I personally like the 20% route but there is nothing wrong with doing what you are doing as long as it makes sense and is within your budget. Find out everything with regard to your mortgage particularly the type ( fixed or adjustable...etc.), term, rates, the caps involved and other fine print matters . Be extra careful in what you are planning. These 100% programs can be super tricky, DON'T GET TRAPPED. Check whether they will let you restructure the mortgage down the line. A good lawyer can be worth his/her weight in gold on this stuff, especially in these days and ages.

Many first time homebuyers do utilize 100% financing options, primarily FHA since that is one of the few still available with tighter lending standards now. In our area, you can put as little as 1% down in earnest money; however, there are areas that traditionally require 5% down. Your Realtor knows your local market far better than I, but you may want to ask and understand why they say 5% is required – is it to make your offer stronger or is it the traditional practice in your area and not doing so would create alarm for the seller? One thing to consider: Are you planning on staying in this home for a while (5+ years)? One thing to keep an eye on when you finance at 100% is good ol’ Primary Mortgage Insurance (AKA PMI) - a fee that is added on when you finance for over 80% of the loan to value ratio. Good news is that PMI is now tax deductible! My biggest advice to a first time homebuyer is ask a TON of questions, don’t be shy. You are making your biggest financial decision to date and want to be confident that you understand the terms of your loan and the market in which you are buying. Also, think of real estate as a long term investment. Not a quick flip as has been the mantra of years past. Real Estate is a great investment when you hold it for a while to allow for the natural ups and downs of the market. Otherwise, enjoy!

FHA is probably the best way for you to go, however you should see if you qualify for SONYMA as well. This way you will have a lower interest rate and could have them pay for your closing cost (at a slightly higher rate). Make sure you are with a good mortgage lender.

I wonder if the Nehemiah program would work for you? Talk with your mortgage lender and see if it works in your area. It is a great program. FHA is a great way to go.