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When you’re buying a house for the first time it’s exciting. However, with all of the excitement, it’s important that you make wise decisions by seeking wise counsel.
When you’re going through this process, understand that the realtor and the lender are in this for a commission. This doesn’t mean they’re bad, but they’re incentivized to get you to buy the most expensive house possible, so they get the largest commission possible.
Again, this doesn’t mean your realtor or lender are bad, but it’s YOUR responsibility to look out for your best interest.
Sometimes when you’re too excited about a blessing, it can become a curse. Think about Luke 15 and the Prodigal Son. He was so excited to receive his inheritance, but he didn’t have the wisdom to manage that inheritance, and it turned out to be a curse on his life.
There are three ways you can buy a house. You can buy a house with cash — which is best. You can use a conventional loan. Or you can use a government-sponsored loan.
The most popular government-sponsored loan is the FHA loan.
A lot of times, when people are buying their first house, they automatically think “FHA loan.”
I want to tell you a few major problems with FHA loans:
1. Sellers Don’t Like FHA Loans
Some sellers won’t even accept FHA offers. Sellers can see if you have a cash offer, a conventional offer, or a government-sponsored offer.
Some sellers will literally tell you “I’m not accepting FHA offers.”
There are reasons why sellers don’t like these loans.
FHA loans are less likely to close because buyers that use FHA loans typically have lower credit scores and less money to go towards buying a house.
2. Tougher Appraisal Process
The seller also knows that FHA loans come with a tougher appraisal process.
County appraisers usually appraise for a lower value than a conventional loan appraiser. If there is a gap between what the FHA loan appraised the property for, and what the seller wants for the property, you will have to pay the difference.
Most of the time, people that are using an FHA loan don’t have the money to cover that gap. Therefore, the seller doesn’t want to enter escrow, take the house off the market, just to find out that they can’t close the deal because there’s a gap that you don’t have the money to cover.
3. Higher Mortgage Insurance Costs
Another problem with FHA loans is PMI, which is Principal Mortgage Insurance.
Putting less than 20% down on a deal means you will have to pay PMI. With a conventional loan, PMI will drop off when you reach 20 to 25% equity.
FHA loans, on the other hand, require an upfront private mortgage insurance fee of 1.75% of the homes purchase price — no matter how much you put down. FHA loans also come with an Annual Mortgage Insurance premium that ranges from .45% to 1.05% of the mortgage amount, depending on your loan terms and down payment.
You will pay this premium for 11 years, or until you pay off the loan in full. At the end of the day, you’re going to pay a lot more in mortgage insurance when you use an FHA loan.
So, if FHA loans are bad, how do you find the best conventional loans?
What you need to do is go to the lenders directly and find out what programs they have for first time homebuyers.
Typically, if you’re working with a realtor, and they recommend a lender to you, these are lender brokers who will reach out to their lender contacts. They will offer you the loans from their lender contacts.
You can go to the lenders directly and find out what first-time homebuyer programs they offer. You will be surprised to find out that a lot of these lenders offer 3% down payment and assistance with your closing costs — and sometimes you can get all of this with no mortgage insurance at all!
To help you with your research, I’ve put together a list of the 4 best loan programs for 2019.
You can download the list absolutely free, and it will save you thousands and thousands of dollars over the life of your loan. CLICK HERE TO DOWNLOAD.
Buying a house comes with a lot of other financial implications, and it’s important that when you’re setting this foundation for your future, you have a plan. You want to make sure you’re using your money to achieve your goals.
If you don’t have a financial plan, you can visit my website, GREENFINANCIALSOLUTIONS.NET and learn how I help people, just like you, build financial plans so that your money is helping you achieve your goals.
If you know anyone that’s in the process of buying their first house, or thinking about buying their first house, share this with them, and together, we may be a blessing to someone else.
May God bless you on your financial journey.
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