In addition, depending on how the purchase contract is structured, all buyers closing costs and prepaids can be minimized or eliminated. FHA allows sellers to contribute money to the buyer for up to 100 percent of these expenses over and above the 3.5 percent down payment. This agreement must be fully disclosed in the purchase contract and itemized on the HUD settlement form.
If you do not have the 3.5 percent cash funds available, there are a couple of things you can do to prepare for getting a mortgage. Since lenders evaluate you financially based on your total income earned, available cash on hand (all sources-savings, checking, retirement, insurance), debt ratios and credit scores, consider different ways to improve your overall financial picture.
Raising your income might be a challenge unless you are willing to consider getting a second job. The extra funds could be targeted to increase your income, help pay off some bills or accelerate your savings.
Tapping into the cash value of life insurance policies or retirement funds is also an option. Another idea to think about is whom you know who can or would be willing to help financially. It is acceptable to have family members or friends gift 100 percent of the 3.5 percent down payment funds, or co-sign on the loan.
Getting a copy of your credit report and credit score is easy. There are a number of websites where you can obtain your credit report at no cost. However, the only one that does not require a continuing relationship is www.annualcreditreport.com.
There are three main credit-reporting agencies—Experian, Trans Union and Equifax. It is very common to find errors in your credit report, so I recommend you read your credit report thoroughly. At the end of the report will be an itemized contact list for all creditors. Corrections can be made either through the credit bureaus or through direct communication with your creditor.
If this task seems overwhelming, consider using a credit-counseling agency. There are non-profit agencies that provide credit counseling services free of charge.
In 2009, the loan limits for an FHA mortgage were raised to a maximum value of $410,000. FHA is a program available to anyone purchasing a primary residence. It is not limited to first-time buyers.
