Applying for a Federal Housing Administration (FHA) Loan
The federal government wants to encourage home ownership, although the process can seem hard to understand. The home-buying experience may be smoothed by the use of a real estate broker, who can walk the potential buyer through all the steps in the process, explain the advantages and potential problems associated with different kinds of mortgages, and help guide the buyer through the different kinds of paperwork. Additionally, a buyer who wishes to purchase a house directly from the Department of Housing and Urban Development must use a broker to submit the bid.
The money needed to start the home-buying process depends on the final cost of the house and the kind of mortgage, but generally, the buyer needs to put up earnest money, a down payment, and closing costs. Earnest money is the money the buyer puts up to show the seller that the offer is genuine. It is put into an escrow account; if the seller accepts the offer is accepted, the buyer’s earnest money will be applied toward down payment or closing costs. If the buyer’s offer is not accepted, the earnest money will be returned. While the amount of earnest money varies, it is often in the $500 to $2,000 range.
An FHA loan requires a down payment of 3 percent (and in some cases, less), while a conventional loan may need a down payment of 10 percent or 20 percent. However, if the buyer can afford a higher down payment, it may be easier in the long run, since the monthly loan payments are lower.
There are a number of organizations that offer down payment assistance to those who qualify for FHA loans. Consumer Debt Solutions, Inc. (CDS) and Partners in Charity (PIC) are non-profit groups that provide down payment assistance to qualified low- and moderate-income home buyers. A program sponsored by AmeriDream, Inc. gives down payment help to low- and moderate-income home buyers who have a financial need. To take part in the program, the applicant must buy a home that is enrolled in The AmeriDream down payment gift program. Additionally, two groups, the Nehemiah program and the Housing Action Resource Trust (HART) program are non-profits that provide down payment assistant to qualified low- and moderate-income home buyers in California.
These charges, due at the time of purchase, typically run from 3 percent to 4 percent of the price of the home. Under certain circumstances HUD may pay some closing costs.