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    First Time Home Buyer Loans for Tallahassee

    By December 29, 2021May 9th, 2022No Comments

    The amount of money needed to purchase a home varies on the buyer’s qualifications and the condition of the house. In this post we are going to cover the most common financing used by Tallahassee home buyers. We have seen buyers walk away from the closing table with a check who only paid for the cost of the inspections. We’ve also seen buyers wire over half a million for their down payment and closing costs.  Each family has its own unique situation. Your Tallahassee Realtor will have suggestions for local lenders, including those that work with the down payment assistance program for low-income first-time home buyers.

    Choose an experienced Realtor who knows locals that will get you to the closing table with the fewest problems. Before you start your home search, be prepared (read more here). Talk to two or three local lenders to see what they suggest that’s best for you and your family. If you have your own people, use them! If you don’t, call me. No matter what, still shop that mortgage around because some lenders have different bank rules to follow that will save you thousands. Sometimes loan officers can sweeten their offer when they have competition.

    Here’s a quick overview of the most common types of loans your lender will cover with you.

    Most Common Home Loans for Tallahassee First Time Home Buyers

    FHA Financing

    The Federal Housing Administration insures mortgages at the federal level.  These mortgages help people live in their own homes.  These loans are not available for ‘investment properties.’ This means that you must live in the home when you purchase it, even if you are going to renovate and flip it. FHA loans also have additional rules for homes designated as flips that your experienced Tallahassee Realtor can help you address. Tallahassee buyers may use an FHA loan to purchase a four-unit quadplex and live in one of the units.

    These loans start with a minimum down payment of 3.5% and if you put down less than 20% you will be required to purchase private mortgage insurance (PMI) to protect the lender from loss in case you default. The PMI can be dropped after you have built equity in your home.  The lender will require an appraisal to verify the home to loan value ratio.

    The appraiser will look at the condition of the home a little more closely for FHA-insured mortgages.  The appliances must all work and be functioning as intended.  They also want a functional roof, safety issues addressed, and no active pest infestations.  These loans are intended to be owner-occupied and cannot be used for homes that are not habitable. If the house has recently been purchased and ‘flipped’ there may be additional appraisals and/or an extended timeline. Check with your experienced Tallahassee Realtor for advice on purchasing these homes with FHA financing.

    Conventional Financing

    These loans offer Tallahassee professionals buying their first home competitive rates and a wider range of home conditions. Most conventional loans are ‘conforming’ loans, which means the bank can sell the mortgage on the secondary market.  Selling those mortgages to Fannie Mae or Freddie Mac provides the bank with more capital to lend to more buyers. Those government-sponsored companies then sell those bundled mortgages to investors.

    The federal government does not guarantee or insure non-conforming conventional mortgages. Because of this, these loans can provide the bank and the consumer (buyer) more options. Non-conforming loans do not meet Fannie Mae or Freddie Mac’s guidelines and cannot be sold on the secondary market.  Because the loans do not need to conform to federal guidelines, there is no single set of requirements for borrowers to meet.  In general, conventional loans require a higher credit score and down payment than government-backed loans like FHA or USDA loans.  In most cases, you need at least a 700 credit score and a Debt-T0-Income (DTI) less and 45%. The down payments start at 3% of the loan amount.

    The houses’ condition does not matter for these loans as much as the other loans covered below. The house must still meet minimum guidelines and be comparable to recent sales for the appraisal.

    203K (FHA) Financing

    The loans are a type of FHA mortgage, except they are designed to allow the buyer to borrow money for repairs, rehabilitation and/or remodeling.  This allows the buyer to make those changes to the home they desire and roll those costs up in the monthly mortgage payments.  These loans have a slightly higher interest rate than regular FHA financing.

    They also take longer to close and require a lot more documentation.  We purchased our homestead with a 203k loan so that we could remodel the living room before we moved in.  Most renovations can be done quickly (within the six-week requirement) with proper planning and management.  Tallahassee Realtors would not encourage this in late summer when the contractors are busy, but these loans are a great option for homes that have become obsolete and need a makeover.

    USDA Financing

    Unlike conventional and FHA loans that are available for all properties, USDA loans are only available for properties considered to be rural.  In Tallahassee, that means outside of Capital Circle.  These loans also have income limits, and the lender will consider the income of all individuals in the household (not just the ones whose names are on the loan application).  USDA loans DO NOT require a down payment and they do not require the borrower to purchase private mortgage insurance.

    They do require a guarantee fee that is like PMI for FHA mortgages.  This fee can be paid at closing and rolled into the loan.  The fee is generally 1% of the loan amount, or it can be paid monthly with the mortgage payment.  This fee is less than the PMI for an FHA loan. There are no renovation loan options available with zero down payment.

    During the appraisal process, the house’s condition will be evaluated.  The foundation, roof, walls, doors, and windows must all be functional.  The house must not have evidence of a pest infestation and stairs should have railings.

    VA Financing

    These loans are the golden ticket for our military members.  VA loans are only available to veterans, active-duty military members, and their surviving spouses.  These loans do not require a down payment or private mortgage insurance.   You cannot use a VA loan for a second home or investment property.  There are also limits on the amounts a veteran can borrow, as well as a funding fee.  Certain groups are exempt from paying the fee, which ranges from 1.25% to 3.3% depending on the branch, down payment, veteran’s status, and loan amount. The funding fee helps keep the program alive for other veteran home buyers and it is not required for all borrowers.

    As a new agent, I made an error with a VA loan that I have never made again. Every VA loan requires that the seller provide a ‘clear’ WDO report for the veteran borrower. (This can give sellers heartburn in multiple offer situations.)  This requirement SHOULD be put on your offer contract, but as a new agent, I did not know about that requirement.  Fortunately for me, the listing agent was an experienced Tallahassee Realtor and knew and prepared the sellers that the request would come.

    This appraisal report will be the most stringent of the loan types we have covered.  More than one Tallahassee seller has encountered headaches meeting VA financing guidelines for sellers.  The buyer should be prepared for a VA water inspection fee if the house is on well water.  If the house has solar power, they may want to see a backup option too.  The VA requires a ‘clean’ pest inspection report.

    Other Forms of Financing for Tallahassee Buyers

    Hard Money Loan

    This option is most often seen for investors purchasing investment properties that they do not intend to occupy.  The ‘hard money’ is a loan that is lent from a private company for a short-term investment.  These loans are typically closed within 3-6 years and are used primarily by investors ‘flipping’ homes. The house is the collateral for the loan and these loans can be obtained quickly for the experienced investor.  These loans also have much higher interest rates than the typical mortgage packages, sometimes even double the going interest rate.

    Private Mortgage

    Like the hard money loans mentioned above, these are private companies or people providing the money for the mortgage. Nine of ten that we have completed have been a family member purchasing the home and holding the mortgage for their family member to pay off over time. The last one we closed was a great deal for EVERYONE involved.  The grandparents paid cash for the house, and with the closing attorney, set up the mortgage and payments for the young couple.  These are quick and easy to work out and usually involve family members.  The closing attorney can help you get all the details ironed out in writing before the house transfer of ownership is complete.

    Home Equity Loan

    If you already have equity in a piece of real estate, it may be quicker and easier to use that as collateral for your next home rather than taking out a whole new loan.  The bank will usually lend up to 90% of the value of your existing property, minus the current mortgage.  There are funding rules and regulations in place to protect you as a consumer. These are most common for those relocating to Tallahassee that have substantial equity in their current home. They can buy a Tallahassee home with cash, move, and then pay off that loan when they sell their other home.

    Owner Financing and/or Lease Purchase

    This question comes up often.  Buyers may be having trouble producing a down payment or they do not qualify for a mortgage, or they are expecting a payout from a settlement soon.  In this seller’s market, most sellers do not want to mess with the details and risks that come from owner financing.  The lease purchase is different in that the buyer agrees to rent the home for a year or possibly two and then obtain a mortgage and pay the seller off.  Usually, the buyer/renter pays a higher than market value on the rent to build up a down payment and/or closing costs that the seller will pay for them at closing.  The downsides are that there are two contracts in play, and it can be easy for a buyer to default and lose not only the down payment they were building but also the roof over their head. An experienced Tallahassee Realtor will keep you informed of your risks and rights when buying a home.

    What Programs Are Available for First-Time Home Buyers?

    The city of Tallahassee has down payment assistance programs to help first-time homeowners buy their own homes.  Tallahassee Lenders Consortium administers the program for the city and only certain lenders are qualified to participate in the program.  The buyer must have $500 in cash to participate in the program and may qualify for up to $7,000 in down payment and closing costs assistance.  The home must be located within the city limit and the assistance is a loan that must be repaid if you sell or move from the house.  The price limit for existing homes is $179,000 and for new construction, the limit is $243,000.  There are other programs available depending on the buyer’s income and qualifications for up to $12,000 in closing costs and down payment assistance.

    Check out the Tallahassee Lenders Consortiums webpage for more information:

    How Many Tallahassee Buyers Pay Cash?

    On average, 10-20% of buyers pay cash for the Tallahassee home. That percentage is higher in lower price points. For example, 19 of the past 25 months saw 100% of single-family homes priced below $50,000 were bought with cash.  Of homes priced between $100,000 – $150,000 almost half (46.4%) were paid for with cash in November 2021. While cash sales reached a high point in January 2020 (25.3% of all sales in Tallahassee), they have slightly declined during the pandemic. For all price points, cash sales were almost 20% of all sales in November 2021.

    There are some areas of Florida where cash offers are the norm and outnumber the sales that involve a mortgage.  Tallahassee is not one of those places, but buyers will often find themselves competing against cash offers at many price points.  The beauty of cash for the seller is the lack of a financing contingency.  This means closing can happen within two and half weeks (after the inspections are complete).  These buyers often opt out of an appraisal which can also help ease a seller’s mind.

    Buyers can compete against cash buyers by providing their documents to their lenders and going through preliminary underwriting.  Ask your lender for a personalized letter stating that you have been thoroughly vetted to help ease the seller’s mind.

    If you want to be a Tallahassee homeowner and are wondering where to start, we have help. Download my free book: HOW TO BUY A HOME: Tips to Save You Time, Money, and Avoid Heartache When Buying Your Tallahassee Home 

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