July 17th, 2011 5:06 PM by Bob Rutledge
FHA mortgages, First Time Home Buyers and Foreclosures these are the 3 Fs of the real estate market of the St. Louis and St. Charles Missouri area. If it wasn't for First Time Home Buyers, FHA mortgages, and Foreclosures there would hardly be a real estate market in the St. Charles and St. Louis area and I am sure this is true throughout the State of Missouri.
The FHA mortgage nearly disappeared several years back, dropping to a record low of only 3% of all home loans closed. Today, the FHA mortgage represents over 45% of all mortgages closed after reaching a high of nearly 55 percent. If we would subtract out investor purchase mortgages, FHA home loans would represent over 60% of all purchase mortgages today. Why has FHA made such a dramatic comeback? Two reasons; First Time Home Buyers and Foreclosures!
Thank You First Time Home Buyers!
First Time Home Buyers; today's home buying market is primarily home buyers entering into the market for the first time or having not owned a home for over 3 years. Recent market reports state that first time home buyers are representing anywhere from 45% to 60% of those buying homes today, here in the St. Louis area First Time Home Buyers are 51% of our buyers. What mortgage are first time home buyers flocking to? FHA, the mortgage that provides financing with little money out of pocket, low down payment requirements, great interest rates, lower credit score requirements, and lighter underwriting guidelines. Since FannieMae and FreddieMac eliminated their 100% mortgage programs we have seen a tremendous re-birth of the FHA mortgage.
The FHA mortgage is nearly the perfect loan for all first time home buyer. The two best mortgages for first time home buyers are the VA mortgage and USDA/Rural Development. Both of these loans have flexible underwriting standards, zero down payment requirements, low interest rates, and no mortgage insurance. But, unless you are a Veteran or purchasing a home in what is deemed rural areas these loans are unavailable to most first time home buyers. (If you would like to determine if you can qualify for either of these two programs, please give me a call).
This leaves most first time home buyer with the FHA mortgage as their most favorable home financing option. Most first time home buyers have very little money saved to address the total cost of purchasing a new home. If you are just starting the process of buying a new home I suggest you have at least 7% of the sales price of the home you are buying socked away. Unless that is you have two professionals on your side: A Professional Real Estate Agent and a Professional Loan Officer.
FHA and Down Payment Assistance: Buy A New Home With Someone Else's Money!
If your home buying team consists of a professional lender and real estate agent you may be able to purchase a new home in St. Louis, St. Charles or anywhere in Missouri with very little to possibly nothing out of pocket. First, get pre-approved with a mortgage lender that has knowledge and access to all the down payment assistance programs in the area. The State of Missouri provides a 3% cash assistance to first time home buyers through select Lenders, this will help to keep your money in your pocket. BTW, I am one of those lenders, call me if you would like to know more. Also, there are several municipalities and counties in the St. Louis and St. Charles area that provides down payment/closing cost assistance up to $10,000.00. Best thing about all these programs? The money is free and you don't have to pay it back, of course there are details to the programs.
Lastly, have a real estate agent on your team that is a capable negotiator. FHA allows the seller of your next new home to contribute up to 6% of the sales price to you for the means of paying your closing costs! Can you see where having a great team can save you a lot of money and get your the home of your dreams.
FHA mortgages are great for first time home buyers because they have easier underwriting standards than any other lending program. They will not provide a mortgage to someone who can't prove they can handle credit and debts but they open more doors to new homes than any other mortgage program. You may have heard that it is getting harder to get a mortgage. Well, it is a lot harder than the old wild west days when everyone got a mortgage but it isn't that hard. If you have a credit score of 580 or higher you are in the ball game, let's talk and see if we can get you a new home.
Invest in Foreclosure: For a 23.7% Return on Investment!
I haven't forgotton about Foreclosures! Since we really don't have current home owners selling their homes many of the homes being sold right now are distressed properties, bank owned, REO, short sales or foreclosures. In some parts of the country these types of home sales are representing up to 75% of all homes sold. In the St. Louis and St. Charles area I have seen numbers saying distressed sales are anywhere from 36% to 50% of all homes sold and of course a large portion of these homes are foreclosures.
If I were a First Time Home Buyer in St. Louis, St. Charles, Fenton, Florissant, Wentzville, Kirkwood, North County, South County, anywhere in the area I would be considering FHA mortgages as my financing tool and Foreclosures as part of the mix of homes I will consider. Why?
We all know that foreclosures are being classified as bargain homes, (on average foreclosures are listed at a savings of 41% below market value) many are located in areas you want to live, they meet what you want in a home and sometimes surpasses your wants. Many times foreclosures are what I refer to as 'but' homes, 'this home has everything I want in a home, but.....' and that but you hear is about the physical condition of the home. Yes, many foreclosures have physical issues that many first time home buyers or real estate agents avoid.
Knock....Knock...Knock, open the door that is opportunity knocking. If you are a first time home buyer and you are armed with the FHA 203k Renovation mortgage you are possibly 3 times ahead of any first time home buyer who has just the bare bones vanilla FHA mortgage. The FHA 203k mortgage will provide you with the funds to purchase a new home plus the money to renovate your new home to the condition that is wanted in a DREAM HOME!
A recent HUD study stated that the average FHA 203k mortgage created a 23.7% equity stake after the rehab work was completed. Imagine, as a first time home buyer, you buy a new home with the 3.5% minimum down payment required by the FHA 203k and a few months later after the work is completed your 3.5% down payment has turned into 23.7% of new equity! This doesn't happen with everyone, but there is no way you should buy a foreclosure if you aren't tripling your down payment with new equity.
Additional Help and Information
My name is Bob Rutledge and I have nearly 20 years as a mortgage professional in the St. Louis and St. Charles Mo area. Give me a call at 314-628-2218 and let me help you. Ask me how you can save more money on your mortgage with our No Lender Closing Cost FHA Mortgages!