Buying a House with a First-Time Homebuyer's Loan Package

After I spoke with Clarisse O'Brian about the first-time homebuyer's Loan package, I started talking to people who were also connected with the housing market: other lenders, realtors, loan counselors and buyers. The theme song for all of them was the same: first-time homebuyers aren't savvy enough to avoid the pitfalls and don't always take the warnings seriously. With a cooling market, and Freddie Mac just announcing that they are longer buying subprime loans, with housing prices at some of the highest points they've ever reached and middle-class incomes at a plateau, the costs of getting a first-timer's package are rising.

The theory behind the loan packages is great. Theory, however, sometimes is staring at the world through some seriously rose tinted glasses. Recent studies by Knight Ridder and similar organizations have found widespread dissatisfaction with the first-time homebuyer's loan package, and there have continued to be a growing number of people who overdo what they have and can afford. To help you avoid some of these pitfalls, we'll travel the process and point out, in no particular order, the key elements that the experts think leads to failure.

Essentially, the first-time homebuyer's loan is a package of several smaller loans and, often, a grant or two. On a conventional mortgage, you'll have to put down between 5 and 15% of the total price of the house as a down payment, which could run to a $30K investment in a $200,000 house before you even walk in the door. First-time homebuyers, as a rule, are young and still in the lower ranks of work; a $30K payment may be the equivalent of most of a year's take-home salary to them. Even with FHA underwriting, most mortgages will require a fair amount of up-front cost, which means that long-time renters without significant savings are generally unable to foot the bill. Beyond the down payment, however, you can run into all sorts of additional costs: title fees, taxes, and insurance are only a few of the pricetags that get attached to the selling cost of the home.