Posts Tagged ‘minimum down payment loan programs’

Beyond the Down Payment…Cash to Close

August 30, 2017

In the last post, we debunked the myth that home buyers must make a 20% down payment to buy their home.  There are many programs enabling buyers to close with 5%, 3.5%, or even 3% down payments.  But there is one other factor to consider regarding the cash you have available to buy a home…your “cash to close.”

Cash to close includes your down payment, PLUS the closing costs and prepaid escrow.  In short, you need more cash than just the down payment to close the purchase.  Here is a quick description of the other items:

  • Closing costs are the actual costs of transferring title and obtaining a mortgage loan.  Closing costs include items such as appraisal fees, transfer taxes, intangible tax, attorney fees, title insurance, etc.  Some of these costs are fixed while others increase with the home purchase price or loan amount.
  • Prepaid escrow represents the cash needed to pay the first year of homeowners insurance and to prefund your escrow account to pay future property taxes and homeowners insurance premiums.  These typically increase as the home price increases.

So what options does a buyer have when he has scraped together that 3.5% down payment, but does not have enough cash to cover the remaining cash to close?  Here’s where a proactive lender, working as a consultant to help the buyer, can make a huge difference.  Typically, the buyer has 4 options, and the lender should explore them all with the buyer:

  1. The seller can agree to contribute cash towards the closing as part of the purchase contract.  There are limits regarding how much the seller can contribute based on the loan type and down payment percentage, but a seller contribution can be a huge help.  Note that the seller contribution cannot be applied to the down payment.
  2. The buyer can choose a “no closing cost” loan.  Many buyers choose not to use this option because it involves a higher interest rate and monthly payment, but it can be a good option for some buyers who have limited available cash.
  3. The buyer can receive a gift from a relative.  We must carefully document the gift, but this is a great way for parents and grandparents to help a young adult get started building equity.  The gift can be applied to the down payment.
  4. We can combine the 3 options above to resolve a cash shortfall.

The key here is to remember (1) more cash than just the down payment is needed to close a mortgage and (2) there are creative ways we can solve a cash shortfall.

If you know a renter with a good job but not much cash, refer them to me at Dunwoody Mortgage Services.  We will work closely with your referral and his / her Realtor to structure a mortgage that best meets their financial situation.

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The Truth About Down Payments…

August 25, 2017

Many young adults and other potential home buyers mistakenly assume that they cannot buy a house.  Why?  Because they believe the myth that a home buyer must make a 20% down payment to buy a home.  A recent study by the National Association of Realtors® (NAR) shows that the average down payment for 60% of first time buyers is 6% or less.  However, their research indicates that just 13% of adults age 34 and younger understand that they can buy a home with as little as 5% down, or less.  Their analysis shows that, over the last 5 years, more than 70% of non-cash, first time buyers, along with 54% of all home buyers, made down payments of less than 20%.

So why do so many Americans not understand this home buying truth?  Perhaps it is because 20% is the down payment benchmark most often quoted by “experts” in print and other news media.  And perhaps it is because that to avoid mortgage insurance on a conventional loan, you must make at least a 20% down payment.

Whatever the reason, it is time for us to spread the truth about down payments.  That truth is, the majority of home buyers make down payments of less than 20%.  Here are some quick options for folks who want to buy, but don’t have a lot of cash saved for a purchase:

  • Active duty military, National Guard, Reserves, or military veterans may qualify for a 0% down VA loan.
  • FHA loans offer minimum down payments of 3.5% with low interest rates.
  • Buyer who qualify can obtain a Home Ready conventional loan for 3% down, with competitive interest rates and discounted mortgage insurance premiums.
  • Buyers who do not qualify for Home Ready may still qualify for a 3% down payment, but possibly with a higher interest rate.  In this case, the buyer will likely receive a lower interest rate if she makes a 5% down payment.

Bottom line, many home buying options exist for folks who can afford less than a 20% down payment.  These home buyers need a mortgage expert to coach them to the best option for their financial situation.  That is the type of individualized service we deliver at Dunwoody Mortgage.  We work closely with our clients to help them obtain the mortgage solution that best meets their needs.

If you know a young adult in Georgia who has a good job, who is renting and doesn’t think she can buy her own home, suggest that she call me at Dunwoody Mortgage.  She just might be able to fire her landlord, buy her own place, and start building equity.  Don’t let her believe the down payment myths.

 

Geographic Income Limits for Home Ready Program

May 1, 2017


One potentially limiting aspect of the Home Ready program is that income limits are specified by census tract.  (Notice I said “potentially.”  We will get back to that point very soon.)  To qualify for the program, the borrower’s income must be less than or equal to the income limit set for the geographic area of the subject property.  Fannie Mae specifies and publishes the geographic income limits as part of the program.  Many areas in Metro Atlanta have an annual income cap of $67,200, but there are many other areas that do not have an income limit.  Now back to the word “potentially.”  If the home you want to buy lies in a no-income-limit area, you could make a million dollars per year or even per month and still qualify for a Home Ready loan for that house.

Two key points to remember here:  First of all, the income limits are based the subject property’s location, so you can have varying income limits in different parts of the same county.  In fact, the eligibility maps go down to the street level, which means that houses on one side of a street could carry a $67,200 income limit and houses on the other side of the same street could have no income limit.  Secondly, the income limits apply only to borrowers on the loan.  If two employed people plan to live in the home, but only one of you is on the loan, then the other occupant’s income does not count toward the income limit.  Of course that means that the sole borrower must qualify for the loan using his or her income only.   

So how can you determine whether you qualify for the Home Ready program’s low down payment / low-interest rate / low mortgage insurance benefits?  You can call me at Dunwoody Mortgage!!  We will first discuss your income and the geographic area where you want to buy.  I can look up the area online and determine whether your income qualifies for Home Ready in that area.  If you meet the geographic income limits, we will complete your loan application, pull your credit report, and run your application through our Automated Underwriting System (“AUS”).  The AUS findings will then determine if you do qualify for Home Ready’s great benefits. 

Buying a house in Georgia and curious whether you can obtain a Home Ready loan?  Give me a call and we will review Home Ready and your other loan options.  Don’t think you will qualify?  We at Dunwoody Mortgage have secured loans for many customers who initially thought they would not qualify.  Don’t assume you cannot win loan approval!  Call me and let’s discuss your situation.  We might just surprise you!! 

 

 

 

3% Down and a Great Interest Rate!

April 24, 2017

National mortgage giant Fannie Mae offers the Home Ready conventional loan program that can be very helpful for qualifying home buyers.  Home Ready enables qualified buyers to obtain a mortgage with a 3% down payment, so it’s great for people with limited available cash.  In addition, when the buyer has an average credit score, Home Ready provides lower interest rates and mortgage insurance premiums relative to standard conventional loans.

One important point is that this program is NOT limited to first time home buyers.  If you have owned a home before or if you have an ownership interest in another property, you may still qualify for a new Home Ready loan, as long as you plan to occupy the new home as your primary residence. 

Home Ready requires that at least one of the home buyers complete an online home buyer education course.  This course costs $75 and takes about 4 to 6 hours to complete.  The course topics include:

  • Home affordability and budgeting
  • Credit ratings and credit improvement
  • Real estate agent selection
  • Mortgages
  • Offer letters
  • Home inspections
  • The closing process

The prospective home buyer will receive a certificate of completion after passing a final quiz and submitting a feedback survey.   Passing the quiz requires a score of 80%, and the buyer receives three attempts to pass the quiz.  If the buyer does not pass the quiz in three attempts, an additional approximately 30 minute telephone educational review session is required.   After obtaining the certificate of completion, the buyer should send a copy to his / her selected lender.

Here are a couple of additional program benefits:

  • Non-occupant borrowers are permitted.
  • Non-borrower household income from a family member (parents or siblings, for example) can be used to support a higher debt to income ratio than the borrower can obtain alone.

Future posts will cover Home Ready’s geographic income limits, and we will give an example scenario to highlight the program benefits.  But keep this in mind for now, if you want to buy a home in Georgia, but your credit score is less than great and you don’t have much available cash for a down payment, Home Ready could be the program that makes home ownership a reality for you.  Call me to discuss Home Ready and other options.  Or if you have a friend or family member who could benefit from Home Ready, forward this blog post to them.  We at Dunwoody Mortgage love to make home ownership a reality for everyone, and it’s especially fun for people who initially think they can’t qualify!

 

Down Payments Basics for Home Buyers

February 23, 2017

Blog HeaderA recent home ownership survey showed that 3 times more first time home buyers than repeat buyers say they lack enough money for a down payment.  Perhaps this is due to folks not truly understanding down payment requirements.  Many people believe you must make a 20% down payment to buy a home.  That is a myth!! 

Home buyers can purchase a home with as little as 3.5% down for a FHA loan.  Depending on your credit score and available cash, you may be better off going with a 5% down conventional mortgage.  In certain cases, you may be able to qualify (depending on your income and geographic area) for the low interest rate, low cost mortgage insurance “HomeReady” program, for as little as 3% down.  (Certain geographic areas have no income requirements.)

So what if you don’t even have 3% – 5% available for a down payment?  Are there options?  The first question for you is, “Do you have a relative who can give you the down payment?”  If you do have a loving person who will give you the down payment, we can use that with the proper documentation.  Note that the giver must be a blood relative or a spouse.  Generous ex-spouses are not considered family members so they cannot provide a gift.

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If you lack the available cash and you don’t have a giving relative, do you have a 401K or similar retirement account?  Depending on your plan’s rules, you may be able to borrow against your account to help fund your down payment.  Talk with your plan administrator for the details.

If these options are not available to you, you may need to wait and save.  But the time needed to save 3% to 5% is much better than saving for the 20% many people think is required.  Note that you must have 20% to avoid mortgage insurance, but if you can handle the mortgage insurance included in your monthly payment, you can buy a home with much less than 20% down.

Do you need coaching on the best loan / down payment option for you?  That’s what I do!  Call me at Dunwoody Mortgage.  Together we will evaluate your situation, review your options, thus allowing you to make the best decision for you and your family.

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VA Loans are Quite Popular Now

April 4, 2016

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Realtor.com recently reported that the VA loan program closed more mortgages in 2015 than any year in the program’s history.  The VA guaranteed about 631,000 loans for veterans last year, breaking the record set two years before.  Recently released figures show that VA loan volume surged 19% year over year.  For perspective, the VA guaranteed more home purchase loans in 2015 than total loans (purchases plus refinances) in fiscal year 2010.

And the outlook for the VA loan program is bright too.  A recent Deutsche Bank analysis reported that the population of younger veterans will rise about 36% over the next 5 years.  These young veterans will be in prime household-formation and home-buying years.

Experts have called VA loans “the most powerful residential loan product on the market.”  And in this time of slow wage growth and a tight housing market, more and more veterans are using these loans as their go-to financing source.

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So what makes VA loans so popular?  Here’s a quick summary of VA loan benefits:

  • Low Interest Rates – Even on jumbo loans
  • Low Down Payments – Veterans can even obtain loans with 0% down payments
  • No Monthly Mortgage Insurance

In future blog posts, we will review each of these great benefits in detail.  For now, if you are a veteran or if you know a veteran friend or family member who wants to buy a home soon, call or email me at Dunwoody Mortgage Services.  We will discuss your loan options with you and help you obtain all the great VA loan benefits you have earned with your service.  We love serving American veterans.  And we sincerely appreciate your service and sacrifice.

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Home Buying Preparations – Down Payment

January 19, 2016

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Wrapping up a blog post series to help you keep the new year’s resolution to purchase a new home in 2016. In the first post, we talked about how important it is to know “how” you are paid (in addition to “how much”). Next, we dispelled the rumor that a low credit score means a bad interest rate. That isn’t necessarily true. Today, we’ll finish up with the down payment.

I have written countless posts about how much of a down payment is needed to buy a home. Can you guess how much? If you’ve read this blog in the past, you know that the answer isn’t 20% down. Just like the credit score requirements differs depending on the loan program, so does the down payment requirements. In order to buy a home, you’ll need:

  • 5% down for a conventional loan (3% is also possible if a borrower qualifies)
  • 3.5% for an FHA loan
  • No down payment on a VA loan

When making less than a 20% down payment, there will be PMI (Private Mortgage Insurance) on the loan unless it is a VA loan. There are some differences in mortgage insurance between conventional and FHA loans. Here are some quick notes on them.

  • FHA loans have an up front mortgage insurance premium. The monthly PMI is required regardless of the down payment (even if you put 20% or more down). If making the minimum down payment, FHA mortgage insurance is permanent. The monthly amount is set on a factor of 0.85% of the loan amount regardless of the amount down or the borrower’s credit score. For more information on FHA mortgage insurance, check out this previous post from the Mortgage Blog.
  • Conventional loan mortgage insurance is determined by the amount of the down payment and the credit score. Conventional loans have a sliding scale on the factor determining the monthly PMI. The more down AND the higher the credit score, the lower the factor goes (and vice versa). The mortgage insurance isn’t permanent, and there is no up front premium. For more information on conventional loan mortgage insurance, check out this video post.
  • Conventional loans also have a Lender Paid Mortgage Insurance (LPMI) program. Using this loan, a borrower agrees to a higher interest rate in exchange for no monthly mortgage insurance payment. For more details on this program, read this post from 2015.

If you take nothing else away from this post, please remember that regardless of what you hear on the news OR read on the web, you do not need 20% down to buy a home. I promise! If you are looking to buy a home in the state of Georgia, I can prequalify you today for a home purchase without needing 20% down.

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How to keep your loan approved – Assets

August 11, 2015

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Continuing a series on how to keep your loan approved by avoiding things that can cause a delay in closing OR EVEN causing the loan to be denied.

Last time, we looked at three things to avoid when it pertains to qualifying income. Today, we’ll set our eyes on the assets needed for the loan approval.

When it comes to assets, we mainly focus on documenting all of the money coming in and out of a borrower’s accounts. As a mortgage loan originator, I must show that no one standing to benefit from the sale of the home gave the borrower/home buyer money to purchase the home. I also must show that any gift contributions given to our borrower/home buyer is from an acceptable gift source. Here we go!

  • Avoid making random and undocumented deposits in bank accounts: If you receive a check for $1,000 from a tax refund OR reimbursement from health insurance, make a copy of the check prior to the deposit. Then let me know so there is no confusion in underwriting. This way we avoid any potential delays in closing.
  • Document gift money correctly: When receiving gift money for a loan, I must document the transfer of funds with a gift letter, proof of funds given, and proof of funds received by my client. I also need to show the giver is an acceptable source for the loan program. FHA has looser requirements, but Conventional loans typically require the giver to be family to the borrower OR have a documented/established relationship. Without documenting the money correctly OR coming from an acceptable gift source, the closing could be delayed or even have the loan denied.
  • Don’t transfer large sums of money between bank accounts: Assuming the transfers are done between your own bank accounts, then at worst, this could cause a delay in closing as  we will need to go back to underwriting with your new provided bank statements showing it was your money. Why do you have to do this? Again, I have to show the money didn’t come from anyone standing to benefit from the sale of the home. If the money isn’t from your own accounts, then we have to go back to the second item listed here and document a gift.

Looking to buy a home, but planning on getting a gift from a family member? Expecting a quarterly bonus to show up, and you need that for the down payment? Worried these things may be difficult in the loan process? Don’t worry. I do this all the time. If you are buying in the state of Georgia, contact me today. I’ll instruct you on how to properly document the assets, and make sure this doesn’t cause a delay to our closing date.

Remember, let’s not make a mistake as we go through the process!

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FHA lowering mortgage insurance

January 13, 2015

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Finally, FHA mortgage insurance becomes more reasonable (and competitive) when compared to conventional loans. As recently posted on this blog, FHA mortgage insurance has been priced so high that it rarely made sense to consider using an FHA loan.

FHA mortgage insurance still has the one-time upfront premium, and is permanent if making less than a 10% down payment, but at least the monthly mortgage insurance payment is closer. Let’s take a look at how the new numbers compare to one another.

  • FHA – the monthly mortgage insurance rate is dropping from 1.35% to 0.85%. Using our same example of a $250,000 purchase price, the total loan amount would be close to $245,500. If you take 0.85% of that amount, you get $2,087, which is $174 per month.
  • Conventional – assuming the buyer’s credit score is 720+, the same $250,000 purchase price with 5% down would give us a monthly payment of $122 for mortgage insurance. When you take into consideration the fact that FHA loans have a lower interest rate, the difference in the total payment between the two is not much at all.

The buyers who could benefit the most from this are ones looking to make as small of a down payment as possible.

  • The 3% conventional loan is only available to first time home buyers. With only a 3.5% down payment, a buyer would qualify to purchase the home and not get hammered on the monthly mortgage insurance payment since FHA has lowered the monthly amount so much.
  • On the flip side, let’s say it is a first time homebuyer and they’d qualify for a 3% down conventional loan. The FHA loan may still be more attractive since the monthly mortgage insurance payment for an FHA loan is now lower than the monthly mortgage insurance payment for a 3% down conventional loan. Also, the interest rate would be lower on the FHA loan.

That is a lot to consider, which is why you should consult a professional who can ask you questions about your purchase, find out how long you plan to stay in the home, and if you plan on aggressively paying down the loan balance. The answers will ensure you choose the right loan for you situation.

Whether a first time home buyer or an experienced buyer, if you are buying in the state of Georgia, I’m happy to help. Contact me today to get started and we’ll get you into your new home.

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FHA Mortgage Insurance

December 16, 2014

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In a recent post, I mentioned how buying a home using a conventional loan with a 3% down payment helps avoid ridiculously high mortgage insurance payments associated with FHA loans. What makes FHA mortgage insurance payments more expensive than conventional loans?

Due to the housing and foreclosure crisis, FHA continually increased their monthly mortgage insurance payments to help cover their losses from FHA insured homes that went into foreclosure. Prior to the crisis, the monthly mortgage insurance rate was 0.50% of the loan amount per year. After 5 straight years of increases, it is now at 1.35% of the loan amount per year.

Great. What does that mean?

Let’s take a look at some numbers comparing FHA mortgage insurance to a conventional loan with 5% down and also a conventional loan with 3% down.

  • FHA – on a $250,000 purchase price, the total loan amount for an FHA loan would be close to $245,500. If you take 1.35% of that loan amount, you get $3,313 for the year. Divide that out by 12 months, and the monthly mortgage insurance payment is about $276 per month.
  • Conventional 5% down – assuming the buyer’s credit score is 720+, the same $250,000 purchase price with 5% down would give us a monthly payment of $122 for mortgage insurance. The FHA loan is more than double that amount per month.
  • Conventional 3% down – again, assuming a 720+ credit score and a $250,000 purchase price with 3% down, the monthly mortgage insurance payment would be $222. That is about 25% less per month compared to an FHA loan.

The monthly mortgage insurance payments for conventional loans can be noticeably lower than FHA loans. I haven’t even got into the fact that all FHA loans come with an upfront mortgage insurance premium of 1.75% of the loan rolled into the loan amount (about $4,200 rolled into the loan amount on a $250,000 purchase price). Nor have I covered how, in most cases, FHA mortgage insurance is permanent.

I encourage my clients, when they qualify, to use a conventional loan to purchase a home because conventional mortgage insurance is typically lower per month, there is no upfront premium, and the mortgage insurance is not permanent. That said, sometimes an FHA loan is still the way to go.

Looking to buy a home in the state of Georgia but are unsure if you should use a conventional or FHA loan? Contact me today to get started. I’ll go through the pros and cons of each, and we’ll run the numbers to see which option makes the most sense for your specific situation.

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