Home Buyers can still purchase a home with No Money Down. The media is doing an awfully good job of convincing people that financing a home today is harder than getting tickets for Hanna Montana. This can't be further from the truth.
Underwriting guidelines have tightened, but this is really only effecting about 10-12% of the mortgage market. It seems like a lot more than that right now because most loan officers never had to review pay stubs and certainly not tax returns to qualify a buyer.
There are some people in trouble as well. Visit my blog on The President's Mortgage Bailout Plan to see how the Federal Government is trying to help.
Programs for 100% Financing will vary by State. Putting the correct options together is like making a cheesecake. It takes a lot of care and skill to make a good cheese cake. The variations are endless. The Cheesecake Factory has built a great business around it. You can have a cheesecake with graham cracker crust; top it with blue berries, cherries or other fruit. You can have it plain or add other flavors to make it taste like a Snickers bar.
Today I will be focusing on single family homes in California and how to structure a mortgage with no money down. I will show you that 100% Financing is still out there. It just takes the care and diligence of a great pastry chef to put all the right ingredients together.
There are several tools available out there to help someone buy a home with no money down. Here are the ingredients we are going to use to structure our deals.
•· State and Federal Home Loan Programs
•· Local County and City Programs and Assistance
•· Non-Profit Agency Programs and Assistance
•· Gifts or Loans from Family Members
•· Loans or Credits from the Seller
•· Loans from Banks, Credit Unions and others
The First Question to ask is:
Are you a First Time Home Buyer?
A First Time Home Buyer (FTHB) is defined as a person who has not had ownership in their primary residence for the past 3 years.
There are options for 100% Financing for both First Time Home Buyers and other buyers. The best incentives are for First Time Home Buyers.
The base for our 100% Financing Cheesecake will be CalHFA Financing, FHA Loans and Bank Products. Our crust will consist of Local State, County and City Down Payment Assistance Programs. The toppings dressing our loan are seller credits, gifts, grants and credit union loans.
Put your tax dollars to work for you.
Leverage State and Federal loan programs. You should take advantage of your tax dollars hard at work.
In California - CalHFA offers:
•· 100% Financing up to $921,719
•· Up to 106% Financing with down payment assistance programs
•· Below Market Interest Rates
•· 30 and 40 yr terms and a 35 year term with interest only for the first 5
•· Forgivable grants for Teachers and Administrators
•· Grants for purchasing a newly constructed home
See more about CalHFA by clicking here.
Federal Housing Administration (FHA)
FHA will allow you to finance up to 97% of the value of the home. FHA has very flexible credit guidelines and is great for folks with bad or blemished credit. The biggest drawbacks to FHA Loans are the mandatory mortgage insurance (MI) and the lower loan amounts (always less than the conforming loan limit). The limits vary by county.
While FHA won't give us all the money they get pretty close. We can get the remaining funds from several other places. State, County, and City Assistance Programs can usually make up the difference. Credits and Grants from the seller can be used in lieu of second mortgages from credit unions and banks. You can also have a close relative gift you the money for a down payment.
Loans from Banks
In Today's mortgage market Banks have pulled back on many of their 100% Financing products. We can still get 100% Financing from the Bank up to the conforming limit, currently $417,000. Most of the options the Banks are currently offering for Jumbo Loans are valid up to 90-95% of the home's value.
Down Payment Assistance Programs
The next step in our 100% Financing cheesecake is deciding if we want a crust or not.
The state of California can offer up to 6% in Down Payment Assistance plus a bonus $7,500 for specific counties.
Local Counties usually have couple of options, Mortgage Credit Certificates (MCCs), and Down Payment Assistance Programs like the American Dream Downpayment Initiative (ADDI).
MCCs - While this credit does not help get us to 100% they do offer a tax break for the buyer.
ADDI - Provides the buyer with up to 6% Downpayment Assistance. This program has a maximum purchase price and is determined by the county.
The City you are looking to purchase a home in may be able to help as well. Cities usually offer one of two types of assistance:
Equity Share - The City will provide funds in exchange for getting a part of your equitable gain on the property.
Affordable Housing - The City grants you specific funds but requires the home remains affordable for a set number of years. (The City determines the sales price and who is eligible to buy your home)
Time to top our Financing
This is the sweet stuff. This is what puts us on top. Seller Credits and Grants, Gifts and Credit Union Loans are the final ingredients of our 100% Financing cheesecake.
Seller credits are no new thing. It's how we apply these credits that help out our approval. In a buyer's market it is typical for buyers to ask for credits from a seller to cover closing costs typically ranging from 2-6% of the purchase price. These credits are generally applied to closing costs.
This is where we change the story. The credits can actually be applied as part of the buyer's downpayment. To do this the seller volunteers to give a donation to a non-profit charity like the Nehemiah Corporation. The charity deposits the promised funds prior to the close of escrow. The seller's donation comes out of the proceeds of the sale. We can get up to 6% of the purchase price for any buyer.
A few notes about the Grant program listed above. Not all lenders or title companies will process this option. There are also changes passed by HUD to stop these programs (currently allowed by court injunction).
A Gift from an immediate family member can be another way to bridge the gap. The amount of the allowable gift depends on how much is being financed. Gifts can be capped at 3%,6% and 9% by the lender. Generally once there is 20% down the funds can come from anywhere as long as the source can be verified.
The last ingredient is Credit Unions. Credit Unions currently are the only institutions that are lending 100% stand alone seconds. Every Credit Union is different. Check your local Credit Unions for details about the financing they can offer. Credit Unions however are not known for speed or efficiency. Some Credit unions will allow their loans to be used as purchase money seconds, other wont.
Now that we have all our ingredients, go out and write your offer on that house you love and set the timer for 30-45 days in escrow.
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