(Lehigh Acres isn’t the only area where true 100% financing is still offered, of course. It is, however, the area where I focus my personal services, and therefore makes a useful keyword to include in the title of this article…)
Yes, 100% financing is still alive and well in many areas, under the correct circumstances. Mainly those are:
- You must be buying your primary residence
- You must be able to document your income and afford the housing payment
- You must have reasonable credit
Beyond that, there will be additional requirements depending on the program used. VA loans, for example, require the borrower to be an eligible military veteran or surviving spouse. One regional bank I work with has a portfolio 97/3 product with specific credit requirements and household income caps. And finally, (drum roll please) there is an amazing little loan program administered by the USDA’s Rural Development division called Guaranteed Rural Housing.
Well, not so little perhaps; for fiscal year 2008 the federal government has approved $5 Billion in funding for these mortgages.
This is a true 100% program, allowing all closing costs and prepaid items (such as hazard insurance premiums) to be financed, even above the sales price. That’s right—it’s possible to bring no money out of pocket whatsoever, and the sales contract does not need to be written any particular way for this. Additionally, there is no requirement for reserves. Almost every other mortgage program will require a borrower to have (and prove they have) at least a couple months’ worth of housing payments available in the bank. This one does not. Finally, and this is my favorite part, there is no requirement for monthly mortgage insurance premiums. Most of the time, any loan for over 80% of a home’s value will require the borrower to pay Private Mortgage Insurance (PMI) to protect the lender in the case of default. FHA loans require a version of this called Mortgage Insurance Premium (MIP) regardless of loan-to-value. The USDA Guaranteed loan has no such requirement, making its fixed monthly payment the lowest in the industry.
So, what are the “additional requirements” involved with USDA Guaranteed Rural Housing (GRH)? First, the property being purchased must be in an eligible area. This loan was originally intended to help farmers buy their homes, and ‘rural’ is right there in the name. What this means in practice is that the loan is not available in areas of high population density, and this is determined by the most recent US Census, which took place in 2000 (the next one will be in 2010). At that time, locally, most of the area east of I-75 fit the criteria. Pretty much all of Lehigh Acres and Naples currently qualify for this program, as well as surrounding areas such as Alva and Immokalee. Fort Myers and Cape Coral are ineligible.
Next, there are household income caps for applicants. These are based on the number of people in the household (which can include children, elderly parents, or really anyone who actually lives with you), and there are modifiers (for instance, child care costs paid to a non-family member can be a deduction). This mortgage program is intended for moderate-income individuals, and the caps vary by county. In Lee County, the maximum adjusted income limit for a single person is $48,000. For a family of three, $61,700. If there are five people living in your household, the limit is $74,050. This has the additional effect of limiting the home price one can qualify for on this program. A few years ago, when there weren’t many homes on the market under $200,000, it would have been difficult or impossible to qualify using this mortgage. Today there are dozens of homes available at any given time in the low $100’s. Total monthly payments on these homes, including property tax and hazard insurance escrows, can be as low as $800-$1000.
Also, the borrower cannot own any other property at the time of closing.
A few words on “reasonable credit”: For the purposes of the USDA GRH program, a 620 middle credit score is golden. As long as you have that, the documentation requirements are fairly modest; you don’t have to prove previous rental history, or explain past credit delinquencies. It is also easier to obtain exceptions for higher debt-to-income ratios, if needed. If we check your credit and your scores are slightly below this level, say in the 580-619 range, we can usually recommend steps to quickly bring your scores up to 620. For instance, opening up additional revolving credit lines if you have fewer than three, or paying down an existing balance on a credit card. Finally, if you have no credit scores, you can still qualify for this program using alternative documentation.
While that’s certainly not everything I could write about this fantastic program, the rest is details. If you’re read this far and think this program could work for you, please contact me. There is no charge to review your credit report with you or run it through analysis tools to help you bring up your credit scores. Feel free to ask me any questions about this program or the local housing market. You may be surprised how much house you can afford in 2008.
Visit hometeammtg.com for a link to "30 homes for sale in Lehigh Acres under $130,000". All of these homes were built after 2000, and NONE are short sales. Aso check out the "Total Payment Estimator".
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