NYC Testing a New Mortgage Idea: a 3% Down Payment

By
Real Estate Broker/Owner with Core Real Estate Advisors, Inc.

 

A recent announcement­­ that should get the attention of a large segment of would-be Nassau / Suffolk County home buyers­­—particularly those­­ who have been stymied by the difficulty of trying to build their credit scores by paying all the monthly bills on time while simultaneously saving up a pile of cash for a down payment.

For too many Long Island nine-to-fivers, the two ambitions are achievable—just not at the same time. Although inflation hasn’t been horrendous, even a modest degree of rising prices causes a crunch for those whose incomes are flat. For many Americans, coming up with the down payment has been an immovable stumbling block.

Into the breach came February 22nd’s Bank of America announcement of a new mortgage product. Cutting to the chase, these home loans will be structured to allow qualified homeowners to make down payments of as little as 3%.

Yes, 3%!

If you don’t believe there’s ever any free lunch, you may be wondering why, if this makes sense to a bank, it hasn’t been offered until now. The answer has to do with the way the FHA regulates home loans.

The Federal Housing Administration insures banks against defaults on FHA-backed mortgages (they allow down payments of as little as 3.5%) but sometimes holds the banks responsible when borrowers fail to repay. In fact, the FHA won billions in settlements in recent years when bank paperwork turned out to be inaccurate. The banks were not pleased: they said many of the errors were minor. They also decided to cut back on offering FHA loans. That had the effect of slowing the residential real estate market across the U.S.—and Nassau and Suffolk Counties were no exception.

This new home loan structure is Bank of America’s solution for “families of modest means”—a group everyone agrees has been left out in the cold. It avoids FHA rules by avoiding the FHA altogether, instead relying on the backing of Freddie Mac and a nonprofit fund. Among the guidelines for the new low down payment product are requirements that borrowers have credit scores of at least 660 (FHA allows 580) and incomes that are lower than the area’s median. Because there will be no requirement that borrowers pay for private mortgage insurance, the loans should be less expensive than corresponding FHA mortgages. Great deal!

 It remains to be seen how widely available such loans are going to be for Long Island borrowers. Bank of America will at first be capping the number of loans it issues while it tests the market. But it’s a sure thing that other national lenders will be watching what happens…and very likely rolling out their own low down payment products. It should be one answer for folks who have proved they are deserving and responsible—yet have found themselves closed out of the market.

As the spring selling season heats up, many potential opportunities also open up for sharp-eyed prospective buyers. If you are one, a Core Real Estate Advisor is standing by to help!    

 

Office: (844) 211-5053 Email: info@corelisted.com Website: www.corelisted.com

 

Anthony Manzolillo is the Principal Broker for Core Real Estate Advisors, Inc. Core has agents specializing in both Residential and Commercial properties. Anthony Manzolillo started his career in real estate working for a private equity firm. In his role as the Director of Acquisitions, Anthony (Tony) has been involved in acquiring over 50 multi-family properties worth over 300MM. He has been the lead agent for helping lenders such as Bank of America, JP Morgan Chase, Country Wide, Litton Loans, Green-Tree, and Compass Bank dispose of hundreds of distressed properties. Tony’s most recent accomplishment is working as a consultant for NY Rising and GOSR, whereby he was directly involved in the acquisition of over 600 homes substantially damaged by Hurricane Sandy.

 

For more information, or if you would like to speak with a Core Real Estate Advisor please contact us at (844) 211-5053 or send an email toinfo@corelisted.com. You may also visit our website at www.corelisted.com

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