Low down payment mortgages, FHA | 100% VA, USDA
The state of low-downpayment mortgages
There was a time when 100% financing (no-downpayment) mortgage loans were plentiful. Lenders now want borrowers to have cash on the line when they buy a home. This is now, once again, the major stumbling block for first-time homebuyers who have been unable to save for a downpayment.
Veteran homebuyers (including qualifying reservists and national guard members) still have a rare no-downpayment option, one that has gotten a huge recent boost at that. A veteran with full eligibility can purchase a home costing up to $417,000 anywhere in the U.S without requiring a downpayment. The VA program does this by guaranteeing 25% of the amount of the loan.
VA loans in 2009 will be available without a downpayment for loan amounts up to 125% of the median price for a single-family residence in a county esidence county. This is big, very big in some high-cost parts of the country. Some loan maximums of up to $1,094,625 in the very highest cost areas of the lower 48 states. Check with me for the maximum in your area. The VA program comes with significant upfront (“funding”) fees for those making no downpayment, but motivated sellers can often be persuaded to pick up the tab. The fees are lowest for those using the VA program for the first time and are waived entirely for veterans with a service-connected disability.
We can help you with a VA jumbo loan as well. Choice is currently able to get you 100% financing with a VA jumbo loan AND 100% cashout if you are refinancing. Not everyone offers this great product, and I will be happy to discuss your specific situation when you contact me.
With FHA, a downpayment of at least 3.5% of the purchase price is now required, but that can come as a gift from a family member, an employer (tip: convert a raise or bonus into downpayment assistance), or from a nonprofit institution or government grant. Among the attractions of FHA is that there are no institutionalized credit score requirements, though individual lenders who process FHA loans will usually have their score standards. Expect scores below 620 to pay a price; approval for those under 580 is dicey. First-time buyers with nontraditional credit histories have some hope with FHA, which is open to use of alternative credit scores. Alternative scores assess risk based on a person’s rental and utility payment history when there is not enough credit information for a regular FICO credit score.
With both VA and FHA, there is flexibility with respect to income, credit history and financial reserves. A ding in one of these areas can be offset by strength in one or both of the others. Ultimately, for FHA and VA to be approved, a mortgage application, the loan has to make financial sense. FHA will insure to a maximum loan amount of $271,050 anywhere in the U.S. and up to $625,500 in high-cost areas. FHA loan limit calculator
Borrowers pay an upfront fee of 1.75% of the loan amount. The seller is permitted to pay this or it can be rolled over into the loan amount. Another 0.55% premium is paid monthly (1/12 x 0.55%). What about programs at Fannie Mae and Freddie Mac? Indeed, there are programs that are still on the books, such as the Fannie Mae “My Community,” Community 100 and Flexible 100 mortgages. You may see them on Fannie Mae’s web site, but not in real life. The fact is these mortgage products rely on private mortgage insurance and mortgage insurers are refusing to underwrite 100% loan-to-value purchases these days. And the option of using a second trust to achieve 100% financing is also dead these days. Eventually we would expect these options to return once the market has demonstrated that it is once again stable, but it probably won’t happen for a while yet.
Also ask me about the USDA 100% program. Give me the property address you are interested in buying and I will tell you if it qualifies. You would be surprised at some of the areas that do qualify. All of Delaware qualifies, there are 9 counties in MD where the whole county qualifies and the rest have pockets of areas within the county that are eligible. © 2007, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc. & Choice Finance®
Brent Mendelson, VA Loan Officer
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Tags: Maryland 100% financing, No down payment MD VA DC, USDA loan Maryland, VA Maryland mortgage
January 17th, 2009 at 11:08 pm
hoo ya,
Most lenders are not doing these loans at this point. I closed a VA jumbo purchase last week that went slowly but did close. The VA cashout to 100% was ripped to pieces and is on life support. The amount of documents the lender has requested are absurd. In my opinion they don’t want the loan but I dont give up easily. Be careful.
December 31st, 2008 at 3:24 pm
VA jumbo loan AND 100% cashout? sweet
December 19th, 2008 at 1:48 pm
FHA home mortgages were developed to support people who otherwise have difficulty qualifying for a loan. Individual lenders set interest rates and repayment periods, however, not the government. FHA simply insures these loans to lower the risk to the lender. Since FHA protects lenders against losses, the lenders are generally willing to create loans with easier qualifications.
In the past, deposits for FHA home mortgages have always been 3 % of the home purchase price and the money can be a gift from an employer, family member or a charitable organization. The FHA home loan debt to income ratio allows for 31 percent of income toward housing costs. If you are planning on buying a house that needs repair, FHA also has a program that allows the borrower to finance up to an additional $35,000 for improvements before moving in to the residence.
The down payment rules for FHA home mortgages are changing. Zero down home loans may be available through FHA by October. FHA borrowers will have to pay more upfront and in their monthly mortgage payments, but the program will allow those with no way to raise the money for a down payment to get into their first home.
FHA loans also give consumers the option of refinancing existing mortgages. With the new 95 percent cash-out loan limit, refinancing with FHA has gotten more attractive. Henry Savage president pf PMC Mortgage notes, “With the new 95% cash-out loan limit, I predict a substantial increase in FHA refinance activity in 2006 and 2007.” Unlike conventional loans, lenders do not increase the rate or charge extra fees for an FHA cash-out refinance at 95%. The 30-year fixed rate is also very desirable compared to adjustable home equity lines of credit. You should look at all your options before choosing an FHA loan when purchasing a home or refinancing with a competent loan officer. However, you might find that is the perfect option for your lending needs.
December 19th, 2008 at 12:15 am
Especially if you don’t have 20% for a downpayment. It’s really not the best choice but quite possibly the only choice.
December 5th, 2008 at 1:28 pm
An FHA mortgage used to be primarily the loan of choice for borrowers who could not qualify for a conventional mortgage, but now a high percentage of mainstream borrowers can benefit from flexible FHA guidelines.