It looks like FHA is planning to beef up its falling reserves by requiring borrowers to come up with a bigger down payment. Can you see your home ownership dream fading away? Well, don't let it! Yes, FHA is likely to require 5% down instead of 3.5% in the near future. HUD Secretary Shaun Donovon says that's a virtual certainty. But what about deserving sorts who really need some help? What if you know you could pay your mortgage but could never save a down payment while paying rent and other obligations? Is there hope for you?
Yes, Virginia, there is a down payment assistance program. Many state, local, and charity-based programs exist to provide down payment help to those who meet income or other guidelines. And HUD's Web site has links to all of them.
Home ownership assistance takes many forms. Some organizations offer interest-free loans for your down payment, and some of these don't have to be repaid until you sell your home. Others offer grants, or subsidize your mortgage interest, or help you with closing costs. If you are a member of certain professions, like teachers, first responders, or nurses, your state may have special home ownership assistance for you. And HUD offers the Good Neighbor Next Door plan, which allows you to purchase a HUD home with a 50% discount and only $100 down!
USDA loans can finance 100% of your purchase price, if you live in a designated "rural development" area.
What today's FHA changes mean is that you will have to do more homework and jump through more hoops to get into your first home. But the resources are still there. So, buying your first home won't be as easy as it used to be. But it won't be impossible either.
You've heard it here before--this product, sponsored by USDA Rural Development, allows borrowers to get 100% financing at a low fixed interest rate if the property is in designated rural areas--which aren't limited to the back of beyond. Property just outside city limits is often considered rural for the purposes of geting these loans. But you may have to hurry. According to ForexHound, the number of home loans guaranteed by the USDA ballooned to nearly 120,000 in the first nine months of 2009, up from roughly 35,000 in all of 2007. But given the amount of development in outskirts all over the US, fewer areas are truly rural and once the population is sufficient they will be taken off the rolls.
Bank Saying No to USDA
One of the largest banks in America is discontuing rural housing mortgages, and it may not be the only one. With the possibility of these mortgages going away and the discontinuence of the first time home buyer credit in November, low-to-moderate income home buyers need to move very fast. if you haven't called your bank, do it now. Get approved, not just prequalified--you want to be ready to pull the trigger as soon as you find a house.
The U.S. Department of Agriculture Rural Development agency is reducing its interest rates on direct home loans to 4.375 percent. The change is effective on February 1st.
Under the direct home loan program, low- and very-low income families and individuals receive a loan directly from USDA Rural Development to buy, build or improve homes in rural areas. The loans require no down payment and the standard term is 33 years. Payment assistance, which can reduce monthly mortgage payments, is also available for those who qualify. Credit underwriting requirements are similar to those for FHA programs. Income must be documented.
Drop any questions about this or other topics in the "Comments" for this blog and I'll get them answered.
100% mortgages have not gone completely by the wayside. While layering risk by lending to borrowers with low credit scores + no down payment + no income documentation will no longer fly (good!), there are programs out there for those who don't face all of those challenges. The USDA Rural Development home loan is one such option. What is rural? The USDA has defined rural as anything not "places of 50,000 or more people and their adjacent and contiguous urbanized areas."
USDA Rural Development administers a couple of programs: Guarantee and Direct. Their Direct program is funded directly (hence the name "direct," duh) through the rural development office. To be eligible, your income can be only 80% of the median income for the area.
The Guarantee program is funded thorugh USDA-approved lenders and brokers. It is a guaranteeprogram (duh, again!)with no subsidies, and the income guidelines allow up to 115% of the median income after certain adjustments. A good loan officer who specializes in these products should be able to help you determine how your income would be considered.
The 100% LTV mortgage amount is determined by the appraised value instead of the purchase price. Credit underwriting is flexible and the guidelines have no minimum buyer out-of-pocket expense and no maximum for seller concessions. Note: some lender policies may be more restrictive, so if it's the lender guidelines shooting down your application and not the USDA's, another lender may be able to approve you.
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About Mortgage Credit Problems
Specializing in Bad Credit Mortgages… Because Life Doesn’t Always Turn Out Like You Planned. A sick child, a few late bills, or an unexpected expense can easily get you off track and your credit may suffer, but we don't think you should miss out on the opportunities available to everyone else.
Gina Pogol
About the Author:
Gina Pogol writes for an online media company about mortgage and finance. In addition to a decade in mortgage lending, she formerly consulted for Experian and other credit bureaus, and worked as a tax accountant for Deloitte. She has a BS in Financial Management from the University of Nevada.
