They're Back! Low Down Payment Home Loans
They're BACK! Low Down Payment Loans
You've been wishin' and a waitin' and your prayers have been answered! Borrowers are finally once again seeing the return of some low down payment loans that will allow people to enjoy all the benefits of home ownership. This news is going to have a big effect on the recovery of the housing market. This is especially so for first time home buyers.
With the crash in 2008 and the following mortgage meltdown, these loans had disappeared, but they're back and people couldn't be more pleased. Here's some outlines on the changes concerning them with their return:
The type of loan that has returned is one offered by lenders themselves such as the Right Step mortgage by T.D. Bank. The lender recently lowered Right Step's minimum down payment from 5 percent to 3 percent while raising the debt to income ratio to 41 percent.
Read more: How Hard is it to get a Home Loan?
This type of loan is competitive with F.H.A because private mortgage insurance is not required ( it usually is on loans with less than 20% down). Rather, T.D. requires all applicants to go through a housing education class. This type of class has shown to improve loan performance significantly.
Qualifications include that borrowers must have a minimum FICO score of 660 and income at or below 80% of the area median income. If the borrower is buying in a Census-defined low to moderate income area, the income cap is waived.
Down payment assistance programs offered through state and local housing agencies are another possible way to go. Some of these programs require borrowers to put as little as 1% down and cover up to 20% of their purchase price through a second mortgage. The loan is fully amortized over 20 years with a rate of 3% and the second mortgage negates the need for insurance which makes this route very affordable.
Restrictions on income apply. In some counties, the maximum annual income for a household of four is around $105,000. The borrower's liquid assets cannot exceed $25,000, exclusive of retirement funds.
A third option is to obtain a FORMAL LOAN from family members. Some mortgage firms set up intra-family financing at low rates.
A problem that could occur with this option, however, is that some lender's underwriting guidelines don't allow for down payment loans. Money from family must be affirmed in writing as a gift, with no requirements to pay back.
So what does this all mean for the future? It means we wait and see, but we can certainly hope and expect to see more options in the years to come.