Are there any inside tips on down payments for first-time buyers?

 Folks who are new to the home-shopping world need more than just good luck. You should, of course, save all you can for closing costs and a down payment. For further help:

  • Revisit your "wish list" Reconsider what you're looking for in a first home. Find out what you can afford now, and consider buying a starter home that requires a small down payment with the idea of moving up in a few years.
  • Take advantage of special programs Look into special low- and no-down payment programs like loans guaranteed by the Department of Veterans Affairs (VA) and Federal Housing Administration (FHA). Some areas also have local programs for low- and moderate-income families or first-time buyers, offering lower interest rates or down payments.
  • Gather gifts Check with parents and relatives for monetary gifts that can go toward a down payment or closing costs. A 20% down payment can dramatically cut monthly costs and eliminate monthly mortgage insurance premiums.
  • Consider "sweat equity" If you can fix up a home that's in poor condition, you increase the value of your investment faster. Ask us about special combination loans that provide fix-up funds as well as purchase money.
  • Scour the market for bargains Call on us to research foreclosure properties, housing auctions and other homes available at below-market costs.

Want to know more? Click on “Ask Your Own Questions” or call or e-mail us today with questions of your own. We can tell you how much house you can afford, and we can help you get into your first home.

What if I’m turned down for a mortgage?

 If you’re denied a mortgage, try, try again.

Here’s help for renters and other buyers who may have had difficulty getting mortgage money:

  • The Federal National Mortgage Association, or Fannie Mae, a major supplier of mortgage funds, has a program of review, counseling and more flexible loan guidelines. The hope is that this program, called "Showing America a New Way Home," will help loan applicants who might otherwise be rejected for a loan ultimately get loan approval and buy a home.
  • Also worth checking out is the "Fannie 97" mortgage, which lets borrowers make down payments of just 3%.
  • The "Start-Up Mortgage" requires a 5% down payment and allows for lower monthly payments the first year of a 30-year fixed-rate loan.

For more information, ask your lender or call Fannie Mae’s public information office at (800) 7FANNIE.

What practical steps can I take to improve my chances of getting a loan?

When you’re thinking about buying your first home, take a good look at your financial situation from the perspective of a loan officer. For a lender, not all debts are equal.

  • 28/36 Ratio In the past, lenders often said borrowers could not spend more than 28% of their gross monthly income on housing expenses, and their total debt payments could not exceed 36% of their income for a typical 10% down payment loan.
  • More Flexible Guidelines Today, many lenders are more flexible and allow a greater percentage of monthly income to go toward mortgage payments. But they are more stringent on credit card balances. Lenders often count 5% of the balance as a borrower's monthly payment, instead of the credit card's minimum payment.
  • Pay Off Strategies If you are planning to pay off some debts before you apply for a loan, consider the ones with the largest monthly payments. Many lenders, for example, prefer to have a car loan paid off, because borrowers are not likely to go out and buy a new car right away. On the other hand, if credit cards are paid off, a borrower might start charging again.
  • Near Pay Off Versus Minimum Payment If you have a few months left on a loan, lenders sometimes overlook it when calculating your monthly debt ratio. On the other hand, lenders look unfavorably on borrowers who let loans linger for a long time with minimal effort to repay the principal.

The most important factor to lenders, however, is that you pay your bills on time.

Can you tell me some things I should consider when shopping for a loan?

 Shopping for a mortgage loan is like shopping for a new coat – you need one that fits your lifestyle as well as your budget. Many different mortgage products are available today, and each suits a different set of circumstances. Match mortgage terms to your lifestyle.

  • For a family expects to stay less than three years in a starter home, a one-year adjustable-rate mortgage (ARM) would make sense with its low initial rate and a cap on annual increases.
  • Planning to stay longer? A five- or seven-year two-step loan provides a low initial rate for a few years with a potentially significant one-time jump at adjustment time if interest rates have risen.
  • A 10-year ARM provides an interest rate lower than a fixed rate mortgage for the first decade, but adjusts annually after that for anyone who hasn't moved or refinanced.
  • If you plan to stay in the home indefinitely, you may opt for a traditional 30-year fixed-rate loan - or 15- or 20-year loan if you can meet the higher payments - and pay extra points to get a lower interest rate.

To decide which to choose, figure all the costs over the time you expect to be in the home, and compare the bottom line. Also compare the monthly payments at each step to be sure they are manageable. Keep in mind the maximum allowable increases when calculating future payments under a worst-case scenario.

Our professionals are armed with the latest mortgage loan information plus more tips on how to choose the right loan for your circumstances. Just give us a call and we can start helping you right away.

What is a “no-cost’ loan and how does it work?

 More accurately called a “no upfront-cost” loan, a “no-cost” loan is a mortgage that wraps the closing costs – such as application and credit check fees as well as appraisal and other settlement charges – into the loan amount. These expenses are often paid by including the costs into a larger total loan amount and charging a higher interest rate on the whole loan.

The no-cost loan could be a useful alternative for:

  • someone short on cash, or
  • a homeowner who is refinancing.

Another way to go is to pay the points and any other deductible closing costs in cash at settlement to secure the tax deduction. Usually this also means a lower interest rate, and therefore lower interest cost over the life of the loan.

Is it true VA loans are easier to get these days?

 It’s not only true, it seems to be real estate’s best kept secret. Guaranteed mortgage loans for veterans are a lot easier to obtain since the Veterans Administration made its procedures more user-friendly a few years ago.

Some key changes in the VA Home Loan Guaranty Program are:

  • the seller no longer has to pay points for the buyer; and
  • the VA no longer sets interest rates;
  • Members of the National Guard and Military Reserve who have served at least 6 years are now eligible for VA financing.
  • Loan rates can be negotiated between the lender and veteran, whereas rates used to be set by the government.
  • The fee to refinance a VA loan has been lowered from 1.25% of the loan amount to 0.5% (half of 1%).

Also, thanks to a new ruling, VA buyers can now pay their own VA loan fees or points. Before the change, VA points could only be paid by sellers – which meant some sellers were turning away VA borrowers to avoid the extra costs.

The VA loan program can help qualified veterans save money when buying a home because the veteran can buy a home with no down payment and no monthly mortgage insurance. The debt-to-income proportion can be as high as 41%, and up-front costs are lower. Veterans can borrow up to a specific ceiling, and the loan is assumable. Check with your lender for full details.

What are some other creative loan options I might consider?

 AIM Mortgage Doubles Value Of Down Payment

How would you like to spend your money and save it, too? The Asset Integrated Mortgage, or AIM, lets you do just that.

A home buyer with an AIM loan invests part of the down payment in a life insurance annuity set up by the lender, and draws tax-deferred interest. The minimum is 10% down with 5% of it for the annuity; but if the down payment is 20%, up to 15% can be invested in the annuity, yet counted as collateral, so private mortgage insurance is unnecessary.

Currently, lenders in at least 50 cities offer AIM loans. For more information, contact Fannie Mae at (800) 732-6643. Fannie Mae is the nickname of the Federal National Mortgage Association, a quasi-governmental agency that makes mortgage funds available.

A GEM Of A Mortgage Loan

GEMs (growing equity mortgages) are making a comeback in the world of creative financing. Their early-1980s popularity gave way to ARMs (adjustable-rate mortgages). Their return to the scene was prompted by declining interest rates.

GEMs have the advantage of being fixed-rate loans with interest rates as low as – or lower than – the lowest ARM rates. Typically, a GEM has a fixed, 30-year rate that approximates the market rate at the time the loan is taken out. The payment for the first year of the loan, however, may be set at a much lower rate – interest only. The payment for the succeeding 2-8 years increases at an agreed-upon rate, typically 3%-7.5% per year, until your monthly payment reaches a specific level for the remainder of the loan.

As your payments increase on schedule, they will become more than the regular note rate. Then your “overpayments” go toward reducing the principal on the loan. You thereby shorten the life of the mortgage. That’s why, although figured on a 30-year basis, most GEMs are paid off in 15 to 20 years. That’s a way of building equity fast, once you get past the period paying only interest.

Biweekly Mortgages: A Good Value?

One of the newer twists in the mortgage industry is biweekly mortgages. Here’s a quick look at how they work.

For an up-front, non-refundable fee – typically several hundred dollars – the mortgage servicer will debit the homeowner’s bank account every two weeks – 26 times a year. This amounts to making an extra month’s payment each year.

The benefit for the mortgage servicer is they have the use of your funds without paying interest until they apply your payment to the mortgage at the end of the month. The benefit to the consumer is paying off principal debt and increasing home equity faster.

A word of caution, though. Before you jump on the biweekly bandwagon, remember to:

  • Comparison shop for the lowest start-up fee; they vary widely.
  • Figure out how long you'll have this mortgage. If you're planning a move or refinance soon, you will have to pay a new start-up fee for a biweekly payment schedule unless your program is transferable.
  • Shop for a program that pays you market interest rates on your money while it is in the mortgage servicer's hands, prior to being credited to your mortgage balance. Beware of biweekly mortgage scams from non-reputable firms.
  • Deal only with experienced, reputable companies. Ask your lender for full details.