Gen Z No Money Down Home Loans

Does true no money down financing exist? Well sort of with caveats. After months of research into reasons for the economy struggling, gen z not having enough money to purchase a home etc... I stumbled into housing market statistics that shocked me. Only 10% of Gen Z own a home now. MOST gen z homebuyers feel like house prices are just too high. 

So how should the younger generation buy a home without a ton of assets? There are two loan options available to gen z. The first option is to join the military. 

VA Loans

No seriously. VA loans are one of the best benefits of being in the military. VA loans allow for first time homebuyers to purchase a home with no money down at ridiculously low interest rates. Now I totally get that this is not for everyone so let's look at options number 2. 

USDA Loans

The holy grail of no money down home loans. USDA has some requirements that must be met like the property must be outside a metropolitan area. This seems ok now that COVID has pushed the world into remote work. The second requirement is a USDA income limit. You heard that right. USDA has a income limit. If you make too much money, you don't qualify. 

So don't lose hope yet. USDA and VA loans were less popular when the housing market was red hot. Unfortunately real estate professionals looked poorly on USDA and VA loan offers because of the property requirements that come with the programs. But now that interest rates have increased and the market has slowed down, it is time for USDA and VA loans to shine again!  

What is a FHA Loan

What is a FHA Loan

An FHA loan is a mortgage loan with flexible guidelines backed by the Federal Housing Administration ( A Department of HUD). FHA loans are extremely popular with first time home buyers because they allow down payments as low as 3.5% and allow the seller to pay the borrowers closing costs. FHA has flexible credit requirements. FHA borrowers sometimes have credit scores as low as 580.

Nearly 20% of all mortgages in the United States are FHA loans.  A credit challenged borrower is more likely to choose FHA because of the fair treatment of borrowers. The mortgage rate offered to lower credit score borrowers is typically much higher than market mortgage rates but with FHA, the mortgage rate offered only increases slightly for challenged credit. If you want to be sure you are not taken advantage of by a mortgage lender, FHA may be a great option. The loan program for first time home buyers has regulations built in to the guidelines to make sure no home buyer is taken advantage of.

To learn more about FHA and the credit requirements of FHA more details can be found at HUDLoans.us. Click here to learn more 

First Time Home Buyer Home Loans

The original content of this article can be found here

First Time Home Buyer Programs

Buying a home can be complicated and knowing which loan program is right for you can be a challenge.  If you are a first time home buyer or an applicant in need of a no money down home loan there  are many programs available to you. Every loan program has different requirements for credit, income and the property you plan to buy. We will go over each program in detail to help you better understand your options. 

USDA Home Loans

 

USDA developed a loan program for first time home buyers in rural areas. Backed by the Department of Agriculture,  the money is guaranteed against default. Because of this, the bank can lend you 100% of the sales price with only a minor risk of loss. USDA pays a portion of the loan if the bank incurs losses from a foreclosure so that banks are more willing to lend you money.

Benefits of USDA

• Home buyers can finance 100% of a home’s purchase price; and, can even use the loan to help purchase a manufactured home or a modular home. 
• USDA mortgage rates are typically lower than the rates for FHA, VA, and conventional mortgages via Fannie Mae and Freddie Mac.
• USDA first time home buyer loans can be big money-savers and they are available to first-time home buyers as well as repeat home buyers. Homeownership counseling is not required to use the USDA home loan program.
• Most closings can happen in 45 days or fewer
• The USDA will not guarantee a mortgage for a household which exceeds its maximum income limits for a given area. This is because USDA home loans are meant to promote homeownership among households of “modest means” only. The national average is $80,000 annually. To learn more about your area’s income limits, give us a call or complete the form below

FHA Home Loan Program

 

FHA financing works similar to USDA because HUD backs/guarantees the loan offered to minimize any losses the bank could potentially have. These loans are a great program for first time home buyers with damaged credit  and has the lowest interest rates available. 

Loans backed by the FHA typically require a 3.5% down payment to purchase a home however, there are many grant or bond programs available to provide the funds needed for a down payment. Every first time home buyer program has positives and negatives so be sure to discuss this with your mortgage professional. 

 

FHA also have minimum property standard and the home you are purchasing will be inspected thoroughly to make sure you are moving into is safe and livable home. Although FHA first time home buyer loans do not offer a warranty for a homes condition, they do take every possible step to ensure the home you are purchasing isn’t a money pit. 

 

Benefits of FHA

 

• An FHA loan only requires 3.5% down and the seller is allowed to pay your closing costs with seller concessions
• Offers first time home buyers the lowest interest rates in the nation.
• Loans backed by FHA have flexible credit guidelines and perfect credit is not always needed to buy a home
• Closing costs can be financed by including seller concessions in the sales contract.
• The down payment can be a grant or gift. There are many not for profit entities that often gift or grant down payment funds to home buyers.  

VA Loans

VA is the best loan program available in today’s market. They offer 100 percent financing, low interest rates, and no monthly mortgage insurance.  A VA loan payment is typically 5-10% less than other programs.  You must have served in the military and met certain requirements during your time served to qualify for a VA Home Loan.

Who Qualifies for VA loans?

The VA home loan works similar to FHA and USDA in that the Department of Veterans Affairs guarantees the loan and banks are more likely to lend money because there is little risk of loss. The program was originally created to offer long term financing to eligible veterans or their surviving spouses. VA now offers financing opportunities for Veterans in locations where financing was not readily available.

History of VA Loans

By guaranteeing mortgages, VA opened up lending in the rural communities that needed it most. The original Servicemen’s Readjustment Act was passed by Congress in 1944 and offered a variety of benefits to America’s veterans. One benefit was the authorization of VA to guarantee or insure home loans. By guaranteeing home loans, banks were not taking risks by offering 100% financing to eligible veterans. Having a common sense approach to underwriting, VA has the least amount of defaults out of all the offered loan programs. I personally attribute this to the sense of responsibility acquired as a member of the military and the great clients we get to work with.

Home Possible by Freddie Mac

This Freddie Mac loan program offers first-time buyer options with flexible credit underwriting. Home Possible provides help to low income borrowers and helps them realize the dream of owning a home.

Home Possible only requires a down payment of only 3 percent and has more options to responsibly increase homeownership for borrowers. handymen can use sweat equity to assist in meeting their down payment and closing costs. Co-borrowers who do not live in the home can be included for a borrower’s one-unit residence. First time home buyer applicants are permitted to own other properties with competitive pricing and the ease of a conventional mortgage.

Benefits of Home Possible

• Low Down Payment requirements
• flexible credit guidelines
• Creative sources for a down payment
• Cannot make more money than the median income limit for the area.
• Less strict on property condition as the program is technically a Conventional loan. 

to learn more about first time home buyer loans or no money down loans click here

Construction Lending in 2019

Understanding Construction Loans In 2019

Written By: Travis Carter: Construction Loans

Construction loans have grown in popularity due to inventory shortages across the country. Getting approved for a new construction home loan is easier than most banks make it seem.

Learn how to finance new construction with no money down and understand the credit requirements to get started.  There are some extra steps involved in new construction loans but with this knowledge, you can make the process easy. The reward of building your dream home far outweighs any challenges you will face during the construction process.

The Down Payment on Construction Loans

Contrary to popular belief, no money down construction loans is available. Not everyone will qualify for a no money down home loan but low down payment construction loans are also available.

Calculating the down payment amount on new construction requires knowing if you currently own the land, if you are buying new land, or if the land is being gifted to you by a friend or relative

This content is originally from plattsburghmortgage.com. to read the full context of the article, visit Plattsburgh Mortgage. 

Construction Loans

AS the housing market begins to improve, new homes are popping up again in prime areas. If lenders are staying away from speculative building projects, some are willing to finance new construction for buyers who put as little as 3.5% down.

Construction financing isn’t the type of loan one goes shopping for online; it is more likely to be found up the street. “The places that are offering construction financing are typically the credit unions and the regional banks,” said John Walsh, the president of Total Mortgage Services, a Milford, Conn., lender.

 

Local banks are more comfortable making home construction loans because they know the local market. But qualifying is more complicated than for a conventional mortgage. Borrowers have to do a lot more legwork ahead of time because, in addition to proving that they can afford the cost of the house, they must show that they have a viable project.

 

“People want to make sure they know what they need to do early in the process,” said Penn Johnson, the president of the Stamford Mortgage Company, a broker. “You can’t apply until after you have building plans, a construction contract and a cost estimate.” The cost of the land may be figured into the construction loan amount, if the borrower doesn’t already own the lot.

 

“People either pay cash for the land, or they contract to pay cash for the land when the project’s completed, or they pay it out of the construction loan,” said Debi Orr, an agent with Keller Williams Realty in Ridgefield, Conn. The down payment is figured as a percentage of the total cost of the project (land and construction costs).

 

Some lenders offer construction financing as a separate, short-term loan — usually no longer than a year. The borrower refinances into a permanent mortgage after the house is completed.

Increasingly, lenders are combining the two into a single 30-year loan, with a single closing, called construction-to-permanent financing. The streamlined loan process cuts down on closing costs, but some borrowers may prefer not to be locked in and to retain instead the flexibility to shop for mortgages.

That is because interest rates on construction-to-permanent loans are a little higher than on conventional mortgages.

“You might be paying an extra quarter to a half a percent above Fannie Mae” on such a loan, Mr. Johnson said, comparing that with “a 30-year fixed in the low 4 percent, and a 5-to-1 adjustable-rate mortgage at 3 percent.”

As funds are disbursed during construction, lenders charge the borrower only for interest on the amount owed.

 

 

 

 

 

Mortgage Rates Could Improve

MBS began today's session with solid gains, and the GDP report had little impact.

Third quarter GDP increased at a 2.0% annual rate, slightly above the consensus of 1.9%, and up from 1.3% in the second quarter. Many economists feel that a 2.0% growth rate is generally consistent with a steady labor market, but that a faster pace is necessary to see significant improvement. Consumer Sentiment rose to the highest level since September 2007.

This chart shows mortgage-backed securities (MBS) prices from Monday's market open until the time of this post. The vertical-axis reflects MBS prices as measured in basis points.

Falling MBS prices result in higher mortgage rates. Rising MBS prices result in lower mortgage rates. MBS pricing provided by MBSQuoteline.

FHA Mortgage VS Conventional Mortgage

FHA VS CONVENTIONAL FINANCING


Obtaining a mortgage in the post mortgage meltdown market can be a tedious chore. Through the challenges of strict documentation guidelines and credit requirements, ensuring that you are getting the right mortgage is often an after thought. If you are in the market to purchase or refinance a home, remember, thirty years is too long to have the wrong mortgage. So what is the right mortgage? Is FHA or Conventional financing the best option for me?

Today we will assume that a young couple has applied for a mortgage to purchase their first home. The credit is acceptable, (not great and not poor) and the clients have expressed that they have saved ten thousand dollars for the down payment on a new home. Immediately it becomes obvious that the client will need a program that requires a very small down payment. This is where most mortgage professionals start advising clients into the wrong program. The first program that the mortgage professional tends to recommend is going to be FHA financing. It is the best option for first time home buyers with little money down and has an exceptionally low interest rate. It cant be a bad loan, it is backed by the federal government... Right? Wrong. In some sense the mortgage professional is right. With FHA financing the client is going to receive the lowest possible interest rate in the market and the lowest interest rate is, after all, easy to "sell". But what the client may not want to hear, and the mortgage professional may be afraid to express, is that a higher interest rate program is available with lower monthly payments and a lower overall effective cost. The loan is commonly known as conventional financing.

FHA financing has become extremely popular post mortgage meltdown due to the lack of credit in private markets, but let's not forget what FHA financing truly is. It is a loan backed by the federal government to serve the under served. Far from the first choice for those trying to build wealth. FHA offers a low interest rate and the federal government is able to back ,or "guarantee" these loans through an insurance fund financed by a combination of the up front Mortgage Insurance Premium and a monthly Mortgage Insurance payment included in the monthly mortgage payment. Once the true cost of the loan is calculated the ever popular FHA loan loses its flavor. The current charge for the up front Mortgage Insurance Premium is currently 1.75% of the loan amount. On a $200,000 mortgage, this is equal to $3,500 up front in addition to the standard closing costs. That is a lot of money that could be used in a more beneficial form to buy down the interest rate on a conventional loan. I understand that some mortgage professionals will say that the fee can be financed. How can it be an issue, They say. I agree this does lower the dollar amount required from the borrower, but a fee is a fee and if financed over 30 years with interest, that fee becomes quite a bit more of a fee. In this example (Assuming 3.5% interest) the true cost of the MIP is $5,659.20. However, some clients just want to put as little money down as possible. This is where the value of the mortgage professional should shine through. Do not forget that we, as mortgage professionals, should be providing sound financial advice, not the easiest sale.

The second "gotcha" with an FHA mortgage is the monthly Mortgage Insurance requirement. The current Mortgage Insurance calculation is 1.25% a year if the borrower were to put the minimum 3.5% down. This is the most common scenario in FHA financing. On a $200,000 mortgage the Mortgage Insurance payment would be $208.33 in addition to the monthly mortgage payment. And lastly, we add the invisible third cost; tax implications. While mortgage interest is and should be tax deductible for the foreseeable future, as of January 1st 2012, Mortgage Insurance is not. Because of this new tax code, you will also pay more in annual taxes to the federal government if you choose an FHA mortgage as your path to home ownership. That low interest rate might not seem so low anymore. Now, lets look closely at the second option; Conventional Financing.

There is a common misconception that conventional financing requires a 20% down payment and a credit report made of platinum and Gold. While good credit is important, tighter lending guidelines have increased the need for a reasonable credit score with an FHA application as well, and if paired with a Private Monthly Mortgage Insurance Policy a down payment of only 5% is required. The difference between FHA's mortgage insurance and Private mortgage insurance? Private mortgage insurance is part of the open market and the competition from multiple MI companies drives down the cost compared to the FHA loan option. Previously we stated that the monthly Mortgage Insurance quote on a $200,000 FHA mortgage was approximately $200 a month. If you decided on a Conventional Loan, the monthly Mortgage Insurance would be $98.33 a month. Of course credit and other loan parameters do play into the insurance cost in a private market. The difference between the FHA and Conventional Mortgage Insurance is $101.67 a month. If you choose a conventional loan, slightly more money will be needed down as the maximum LTV (Loan to Value) is 95% vs 96.5% for FHA. That is 1.5 % Additional needed as a down payment, However, you are not financing the 1.75% required by FHA. Which do you think is best..paying an extra 1.75% as a fee financed with interest, or paying down your mortgage 1.5% to lower your loan amount and overall effective cost? Easy answer I know. Yet loan officers across the country still recommend FHA for the lower interest rate. So what does HUD do with all this money you ask?? Pay banks the lost money on forclosed FHA mortgages.

So how much higher is the interest rate on a conventional mortgage? Roughly .375% higher. To help put this into perspective, have a look at the numbers below.

FHA

Loan Amount - $200,000 Mortgage Pmt -$898.09 PMI Pmt -$208.33 Total Pmt - $1106.42

Conventional

Loan Amount - $200,000 Mortgage Pmt - $940.97 MI Pmt - $98.33 Total Pmt - $1039.30

The total difference between the two mortgage options is $67.12 or $24,163.20 over the life of the mortgage

Monthly Mortgage Insurance does not last forever. FHA MIP is canceled when the LTV reaches 78% and on Conventional Loans, 80% no matter how long you have paid monthly mortgage insurance. At the point of Mortgage Insurance elimination; the FHA mortgage does prevail due to the lower interest rate. But here is the catch; Because interest is front loaded on a mortgage, the 78% marker is typically not reached until the 10th yr of paying on a mortgage.

In summary; every individual client will have their individual needs but the most popular loan option does not always reflect the best option for you. While discussing loal with your mortgage professional, be sure to ask about Conventional financing and how it compares to the more popular Government backed loan programs. For more information or to contact me directly, please visit www.plattsburghmortgage.com

To learn more about FHA vs Conventional financing click here

Travis Carter
Sr Mortgage Consultant
Bridgeview Bank Mortgage Company