By Celeste M. Smucker –
Buying a home can definitely enhance a family’s long-term financial security. Yet often buyers continue to rent, believing they have to save a large down payment in order to qualify for a mortgage. The good news is there are many sources of down payment assistance for eligible buyers, and a surprising number of options in the way of 100 percent financing.
Sources of Help
Most buyers today surf the net to learn about qualifying for a mortgage. For those who need down payment assistance, one reliable place to start is called Down Payment Resource (downpaymentresource.com) where they will find information about a surprising number of options.
An informative video at the site explains that there are “a ton of opportunities out there,” of which 36 percent are not just for first timers.
Buyers can also peruse the sites for VHDA (Virginia Housing Development Authority) and Piedmont Housing Alliance (PHA), a local non-profit with a mission to “create housing opportunities and build community through education, lending and development.” Homebuyers can access PHA’s counseling program to determine their eligibility for the organization’s down payment and closing cost assistance programs.
Unfortunately, while the internet is a good place to start, don’t believe everything you read as there is a lot of misleading or downright incorrect information out there. Which is why contacting your local lender is also a great idea.
Andy Zemon with Waterstone Mortgage Corporation in Charlottesville urges buyers to do so as soon as they know they want to buy, which could be as early as when they sign a year’s lease on an apartment.
Not only does this kind of lead time give them a chance to correct any credit issues, but they may be surprised at the resources available from home buyer counseling to down payment and closing cost assistance.
Zero Down Programs
You may believe that zero down programs disappeared with the recent market downturn and the tightening of credit requirements. Like other rumors about this industry, that one is also false.
There are a number of 100 percent loan options, Zemon said, including alternatives for buyers with at least a 620 credit score. In fact, there are alternatives that “can be used for first time buyers, multiple home owners and anywhere in between,” he added.
One example, the Wealth Building Loan, is a zero down option available only through Zemon’s company. This adjustable rate loan has a fixed rate for the first seven years. Adjustments in the rate after that time are “designed to keep payments consistent with a 1 percent annual income increase.” The loan is also designed to facilitate faster building of home equity, and there is no prepayment penalty if for some reason the borrowers elect to refinance.
Fulton Mortgage offers a program called Homebuyer Advantage Plus that features 97 percent financing explained Mortgage Loan Officer, Julia Morris. However, buyers can combine it with down payment assistance plans or help from sellers up to a total of 105 percent of the home price.
Borrowers will also be happy to learn that there is no mortgage insurance on this loan, which means lower monthly payments. Home buyer education is required.
Still another 100 percent loan comes from USDA, and is called the Rural Housing Service Loan. This loan is for rural properties, which means if your dream house is in Belmont you’ll have to find another type of financing. However, you may be surprised at the close-in neighborhoods that are USDA loan eligible. Contact your lender for information about qualifying areas.
Other 100 percent financing is available for special borrowers such as veterans. There are also “physician, dentist, and veterinarian programs [offering] up to 100 percent financing with no mortgage insurance,” Zemon said.
Down Payment Grants
VHDA was created by the General Assembly in 1972 and works in partnership with local governments, community organizations, lenders and others to provide financing for affordable housing throughout the Commonwealth.
One way they can help is through Down Payment Assistance (DPA) grants available to first time buyers defined as those who “have not owned and occupied a primary residence in the last three years.” The minimum credit score to receive the grant is 620 and the maximum grant amount is 2-2.5 percent of the home’s purchase price. Buyers must occupy the home for at least a year.
The DPA is a genuine grant, which means it does not have to be repaid. You must meet a number of requirements to qualify. To determine if you are a candidate talk to your lender or a counselor at PHA for more information.
Mortgage Credit Certificates
Eligible first time homebuyers can also make use of another VHDA benefit: a Mortgage Credit Certificate or MCC.
The MCC allows qualifying recipients to receive a tax credit (better than a deduction) every year they live in their home, in the amount of 20 percent of their mortgage interest paid.
If their annual mortgage interest paid is $10 thousand they can subtract 20 percent (or $2 thousand) from their total tax liability. They can still use the remaining $8 thousand in interest paid as a deduction. For advice on whether this program will benefit you contact your tax advisor.
The credit can be used annually as long as the buyers remain in the home. Income and loan limits apply, so talk to your lender about qualifying for this amazing first time homeowner benefit.
If you dream about being a home owner, contact your local lender or PHA about down payment assistance and zero down loans. With this kind of support available, you will be living in your dream home before you know it.
Celeste Smucker is a writer and blogger who lives near Charlottesville.