No Money Down MORTGAGE
TABLE OF CONTENTS About the No Money Down Mortgage Program
3
Overview
3
Barriers and how Blue is helping
4
Pledger Information
5
Details of the Term Share
6
Performance projection, risk, and example
7
Borrower Information Qualifications of Borrowers
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OVERVIEW No required down payment. Member pledges. Blue connects and protects.
Why did Blue create this program?
Blue Federal Credit Union is launching a limited pilot to evaluate the willingness of members to buy share certificates which are pledged as collateral for pooled mortgages requiring no down payment. With a limited number of mortgage candidates in the pilot, we expect to learn about the level of demand both for the mortgage product and for the pledged share certificate. Additionally, we will evaluate the administrative requirements necessary to manage the portfolio.
As a community focused organization, Blue wants to ensure that members of our communities can realize the ultimate American dream of homeownership. With rising home prices, people who otherwise could afford a home (mortgage payments, insurance, and taxes) sometimes have a hard time saving up for a 20% down payment. With this program, the down payment requirement can be waived while also providing pledgers with an incredible interest rate on their pledged funds. It’s a win-win for everyone!
Offer not valid for employees or volunteers of Blue Federal Credit Union. Loan amount may not exceed the conforming loan limit. Insured by NCUA. An equal housing lender.
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THE BARRIERS OUR COMMUNITY MEMBERS FACE
Rising Home Prices
Rising home prices have negatively impacted the availability of housing for Blue’s members and the communities in which Blue operates.
Saving Isn’t Enough
Salaries and wages often are not sufficient to establish savings toward a 20% down payment that is commensurate with current home prices.
Mortgage Insurance
Typical mortgage insurance premiums increase the monthly obligations of borrowers, reducing their borrowing capacity and further limiting homeownership.
WHAT BLUE CAN DO
Social Impact
Members and employees want Blue to become a “community connector”. In this respect, we will offer term share certificates that directly address the problem of housing affordability.
Dedicated Support
A dedicated group of Blue employees will be paired with borrowers in the Community Mortgage pilot –monitoring spending trends and helping members make good financial decisions.
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Credit & Underwriting
Credit and underwriting standards will remain conservative, except for the allowance of up to 100% LTV, which is necessary to address rising home prices and limited home-ownership.
PLEDGER INFORMATION
LET’S BREAK IT DOWN FROM A FINANCIAL PERSPECTIVE For a pledger, this program works like a typical term share (also known as a CD) account. A pledger will deposit their desired funds into a 5-year term share. Those funds will be pooled with other pledgers and used to help secure the mortgages made under this program. Pledgers are rewarded for using their funds for good by being offered a rate that adjusts monthly based on the Prime Rate minus 1.25%. While this program is like a regular term share, there are some very important differences: •
Slightly Increased Risk • While your money will remain federally insured according to NCUA guidelines, pledgers are subject to a slightly increased risk in the unlikely event the mortgage is defaulted on. • To reduce this risk even further, Blue has made the decision to cover 80% of any loss that occurs on the mortgage. The remaining 20% of the loss will be proportionality divided up among the pledgers.
•
Inability to Remove Funds Early • Because the money that is deposited will be pledged to cover a down payment on a home, there will not be an option to remove the funds before the maturity of the full 5-year term.
Insured by NCUA. An equal housing lender.
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For example
If Prime rate increases to 4.00%, your rate will automatically adjust to 2.75% APY* *Annual Percentage Yield
Why should members become a pledger?
At the heart of this program, Blue wants to help people in our communities. Pledgers will be helping fellow members in our communities realize their dream of homeownership.
NO MONEY DOWN MORTGAGE PERFORMANCE PROJECTION Estimated Number of Mortgages in Pool
10
Aggregate Loan Amount
$2,764,300.00
Aggregate Loan to Value (At origination)
97.59%
Aggregate Loan to Value (Current) as of 06/30/2022
96.98%
Aggregate Credit Score (Average of all borrowers in Pool) Aggregate Debt to Income
758 34.60%
Number of Mortgage Payments Made
47
Number of Delinquencies - 30/60/90 (snapshot from summary date)
0
Delinquency Ratio
N/A
Total Pledged Amount (Intended Pledge Amount - initial offering)
$552,860
Above chart is a hypothetical example for illustration purposes only.
Before obtaining a No Money Down Mortgage Certificate, you should: Have sufficient knowledge and experience to evaluate (either alone or with the help of a financial or legal advisor) the merits and risks of the certificates being offered as well as the information contained in this document;
Be able to evaluate (either alone or with the help of a financial or legal advisor) the economic, interest rate and other factors that may affect this certificate;
Have sufficient financial resources and liquidity to bear all risks associated with the certificates and;
Understand thoroughly the terms of the certificates.
This certificate may not be a suitable financial instrument for you. These certificates have additional requirements in comparison to other term share certificates. They are not a suitable financial instrument for everyone.
You should exercise particular caution if your circumstances may not permit you to hold the certificates until maturity.
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WHAT DO THE NUMBERS SAY? As an example, if a $400,000 mortgage balance defaults into foreclosure and the home is sold for $380,000 (net of legal fees and other costs of foreclosure), the $20,000 shortfall will be handled as follows: $16,000 (80% x $20,000) will be covered by Blue FCU. $4,000 (20%x $20,000) will be covered by the community of members who have pledged their share certificates.
At a glance, breakdown of the example and pledge share risk. after $20,000 shortfall foreclosure/sale of loss covered by Blue $16,000 80% covered by community pledge shares $4,000 20%
In the above example, $4,000 would be deducted from the community of pledged funds. The deduction would be applied to an individual member directly proportional to the amount of their pledged funds as a percentage of total funds pledged into the program. If there is $800,000 pledged into the program by members of Blue FCU, in aggregate, then if one member pledged a $10,000 share certificate into the program, their pledged funds represent 1.25% of the total pledged funds in the program ($10,000 / $800,000 = 1.25%).
The $4,000 loss from the above default/foreclosure example would translate into a $50.00 loss for a member who pledged their $10,000 share certificate into the program.
Similarly, for a member who pledges a $100,000 share certificate, the $4,000 loss from the above default/foreclosure example would translate into a $500.00 loss because their pledge of $100,000 into the program represents 12.50% of the total $800,000 that was pledged into the program.
Insured by NCUA. An equal housing lender.
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BORROWER INFORMATION
QUALIFICATIONS FOR PROGRAM BORROWERS Credit
• Minimum Credit score is 730 •
Qualifying credit score is determined by pulling all 3 credit bureaus for borrower and using the middle score. If more than one applicant is on loan, the borrower with the lower middle score is used to determine qualification and rate.
• Minimum of 3 trade lines with at least 24-month trade history (excluding authorized user and student loan tradelines) • Credit must contain no Charge-offs and non-medical collections over $500 within last 3 years • No Bankruptcy or Foreclosure in the last 7 years • Unless otherwise noted, loans are written to meet Fannie Mae guidelines
Important Note for Borrowers: Program Interest Rate • Interest Rate will have 0.375% added to borrower’s qualifying rate due to 100% financing and no PMI
Assets/Down Payment
• Borrowers are not required to provide down payment. Members with capacity to pay 10.00% or more for down payment will not be eligible. Loan is 100% financing of the purchase price. However: •
•
Borrowers will need funds for Earnest Money (deposit). This is typically between $2,000 $5,000 that is paid within 3 days of their offer being accepted and they go under contract. This amount eventually goes towards closing costs at closing. Borrowers will still need to pay closing costs out of pocket on day of closing. These are costs such as Appraisal, Processing/ Origination fees, Title Insurance and setting up and initial Escrow (taxes and insurance) account. This amount will be determined by purchase price, taxes, insurance, and appraisal costs. Earnest Money deposit will be credited towards these costs.
• No Private Mortgage Insurance will be required for loan. Resulting in lower overall payment for borrower, more money going towards principal balance and a faster building of equity in home. • 2 Months of Bank Statements will be collected to verify assets for Closing Costs • Borrowers will receive a discount on Origination fee of 0.25%. (0.75% fee vs 1.00% fee)
Offer not valid for employees or volunteers of Blue Federal Credit Union. Loan amount may not exceed the conforming loan limit.
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QUALIFICATIONS CONTINUED Income/Debt-To-Income (DTI)
• Borrowers must report work history of at least 2 years • Salaried/Hourly Employee – 30 days of pay stubs and most recent W2 • •
Bonus and overtime can only be used if borrower can show 2-year history Second Job income can only be used if borrower can show 2-year history
• Self-Employed and Contract (1099) borrowers - 2 most recent years tax returns • Total DTI Maximums (32% Housing/40% Total) • •
Housing DTI = Mortgage plus escrow/ Gross Income Total DTI = All debt payments/Gross Income
Qualifying Property
• Single Family Home, Townhome, Condo in Colorado or Wyoming •
Ineligible properties • Manufactured homes built prior to July 1976 • Mobile Homes • Land purchase
• Full Appraisal will be required for loan approval and Value must be equal to or greater than purchase price. • Escrows (taxes and insurance) must be collected with mortgage payment • Mortgage will be 30-year term (shorter terms will be evaluated on case-by-case basis)
Homeowner Education Course and Ongoing Education
• All borrowers will be required to complete Online Homeownership educational course and provide certificate of completion prior to approval of loan. Borrowers have a choice between 2 online courses and are responsible for paying course fees.
Fannie Mae Framework educate.frameworkhomeownership.org eHomeAmerica www.ehomeamerica.org • Blue will be contacting borrowers monthly after completion of loan for follow up and to ensure timely payments and mortgage are in good standing.
Insured by NCUA. An equal housing lender.
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No Money Down MORTGAGE
Interested? Visit bluefcu.com/nomoneydownmortgage
