Real Estate Questions and Advice

Question:

Home prices in our area have fallen a bit. Unfortunately, after the huge increases seen during the past few years, you still need a lot of cash for a down payment and closing costs. Instead of needing a lot of up-front cash, is it still possible to purchase with no money down?

Answer: ere are several basic ways to buy with no-money-down, including VA and USDA mortgages as well as financing that includes a gift or grant.

In each case the borrower must meet special underwriting standards. For instance, borrowers must have qualifying-federal service to obtain VA financing. To get a USDA mortgage the property must be in an eligible rural area, and while a gift or grant can offset down payment costs not everyone has access to such funds.

While financing with nothing down is enticing, some caution is in order. Although a loan with no money down can substantially lower closing costs, it also means the mortgage debt is larger. As a result, there will be bigger monthly payments and – for some borrowers – less ability to qualify, especially if they have a debt-to-income ratio (DTI) that exceeds program limits.

Now, however, there is something new that may help many borrowers.

According to the Urban Institute, banks are offering Special Purpose Credit Programs (SPCPs), loans with nothing down. Such financing is available to those “who have suffered economic disadvantage and share common characteristics.” In effect, SPCPs are designed to help individuals hurt by discrimination on the basis of such factors as race and income.

“SPCPs,” said the Institute, “could offer homeownership supports such as down payment assistance, income restriction exceptions, home rehabilitation loans and streamlined refinance loans in addition to flexible underwriting standards and breaks on loan-level pricing.” e Community Affordable Loan Solution from Bank of America is a “Special Purpose Credit Program which uses credit guidelines based on factors such as timely rent, utility bill, phone and auto

SPCP programs can be targeted by location to encourage development in areas which have been redlined; that is, communities where loans were historically withheld from qualified borrowers on the basis of race and other factors.

At this writing, a number of major banks offer SPCP programs.

Ask Our Broker

By Peter G. Miller

insurance payments. It requires no mortgage insurance or minimum credit score. Individual eligibility is based on income and home location. Anyone from any race or ethnicity is welcome to apply.”

Chase Home Lending, part of JPMorgan Chase, offers qualified buyers a $5,000 closing credit plus an additional $500 for those who take approved homeownership education programs. e “DreaMaker” mortgage is available in 6,700 communities nationwide.

TD Home Access Mortgage, from TD Bank, says it “provides prospective buyers with an affordable mortgage option, including a $5,000 lender credit which does not require repayment, that borrowers can use for closing costs or toward a down payment on a home purchase. It also offers more flexibility with a greater debt-to-income (DTI) ratio and expanded underwriting requirements, as well as credit parameters that increase accessibility.”

In effect, a $5,000 lender credit is similar to a grant in the sense that it does not have to be repaid and does not increase monthly mortgage costs.

To find out more, and to locate additional SPCP programs, speak with local real estate brokers and mortgage loan officers.

Email your real estate questions to Mr. Miller at peter@ctwfeatures.com.

Marilyn Kennedy Melia

Applying for a mortgage is like taking a test you need to pass to graduate. Except instead of a diploma, the prize is a home of your own.

e “pass” rate on mortgage approval, though, is surprisingly low. Surveying 4,900 buyers, the Zillow Consumer Housing Trends Report 2022 finds that in 2022, 28 percent of applicants were denied a mortgage, down from 34 percent in 2021.

Often, denial comes as a surprise since the home buyer first received a nod in the form of a “pre-approval.” Before home shopping, real estate agents typically require buyers to have a pre-approval.

Staying Credit Worthy

A lender verifies applicants’ credit, income, savings for a down payment and current monthly debt load before issuing them a pre-approval for a certain size loan. If a borrower increases his debt, or otherwise alters his financial status after pre-approval, he could be rejected when he actually applies to buy a certain home, says Charles Chedester of Midwest Family Lending in Urbandale, IA.

Understanding Terms

Make sure a lender clearly outlines what financial changes can negate a