Is the mortgage market making a U Turn?
A few years back, there were several 100% or no money down financing programs available. Many were quite dangerous, had adjustable rates or negative amortization and were a major contributor to the housing crisis. The 3 programs I will examine in this article are all 30 year fixed rate programs and much safer. One is from a local bank, one from the Virginia Housing Development Authority (VHDA) and one is from a credit union.
They are safe but not for everyone
Now even though these are fixed rate loans and don’t carry the problems associated with subprime, adjustable mortgages, there are risks and you need to carefully think through various scenarios to make sure this is a good option for you. The most important question to ask yourself is how long you think you will own the home. If you see a potential job transfer in the near future or a major life change that will require a move, this may not be the way to go.
The value of a home when you go to sell has nothing to do with the underlying mortgage – the market is the market. So if a home goes up in value, great, no issue on any type of loan. But if you need to sell and the home has not appreciated or – gasp – gone down in value and you have a mortgage balance close to the original purchase price, the only way for you to sell is to bring cash to the table.
I trust in the real estate market in Northern Virginia over the long run but in the short run, one never knows what cycle we will be in. So, unless you see yourself holding on to the property for many years, I would suggest thinking hard before moving down this path. (Note, I said holding on to the property. You could turn it into a rental after living there for some time)
Okay, so you think this may work for you. Here is a summary of 3 great programs.
The BB&T CHIP Program
This program is open to anyone who does not currently own a home or land NOT just first time buyers. There are income limits. In Fairfax County, to get 100% financing, the maximum household income can not exceed $84,800. (If your household income is between $84,800 and $106,100 you can use this program with 3% down.) The maximum purchase price is $417,000. And this is the absolute best part of the program – no PMI! Now the rate is roughly 1/4% higher than a “normal” rate but if you do the math, you quickly see that the small bump in rate is significantly less on a monthly basis than PMI.
The VHDA FHA Plus Program
This program is open only to first time homebuyers defined as someone who has not owned a home in the last 3 years. The income limits for this program are $120,900 for a household of 1 or 2 and $140,000 for households of 3 or more. The maximum purchase price is $450,000. In essence, this is two loans. The first is a standard FHA loan and is for 96.5% of the purchase price. VHDA then provides a 2nd loan for 3.5% of the purchase price. More info at VHDA FHA Plus
The Navy Federal Homebuyers Choice Program.
This program is open to first time homebuyers defined as someone who has not owned a home in the last 3 years. For this program there are no income limits and they will do 100% financing up $1,000,000. There is no PMI but the rate is between 3/8 and 1/2 higher than the “normal” rate and there is a 1% point loan origination fee which can waived for another 1/4 increase in the interest rate. More info at Navy Federal Homebuyers Choice
There are other 100% programs. Of course, VA loans have been around for some time and there are other local lenders that have unique 100% programs. And some local governments, like the City of Alexandria, have an absolutely wonderful 100% program for City residents who are of moderate income.
Give me a call if any of these make sense. I will put you in touch with a loan officer who will be able to give you more intimate details of the program best for you.
Photo Credit: Scottchan
