no money down

58 Real Estate & Finance No Money Down No More A Series on the Keys to Home Ownership by Frank Demarais and Lewis Smith “N o-money-down” borrowing, also known as 100 percent loan-to-value loans, became the standard way that a majority of first-time homebuyers financed their homes in the last five years. Many buyers qualified for mortgages that required only $500 of their own money with the rest of the down payment and closing costs coming from mortgages, grants or seller-paid closing costs. The era of no-money-down borrowing has ended. Reacting to the mortgage industry crisis caused by increasing defaults across the country, especially on subprime loans, and widespread home price declines, most lenders have discontinued 100 percent financing. Lenders have begun requiring a minimum 5 percent down payment from the borrower’s own funds in areas with home price declines, such as the Washington, DC, metropolitan area. Federal government data indicates home prices in the DC market fell an average 2 percent in 2007 versus 2006, qualifying the area as a “declining value” and “distressed” market. A 5 percent down payment means that the buyer of a $250,000 home has to put $12,500 down from their own funds. For current DC residents who are first-time buyers, the District government’s Home Purchase Assistance Program (HPAP) second mortgage can cover this requirement, lending up to $70,000 depending on a family’s income and household size. However, if the HPAP loan and the purchaser’s contribution to the down payment from their own funds isn’t at least 20 percent of the purchase price ($50,000 on a $250,000 property) the buyer will need mortgage insurance, often called MI or PMI. Effective March 10, due to mortgage insurance company changes, most all lenders began requiring that purchasers in the DC area who were obtaining mortgages greater than 80 percent of the purchase price had to pay at least 5 percent of the purchase price toward the down payment from their own funds. HPAP funds cannot cover this. Even if the HPAP second mortgage is 20 percent of the purchase price so that no PMI is required, some lenders now will not allow HPAP to provide additional funds to pay closing costs, capping the first mortgage and the HPAP second mortgage at the amount of the purchase price. Thus the buyer has to come up with the closing costs, which can be as much as 3 percent of the sales price, or $7,500 on a $250,000 home. Property sellers, lenders, nonprofit organizations and government programs can sometimes pay part or all of the closing costs. What does all this mean for new homebuyers and existing homeowners? While some lenders may still offer 100 percent loans or combinations of two loans, for example an 80 percent first mortgage and a 20 percent second mortgage, these loans have become more expensive and more difficult to qualify for, requiring higher credit scores or more money in the bank in reserves. One significant opportunity for help will come from the Federal Housing Administration (FHA) loan program that currently requires 2.25 percent down payment, but which Congress has proposed reducing to a zero percent down payment. Final action on the “FHA Modernization” bill is expected as early as April, with loan availability a couple of months after the law changes. Homebuyers should shop around for their best alternatives and recognize that the loan terms offered today may no longer be available in a few weeks or months. Buyers will have to look for ways to come up with the down payment and closing cost funds. Sources include savings, gifts from family and borrowing from retirement accounts although the latter should be only a last resort. Current DC residents should explore the HPAP program by contacting one of the community-based organizations listed below which serve as HPAP intake centers. These organizations will help buyers find out how much they might qualify for on an HPAP second mortgage and the steps in the application process. Home sellers need to understand the limitations on down payment and closing cost assistance available for buyers and think creatively about pricing their homes to allow sellers to assist buyers with closing costs. Most loan programs allow the seller to pay closing costs up to 3 percent of the purchase price. Recent mortgage loan program changes mean that buyers preapproved last year may have trouble being approved for the same loan this year, so making a purchase or sale subject to a loan approval takes on new importance for both buyers and sellers. Community-Based Organizations for HPAP Intake Call Housing Counseling Services, 2410 17th St. NW, 202-667-7006; Latino Economic Development Corporation, 2316 18th St. NW, 202-5885102; Lydia’s House, 3939 South Capitol St. SW, 202 373-1050; Marshall Heights Community Development Organization, 3939 Benning Road NE, 202 396-1200; or University Legal Services, 220 I St. NE, 202-547-4747 and at 3220 Pennsylvania Ave. SE #4, 202-581-0600. Frank Demarais and Lewis Smith work for Manna Mortgage, DC’s only nonprofit mortgage company, located at 828 Evarts St. NE, and part of the Manna Inc. organization. Phone: 202-832-1845 or e-mail: fdemarais@ mannadc.org or lsmith@mannadc.org. ◆ East of the River | April 2008 enables your family and friends to convert some of their home’s equity into extra money they can use any way they choose. If they are at least 62 years old, own their home outright or even if they have a moderate remaining mortgage loan balance, our Reverse Mortgage Program FINe ArT FINIShES Hand Painted Finishes for Walls and Furniture Wall Glazing • Faux Finishing • Murals Kid’s Rooms • Painted Furniture Trompe L’oiel • Gold Leaf A Full Service Decorative Arts Studio Located on Capitol Hill Since 1996 FHA -HUD Regulated and Insured Reverse Mortgage can offer many benefits: • tax free • does not affect Social Security, pension or Medicare benefits1 • receive funds as a lump sum, in monthly installments, or as a line of credit • Never give up title • Never make mortgage payments • Never owe more than estate is worth • No repayment until the last homeowner moves, sells or the home passes into the estate 202.544.3142 www.fine-art-finishes.com I am a reverse mortgage specialist ready to answer any questions you may have and meet with you at your convenience. I look forward to hearing from you! Warmest regards p.s. I guided my mother through her Reverse Mortgage. Cooking Up a Deal! To HILL with the Suburbs! Licensed in DC & MD Novell B. Sullivan Reverse Mortgage Specialist Prosperity Mortgage 2601 Connecticut Avenue NW Washington, DC 20008 1 TheSmithTeam@comcast.net Direct: 202-238-2888 Cell: 202-253-1193 Office: 202-483-6300 Fax: 202-483-8876 The Smith Team Realtors John Smith 202-262-6037 202-243-7929 Aaron Smith Peter Grimm Ernest Antignani 202-543-8408 202-498-6794 (C.) 202-270-6368 202-243-7913 202-243-7907 (O.) 202-243-7953 216 7th Street, SE Washington, DC Loan proceeds are not considered reportable income and will not affect Social Security or Medicare benefits. Your monthly reverse mortgage advances may affect your eligibility for some need based programs. You may want to consult your attorney to determine how, or if, monthly reverse mortgage payments might affect your specific situation. 2Homeowner may select any combination of payment plans and change them as needed. capitalcommunitynews.com ★ 59