15
EZTHE WASHINGTON POST.
SATURDAY, OCTOBER 23, 2021if it participates in government-
insured loans.
Loans through the Federal
Housing Administration (FHA),
part of the Department of Hous-
ing and Urban Development
(HUD), require a m inimum down
payment of 3.5 percent, while the
average FHA loan down payment
is 4.4 percent. These loans are for
the borrower who is ready for ho-
meownership but may not have a
lot of cash available.
FHA loans are for p eople who
have been shut out of convention-
al housing loan requirements.
They either lack a c redit history or
have a low credit score, according
to the FHA. Other government-in-
sured loans include Department
of Veterans Affairs and Agricul-
ture Department home loans. For
VA loans, up to 100 percent financ-
ing is available.
A credit score of 580 or higher is
required for an FHA loan with a
minimum down payment of 3.5
percent, according to HUD. With a
credit score between 500 and 579,
the borrower would be limited to a
maximum loan-to-value ratio of
90 percent, and a 10 percent down
payment w ould be required. Loan-
to-value ratio compares the
amount of your mortgage with the
appraised value of the home.
FHA loans require an upfront
mortgage insurance premium of
1.75 percent of the loan balance as
well as 0.45 percent to 1.05 percent
of the loan amount each year,
based on amount borrowed, loan-
to-value ratio and loan term.
Mortgage insurance is required
on loans for which the down pay-
ment is less than 20 percent of thehome’s appraised value.
An option, experts s ay, is to wait
longer to buy and save more for
the down payment.Government-sponsored loans
If you have good credit — 680 or
higher — government-sponsored
enterprise loans offered by Fannie
Mae (Federal National Mortgage
Association) and Freddie Mac
(Federal Home Loan Mortgage
Co rp.) are an option. “ The differ-
ence between FHA and these
loans is the credit score thresh-
old,” Goldstein says.
An example is the
FannieMae97, which requires just
a 3 percent down payment. An-
other type is the Freddie Mac
Home Possible, which also re-
quires at least 3 percent down.
Fannie Mae HomeReady and
Freddie Mac Home Possible loans’
eligibility requirements are based
on your income and where you
live.Down payment assistance
Some buyers still may feel that a
3 percent down payment is out of
their reach, and may need assis-
tance raising it. For instance, buy-
ing a $300,000 home through the
Fannie Mae HomeReady and the
Freddie Mac Home Possible pro-
grams would require a $9,000
down payment. (The Fannie
Mae97 standard product does not
allow for down payment assis-
tance.)
Some banks such as Bank of
America and Sandy Spring Bank
offer down payment assistance.
For example, Sandy Spring Bank
has the Closing the Gap DownPayment Assistance Program,
which can be used with Fannie
Mae Home Ready and Freddie
Mac Home Possible mortgages.
In the example above, borrow-
ers may qualify to borrow the
$9,000 down payment enabling
them to obtain 100 percent financ-
ing for their home purchase. “The
important thing is talking to lend-
ers,” Hollensteiner says. “Familiar-
ize yourself with all the programs.
There’s a l ot of ways for prospec-
tive first-time home buyers to fi-
nance a property.”
In addition, you might be able
to get the seller to pay some or all
of the closing costs or obtain lend-
er credits to cover some or all of
the closing costs, he says.State assis tance programs
In addition to bank and non-
bank down payment assistance,
there are state down payment as-
sistance programs to consider.
Some are grants that don’t have to
be paid back ever or as long as you
own or occupy your home for a
required period of time. The most
common are second mortgage
loans from state and local govern-
ments, and have low or zero inter-
est rates. The payments can be
deferred or the loan is even forgiv-
en over time.
Down payment assistance pro-
grams are available in every state
at the HUD website. For example,
in D.C., there are options through
DC Open Doors; in Maryland,
Maryland Mortgage Program
(MMP); and in Virginia, Virginia
Housing.
DC Open Doors offers qualified
buyers home purchase loans aswell as down payment and closing
cost assistance. For the MMP,
home buyers need to be at or be-
low certain household income
limits, which vary by location and
household size. Virginia Housing
assists with homeownership, for
example, through its Virginia
Housing Loan Combo, which in-
cludes a down payment gr ant, a
federal tax credit and a free home
buyer class.
HSH.com has a database of fi-
nancial assistance programs
throughout the country. Down
Payment Resource is another site
offering helpful information.Homeownership counseling
Homeownership counseling
can educate first-time buyers of
the requirements of purchasing a
home.
“A lot of programs have a pre-
closing educational requirement,”
says Hollensteiner.
“Before you go to se ttlement,
before you sign all the papers, you
have to provide proof that you
have met the requirements, that
you understand the responsibili-
ties” and potential difficulties of
homeownership, he says.
The goal is to “reduce the rate of
foreclosure in the future and to
educate about what they’re about
to go into,” s ays Kathleen M. Koch,
executive director of Arundel
Community Development Ser-
vices, a n onprofit in Annapolis.
To find a HUD-approved hous-
ing counseling agency in your
area, call 1-800-569-4287 or visit a
list of agencies at the HUD web-
site.
[email protected]The Home You Own
BY HARRIET EDLESON
If you’ve been longing to buy
your first home, it might be the
right time to make a move as
mortgage rates are among the
lowest ever.
Yet you might think you can’t
afford the down payment or clos-
ing costs. After all, many people
believe you need 20 percent to buy
a house. While that amount is
preferable, there are many pro-
grams offering financial assis-
tance to first-time buyers and
mortgages requiring as little as 3
percent down.
“ If you’re nowhere close [to 20
percent] you may think you’ll nev-
er be able to do it,” s ays M alcolm
Hollensteiner, head of mortgage
production at Sandy Spring Bank,
headquartered in Olney. Yet mort-
gage lenders “can unlock the t reas-
ure chest of all these programs
designed to make home loans af-
fordable.”
Here’s what you need to know
before going shopping for a l oan.
Get prequalified
Buying your first home can be
exciting but requires planning
and a precise understanding of
your entire financial situation:
What is your monthly debt-to-in-
come ratio — that is what are your
monthly expenses compared with
monthly income? What does your
credit report look like? Credit
scores are based on data in your
credit reports from the three cred-
it reporting agencies: Experian,
Equifax and TransUnion.
Before you even start looking
online for homes, figure out what
you can afford. “The important
thing is talking to lenders,” Hollen-
steiner says. “There’s a l ot of ways
for prospective first-time home
buyers to finance a property.”
Lenders can give you a preap-
proval le tter before you begin
shopping in person.
Amy Goldstein, vice president,
BMIC Mortgage in Rockville, ad-
vises future borrowers on the rule
of twos:
l Two years of W-2s or 1099s or
two years of tax returns;
l The last two months of bank
statements verifying your assets;
l Two pay stubs, equaling 30
days of income.
A preapproval letter, she says, is
“like the golden ticket to go and
look.” Know exactly what you can
afford.
Here’s a l ook at several pro-
grams that can help you get a low
down payment mortgage.
Government-insured loans
These loans are available from
bank, non-bank and credit union
lenders. Check with a lender to see
Finding a down payment mortgage that fits your finances
WASHINGTON POST ILLUSTRATION/ISTOCKMany buyers believe they need to put down 20 percent to buy a h ouse, but there are programs offerin g assis tance to first-time buyers and
mortgages requiring as little as 3 percent down.