Around Waynedale, people often keep a few stray singles in their pocket. After all, they might want to pick up a fried tenderloin sandwich at a church fundraiser or toss some money into a collection can at a business to help a resident fight cancer.Fort Wayne real estate broker/associate Rena Black says it happens all the time.
A young couple, with good jobs and decent credit, want to buy their first house. But they don’t have enough money for a down payment. So they think they’re out of luck.
After all, in these post-mortgage meltdown days, don’t skittish lenders want 20 percent of a home’s sale price down before they’ll even offer financing?
Not by a long shot, she says.
“We keep hearing that in the national news reports – that since the credit crisis, you need 20 percent down. I have yet to have a client required to put 20 percent down,” Black says.
Indeed, area real estate experts say, no- or low-down-payment loans, though not as prevalent as in the past, are still available to Fort Wayne-area buyers.
Black says many of her clients are now using Federal Housing Administration loans that require only 3.5 percent down – and contain a provision that allows close relatives to provide the money as a gift.
So, she says, if you buy a $100,000 home in Fort Wayne – slightly above the $95,000 midpoint of all 2011 home sales through the end of November – you need $3,500 down. And that money can come from parents, in-laws, siblings, a stepparent, grandparents or even an aunt or uncle.
“A young couple may not have $3,500 saved up, but for Mom and Dad, that $3,500 may not seem like a lot of money,” says Cindy Maguire, senior mortgage loan specialist with Ruoff Mortgage in Fort Wayne.
“If a borrower has a family member willing to gift it to them, it’s a great way to get into a house.”
Black, affiliated with REMAX Home Connection in Fort Wayne, says to use the FHA provisions, which have no income limits, a prospective buyer must secure a letter from the relatives stating they don’t expect repayment.
FHA loans can be used to buy houses priced up to $200,000 in Allen County, she says; other area counties have slightly different price limits.
What’s more, Black adds, buyers providing the right offer often can persuade sellers to provide closing and prepaid costs, such as escrowed taxes and insurance, so the buyers need very little up front to make the purchase. What’s no longer allowed, she says, is for sellers to contribute to the buyers’ down payment.
But getting a gift is just one strategy for those who are short of down-payment cash.
Veterans, real estate agents say, can use zero-down loans available through the U.S. Department of Veterans Affairs. And those buying houses in areas outside the city – including the Leo/Grabill/Harlan area, Huntertown, Monroeville, Auburn, Huntington County and the Churubusco area – may qualify for zero-down loans offered through the U.S. Department of Agriculture.
Like with veterans’ loans, there’s no limit on a house’s price for a USDA loan, designed to spur housing development in rural areas. Buyers qualify for loan amounts based on their individual financial picture and there are income limits based on family size: $49,950 for singles and $56,600 for couples, says Laura Horacek, president of Metro Mortgage and Insurance Solutions in Fort Wayne.
Horacek says conventional mortgage loans with a down payment as low as 3 percent or 5 percent still exist, if the borrower has excellent or very good credit and is willing to pay mortgage insurance.
Two other kinds of transactions involve having a non-occupant co-borrower provide the down payment or to buy a home on land contract. But, real estate experts say both carry more risks.
In the first case, the non-occupant co-borrower cosigns the mortgage but his or her name is not on the deed, and the occupant is responsible for paying the mortgage. The risk comes if the occupant doesn’t pay. The lender can foreclose on the house in which the co-borrower has invested if he or she can’t come up with the money.
“It’s a wonderful idea to be nice, but keep in mind you are legally responsible for that (mortgage) debt, so before you sign, make sure you’re willing and able to step up if you have to,” Black says.
Those who buy a home on a land contract get a specified number of years to come up with financing. Land contracts provide time for a borrower to get on a firmer financial footing – say, after a divorce, job loss or foreclosure.
But borrowers run the risk that they won’t be able to come up with the money on time – or that money they pay the seller won’t be used to pay any existing mortgage and they’ll end up in a foreclosed-upon house through no fault of their own, Maguire says.
“If a borrower has exhausted every option to get a mortgage, that is a way I would go,” she says of land contracts. “But I would make sure the land contract is recorded. Some are not, and … that makes (buyers) very vulnerable.”
In any case, Maguire says, prospective home buyers should expect more scrutiny of their finances when they go looking for a mortgage – including showing where their down payment money is coming from.
Some of the mortgage mess was created by loans that did not require money down or enough documentation of buyers’ assets and income, she points out.
Vicki Reed, vice president of Summit Mortgage Inc. in Fort Wayne, says she attributes at least some of a recent monthly rise in home sales to expanding use of no and low down payment options.
Closed sales for November were up 14.9 percent over November 2010, and sales for the year drew nearly even with 2010, while the median home sales prices fell 7 percent to $92,000, according to the Monthly Indicators Report of the Upstate Alliance of Realtors, formerly the Fort Wayne Area Association of Realtors.
With continuing low interest rates, she expects a busy home-buying season this spring.
“I think they (prospective buyers) know that these great rates aren’t going to be around forever, and they realize they can get a very good deal because, although sales are up, the prices of homes are still down,” she says.
Maguire agrees.
“I think we have low (mortgage) rates and all these programs we can get them (buyers) into with low down payments or zero down,” she says.
“It’s a very severe thing that happened and is ongoing, but the sky is not falling. There is a recovery going on, and …we have more things to get you into a house than you think.”
