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Top 4 Low Down Payment Programs to Help More First Time Buyers Purchase a Home! Friday, December 14th, 2018

During 2018 40% of all home buyers were first time buyers, this number is expected to increase in 2019. Over 80% of these first time buyers use low down payment programs to purchase a home. A newly released report by Apartment List advised that saving for a down payment is the primary financial obstacle keeping millennial renters from purchasing homes, with 61.7% of respondents who plan to buy saying that they can’t afford a down payment. ​Not enough first time or millennial buyers know about the different low down payment options available to help them buy a home. I summarized below the Top 4 purchase programs available for first time buyers.

Understanding First Time Buyers and Millennial Buyers

A newly-released report from Apartment List analyzed data from 6,400 surveyed millennials on their plans for home ownership.

With Millennial’s on the verge of surpassing Baby Boomers as the nation’s largest generation, the question of when and if they will purchase homes looms large over the housing market. 

While the overwhelming majority of those surveyed would like to purchase a home at some point in the future, far fewer are financially prepared to do so in the near term.

Key findings include:

89.4% of millennial renters say that they plan to purchase a home at some point in the future, but just 4.4% expect to do so within the next year, while 30.4% percent say that they won’t buy for at least five years.

Of those millennial renters who plan to purchase a home, 48% have zero down payment savings, while just 11% have saved $10,000 or more.

Specifically, we find that saving a down payment is the primary financial obstacle keeping millennial renters from purchasing homes, with 61.7% of respondents who plan to buy saying that they can’t afford a down payment. 

Too many Millennial and First Time buyers don’t know about the different low down payment programs available to help them buy a home, or programs that will cover ALL of their down payment and ALL of their closing costs.

Here is a summary of the best 4 purchase programs available for first time buyers.

1. Buy a Home up to $500,000 with Only 3% Down Conventional Financing and No Monthly PMI.

With the new higher conventional loan limit of $484,000 available for buyers in California, a first time buyer can now purchase a home up to $500,000 with only 3% down conventional financing.

Buyers also have the option to eliminate the monthly mortgage insurance “PMI” from their monthly mortgage payment.

All of the down payment can be gifted too, so this is a great option for buyers to purchase right away if they do not have the down payment saved up yet.

Co-signers are allowed to help buyers qualify for a home purchase.

Only a 620 credit score is required to qualify for conventional financing.

Click HERE for more information on how to qualify for Freddie Mac’s New conventional 3% down HomeOne program with No PMI, there is a Q&A section included too.

2. Buy a Home up to $765,000 with Only 5% Down Conventional Jumbo Financing with No Monthly PMI.

If a first time buyer needs to finance a mortgage over the conventional loan limti of $484,350, they are eligible to use conventional jumbo financing up to a maximum loan amount of $726,525. This means a buyer can now purchase a home up to $765k with only 5% down.

Buyers also have the option to eliminate the monthly mortgage insurance “PMI” from their monthly mortgage payment.

Buyers in San Diego County can purchase a home up to $725,000 with only 5% down and No PMI.

Buyers in LA County, Orange County and SF County for example, can purchase a home up to $765,000 with only 5% down and No PMI.

All of the down payment can be gifted too, so this is a great option for buyers to purchase right away if they do not have the down payment saved up yet.

Only a 620 credit score is required to qualify for conventional jumbo financing.

Co-signers are allowed to help buyers qualify for a home purchase.

Click HERE for more information on how to qualify for the conventional Jumbo 5% down program with No PMI, there is a Q&A section included too.

3. Buy a Home up to $750,000 with only 3.5% Down FHA financing

FHA financing is a very popular program with first time homebuyers. With it’s easier qualification rules for buyers with less than perfect credit, the FHA helps many first time buyers finance a home that would not be able to otherwise.

The minimum down payment with FHA financing is only 3.5%. The FHA increased their CA conforming loan limit recently from $453,100 to $484,350, so this means a buyer can purchase a home up to $500,000 with only 3.5%.

In higher cost markets like LA, Orange Co and SF etc, a FHA buyer can purchase a home up to $750,000 with only 3.5% with a FHA jumbo loan.

In San Diego county, a buyer in San Diego can purchase a home up to $715,000 with only 3.5% down.

In Riverside and San Bernardino counties, a buyer can purchase a home up to $500,000 with only 3.5% down.

Only a 580 credit score is required to qualify for 3.5% down FHA financing.

Co-signers are allowed to help buyers qualify for a home purchase.

4. Zero Down Payment and Closing Cost Assistance For Buyers 

If a buyer would like ALL of their down payment and closing costs covered to purchase a home, we have a terrific program available for buyers that combines a Conventional and CalHFA loan or a FHA and CalHFA loan.

Buyers can purchase a home up to $700k in certain counties with No down payment and No closing costs.

CalHFA (California Housing Finance Agency) offers down payment and closing cost assistance loan programs to help first time buyers purchase a home. A first time buyer is defined as someone who has not owned a home in 3 years.

This program is available with both conventional and FHA financing. CalHFA gives buyers a small 2nd mortgage up to 3.5% to help cover the minimum down payment due with conventional and FHA financing.

If buyers don’t have enough funds for their closing costs, CalHFA will give buyers an additional small 3rd mortgage of up to 4% to help cover ALL their closing costs.  Many buyers using this program only have to pay the upfront appraisal fee out of pocket.

Payments on the CalHFA 2nd or 3rd mortgage loans are deferred for the life of the first mortgage. The terms are the same as the first mortgage. There are no payments due unless you sell or refinance.

Click HERE for more information on this program and examples of how you can purchase a $450k or $550k home with zero down payment and No closing costs.

If you have questions about any loan program or you would like to get approved for one of these options above, please call me at 858-442-2686.

I look forward to chatting soon.

Rising Rents Driving First Time Homebuyers into the Market! Saturday, August 29th, 2015

There has been an increase recently in first time homebuyers getting into the market to purchase a home. With annual rents continuing to increase on average 3% – 4% in most parts of California, homeownership is starting to look like a more viable option for many renters. There are terrific mortgage programs available for first time buyers to help them finance a home, some only require 3% down.

Rising Rents are driving first time buyers into the market

Annual rents have been increasing on average 3% – 4% in most areas of California. As you can see below, just a 4% increase in annual rent can drive a $1,500 monthly rent up to $1,974 in just 8 years, an increase of $474, which is a 32% increase in overall rent.

Compare this to buying a home and obtaining a low fixed rate and monthly payment that will not change. This is why it is important that buyers understand that home ownership is also a hedge against inflation and rising rents.

When you factor in the additional benefits of tax deductions and appreciation that come with home ownership, these are just some of the reasons why there has been a influx of new first time buyers looking to purchase a home in 2015.

The Impact of Rates on Buyer Purchasing Power

Changing mortgage rates do more to influence home affordability than changing home prices. This chart below shows the “impact of rates on buyer purchasing power or affordability. As you can see below, when rates increase by just .5%, a buyer loses 5% in purchasing power or affordability. Or vice versa, when rates decrease by .5%, a buyer gains 5% in purchasing power.

For example, see how the payment at the 3.75% rate on a $400k loan, is roughly the same payment as the 4.25% loan at $380k, a gain of 5% in purchasing power for a buyer.

As rates have been trending higher in 2015, and coupled with rising home prices in most areas, the overall cost to purchase a home has been increasing.

Market experts are expecting rates to increase over 4.5% in the next 12 months, and home prices to increase another 5%-6% in the next 12 months, so the payment for a home purchase will probably be higher in 12 months than it is today.

The Conventional 3% Down With No Monthly Mortgage Insurance “PMI”

The conventional 3% down mortgage is the best mortgage option available for first time buyers in today’s market. This program is helping many first time buyers obtain home ownership, who may have not been able to otherwise. It is also allowing buyers to purchase a home with a low down payment and a low fixed rate.

It also allows ALL of the down payment to be gifted, so this means buyers can reach out for a gift instead of having to wait and save up the full 3% down payment.

There is also an option to eliminate the monthly mortgage insurance “PMI” from the mortgage payment, so this is helping buyers obtain an even lower monthly payment.

Let’s compare the conventional 3% down mortgage with No PMI to other low down payment options to purchase a home.

Compare the Savings on a $400k Home Purchase, with and without monthly mortgage insurance

On this $400k home purchase example, we will compare the savings on a conventional 3% down loan, with and without monthly mortgage insurance, and a FHA 3.5% down loan with monthly mortgage insurance.

To calculate property taxes, we will also use 1.2% of the purchase price, so $400 a month, and $75 a month for a homeowner’s insurance policy, so we can calculate what the total monthly PITI (principal and interest, taxes and insurance) payment is for each scenario.

Option #1. The figures on the first column, is a conventional 3% down loan with No PMI. The rate on a conventional 30 year fixed with No PMI is 4.375%. The total monthly PITI payment is $2,412.

Option #2. The figures on the second column, is a conventional 3% down loan with PMI. The rate on a conventional 30 year fixed with monthly mortgage insurance is lower at 3.99%, but there is also monthly mortgage insurance of $354. The total monthly PITI payment is $2,680.

Option #3. The figures on the third column, is a FHA 3.5% down loan with monthly mortgage insurance. The rate on a FHA 30 year fixed is 4%, but there is also monthly FHA mortgage insurance of $278. There is also a FHA funding fee of 1.75% due on all FHA loans, this fee of $6,755 was added to the loan amount in this example. The total FHA monthly PITI payment is $2,628.

As you can below, option #1 with the conventional loan and No PMI will help you obtain the lowest monthly payment and save you the most money. It will save you $269 a month over the conventional loan with PMI, and saves $216 over the FHA loan.

Over the next 15 years the conventional loan with no PMI will save $15,889 over the conventional loan with PMI, and $39,022 over the FHA loan.

In SummaryInstead of taking the conventional or FHA loan option and paying the mortgage insurance each month, the conventional loan with No PMI will give the buyer the lowest monthly payment.

Remember too, if you put down less than 10% with FHA, you have to pay the monthly mortgage insurance for the life of the loan, click HERE for a summary of the current FHA mortgage insurance rules.

3% Down Conventional Frequently Asked Questions and Answers

Here are the most frequently asked questions that buyers and real estate agents have in regards to the  conventional 3% down mortgage.

1. What is the maximum loan amount with 3% down?

The maximum loan with 3% down is $417k, which is the conventional loan limit.

2. Can I receive the 3% down payment as a gift?

Yes, all of the 3% down payment can be gifted on this program. Closing costs and reserves can also be gifted if needed.

3. What credit score is required to qualify for this program?

A 620 credit score is required to qualify for this loan program. Please note, the lower the credit scores the higher the interest rate will be.

4. How do I eliminate the monthly mortgage insurance “PMI” from the payment on this program?

It’s very simple. All you have to do is take a slightly higher interest rate than normal, say from 4% to 4.375%, and we use a lender credit with the higher interest rate to eliminate the PMI from the mortgage payment. This is also known as lender paid mortgage insurance.

5.  Can I buy a home with 3% down on 2nd homes or investment properties?

No, the 3% down is for Primary Residences only.

6. Is this program for first time buyers only?

Yes, but as long as you have not had any ownership in a property in the past 3 years, you can also qualify for this program. Or if there are 2 buyers, only one of the buyers must be a first time buyer.

7. Are there income limits for this program?

No, any buyer can qualify for this program regardless of income.

8. Do condos qualify for this program?

Yes, you can also purchase a condo using this program with only 3% down.

9. But FHA mortgage rates are lower than this program?

Yes FHA interest rates are lower, but when you factor in the very expensive FHA monthly mortgage insurance, the FHA overall monthly payment will always be higher than the conventional loan option with No monthly PMI.

10. What if I put down 5% or 10%, will I get a lower rate?

Yes, if you put down 5%, 10% or even 15% for the down payment, you will get a lower interest rate. Essentially the larger the down payment, the lower the interest rate you will get with conventional financing.

4 other reasons the Conventional 3% down program will benefit buyers vs FHA

There are some other great benefits to using this conventional program vs FHA financing, so you have have more available homes to choose from.

1. This conventional program is a great option for buyers who want to purchase a home in complexes that are NON FHA approved, so now you have more inventory to choose from and agents have more homes to show them!

2. This conventional program will help buyers afford to purchase a single family home instead of a condo, as it frees up having to pay monthly mortgage insurance and HOA dues, which can amount to roughly $600-$700 a month on a typical condo. This will open up a lot more inventory for buyers to purchase.

3. Conventional does NOT have an anti-home flipping policy, which means conventional buyers are allowed to purchase homes that are being fixed up and flipped by investors with less restrictions. So now buyers don’t have to worry about the FHA’s strict anti-home flipping policies either (which may require 2 appraisals etc)! In fact, the FHA just announced they are not extending their Anti-flip waiver, which means FHA buyers have to wait 90 days before they can buy a flipped home.

4. Compared to conventional financing, FHA appraisals can be a little more strict in terms of asking sellers for repairs on a property, so this is another benefit of using this conventional program.

It is important to get creative to find a home and get into contract these days, and this new conventional program is one way to help you do that!

If you have any questions about this new conventional program or getting approved for financing, please feel free to contact me directly at 858-442-2686.