Home Buying in 60402>Question Details

Narciso Gonz…, Home Buyer in Berwyn, IL

what is the better loan for a first time buyer?

Asked by Narciso Gonzalez, Berwyn, IL Sat Aug 9, 2008

i need to know if can get a laon with out dowpayment.

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18
At least I got a reaction. Better than no thumb for all the effort we put into answering these questions!
2 votes Thank Flag Link Tue Aug 19, 2008
As I am sure you know, a home loan will impact your life style for years. Selecting the "right" loan is based on a number of factors. There are three main type to look at. Conventional loans require the most in down payment. Lenders want 20% down payment and doing less will cost you in some way. FHA requires 3% down and will call for mortgage insurance (PMI) to save guard the lender from default. VA is the last type. Open to veterans, this loan does not come from the government, but is backed by the government. The advantage to this is that it is a 0% down loan. The fee for the veteran is about 2.7% of the loan amount. Of course all this is driven by your credit score. A good REALTOR will be able to refer good mortgage lenders to you. The mortgage broker will have the most current knowledge of loan programs. They are the experts, not the REALTOR. Don't be afraid to get second opinions or have one mortgage broker review his competitors offer. Most of all take your time. In closing I have had the smoothest transactions when my clients use a local mortgage broker. On line brokers offer the most problems.
1 vote Thank Flag Link Tue Aug 19, 2008
For Narciso:

Let me explain how Ameridream and similar organizations like Nehemiah work. If anything I write is factually incorrect, I apologize and I'm sure someone will correct me.

You have a house you want to buy. Let's say it costs $100,000. You can't afford a down payment. The bank won't give you a loan. The seller of the house must agree to work with you and Ameridream (or Nehemiah, or whatever). Some sellers won't even agree to this. The ones that do acknowledge that they will provide Ameridream with your downpayment, plus a processing fee. NO SELLER is going to provide you with $3000-$10,000 (the usual required down payment on a $100,000 house) out of the kindness of their heart. NOBODY. What ends up happening is they raise the selling price from $100,000 to $100,000 plus whatever they are paying Ameridream.

Now let's think about this for a second. You are now going to sign a mortgage with your bank for an amount that is HIGHER than what the house is worth...by at least 3%. You are starting out your life in that house with NEGATIVE equity.

Now, you might not mind taking that risk. That's fine, for some people. But in this economy, you have to think about how long it will be until you feel "safe" again financially, considering that in the first few years of a traditional 30-year mortgage very little of your monthly payment goes into paying down the principal. In other words, it will take you some years to climb out of the hole you've dug.

Now compare that experience with having a 10% down payment you can provide yourself. No hole to dig yourself out of. In fact, you've already acquired equity.

Now which of these two scenarios seems more fiscally responsible to you?

Listen to the mortgage lenders and real estate professionals all you like. Many of them have great advice. However, you don't have to take everything they say as Gospel. some people will try to sell you anything. You have to be careful.
1 vote Thank Flag Link Mon Aug 11, 2008
As a non-real estate professional (unlike the others who have answered your question quite well in their own way), I'd have to say that its very dangerous (not to mention difficult) to buy any real estate with no down payment in this economy. Do you really want to risk being foreclosed on when you have no equity in the house?

Do yourself a financial favor and rent for a year or so. Don't rush into buying a house with the hopes that Ameridream will pick up your slack. Many times, they won't. You should save up enough so that you're able to put down a nice, healthy 10-15% down payment--on your own. That might not be the answer you want to hear but its what I and millions of other people had to do.
1 vote Thank Flag Link Mon Aug 11, 2008
Greg is absolutely correct. Conventional programs for 100% Loan-to-Value are non existent. Even if a lender were to offer one, a seller would be skeptical.

FHA or VA is the way to go, but these must be owner occupied properties (i.e. not investments).
1 vote Thank Flag Link Sun Aug 10, 2008
VA is great if you qualify. FHA is good if you don't but you will need 3% down payment wih their programs. You can have a seller pay the 3% + up to another 3% in closing costs by using non-profits like futures, ameridream, nehimiah etc.. Here is a link to my blog comparing FHA & VA. http://activerain.com/blogsview/624754/What-s-the-advantage
1 vote Thank Flag Link Sat Aug 9, 2008
FHA

You may by:
1) You can get a gift downpayment from family to cover the required 3.5%.
2) Seller can contribute up to 6% to your downpayment
3) Nehemiah downpayment, no-repayment - Seller signs contribution document. find out more at http://www.getdownpayment.com/hec.cfm

And yes, it is true you will have to show reserves. Meaning, you have to have that money in your account to prove you have the downpayment. But depending on the deal, you should get it back as credit/check at closing.

If you can afford to buy a home, YES I would advise to do so as rates are very low 5.25%.

Just make sure it is a loan you can handle. A good loan officer should help you with the guidelines and affordability ratios.
0 votes Thank Flag Link Sat Feb 28, 2009
Dear Christine,

As of 1/1/09 you need 3.5% down for an FHA loan. Yes you can get up 6% towards closing costs and prepaids. But your buyers still need to have 3.5% sitting in the bank. Now these are the guidlines from FHA, however some lenders may have overlay guidelines, so you do need to check with your buyers lender. I believe the whole 3.5% can be gifted. And then yes a 6% credit. But more then likely they are going to want to also see reserves for the buyer.
0 votes Thank Flag Link Sun Feb 15, 2009
Hi Greg!!

I want to ask, with FHA loan I thought you were allowed up to 6% contribution from Seller and the 3% can also be "gifted" from family or not-for profits as you mentioned.

Please clarify if I am wrong.

As, always you get my thumbs up!!
0 votes Thank Flag Link Sat Feb 14, 2009
A good mortgage broker will give you your options. We have a heavy military community and so we do a lot of zero downpayments using their VA benifit. That is the key for our market. Nowadays mortgage lenders are turning away from zero down loans if not slamming the door. Next best is FHA which requires a 3% downpayment and requires PMI. If there is anything else out there I am not aware of it.
0 votes Thank Flag Link Wed Aug 20, 2008
Steve & Nella:
Loved your comment about online lenders! Here are a couple of blogs for your database.
http://activerain.com/blogsview/133299/People-Are-Smart-When
http://activerain.com/blogsview/111339/Payment-Option-Below-Market
0 votes Thank Flag Link Tue Aug 19, 2008
It is not always 'what is the better loan' but how to tweak the available loans to meet your specific needs. A contract provision allows the seller to pay 6 months of your mortgage payment or up to $6000 in closing costs, for instance.
I suggest you find the best local Realtor you can and ask them to give you their most helpful, counseling-type loan office contact.
Web Reference: http://www.realtybob.com
0 votes Thank Flag Link Tue Aug 19, 2008
The best advise anyone can give, is to speak with a tax professional or an accountant, they can run the numbers for you. There are tax write offs and additional deductions that can benefit you greatly. One of the loan officers I use, actually ran a full report for me showing how paying $100.00 more per month in a mortgage versus renting for less; at the end of the year there was more annual income because of additional tax refund monies. So sit down with an accountant and see what makes the most sense for you. Although these message boards can be helpful, you get so many different opinions you get overwhelmed, and can let potential oppourtunity pass you by.
0 votes Thank Flag Link Mon Aug 11, 2008
All of this will probably be rendered moot anyways, as someone below me said Ameridream is about to be shut down. FHA has been trying to get a court to declare it illegal for a long time. I guess they've been successful finally? And if Ameridream has been declared illegal, I would think Nehemiah's days are numbered as well.

Which means the chances of getting a 100% LTV mortgage will soon be somewhere between slim and none.
0 votes Thank Flag Link Mon Aug 11, 2008
lol, I didn't know that the concept of saving was such a terrible idea. Thanks for setting me straight.
0 votes Thank Flag Link Mon Aug 11, 2008
Wow...advising someone to save up 10% for a down payment is "terrible advice" Bob?

Someone's afraid of losing a buyer.
0 votes Thank Flag Link Mon Aug 11, 2008
Yes definitely FHA! However Ameridream is on the way out again. So move quickly to utlilize Ameridream or it will be too late. You can get up to 10% with Ameridream for all of your costs and downpayment assistance.
0 votes Thank Flag Link Sun Aug 10, 2008
good morning...fha all the way.....3% down from ameridream...and it is actually up to 6% of the sales price for closing costs and pre-paids...i have almost 14 yrs. experience...and licensed in 19 states, including your's....bob mcclure- mortgage now- farmington, michigan (248) 974-4444.....also remember.zero down doesn't mean zero out of pocket....many times i can close these with just your earnest money deposit and first year's homeowner's insurance paid....hope that helps.....
0 votes Thank Flag Link Sun Aug 10, 2008
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