You would have to be living in a cave to not notice that the mortgage industry is in turmoil. At lease that’s what it seems if you read the papers or watch the news. If you didn’t know better you would be under the impression that it’s almost impossible to get financing for a home, and you need a lot of money to do so. For the most part, this is untrue.
Don’t get me wrong. We are not in the “fog a mirror” times of 2003 to 2007. During that time there were effectively not standards at all. If a person was stupid enough to try to buy a $500,000 home with a minimum wage job, there was probably a lender who would do the deal – with no money down – regardless of lousy credit; unfortunately there was also an investor willing to buy the loan as well. We are simply back to having to qualify to buy. That means having adequate, stable income to make the payment, having a reasonable credit rating, having something invested, and having the property meet some minimal property standards.
So what if a person doesn’t have much money? Can they buy today? The answer is maybe. Some people can buy some houses in some areas with no money down. The questions are who, what and where? In the grater Sacramento market I’ve identified 5 different ways that someone can accomplish 100% financing.
1) CalHFA’s Smart Program and Community Stabilization Home Loan Program The Skinny: These are CalHFA’s program where they sell their own foreclosed properties, or properties owned by Wells Fargo and Citibank. Both are 100% loan-to-value loans with zero down payments required. In order to use these programs the buyer needs to be a 1st time buyer, take required homebuyer education, be a moderate income household as defined by CalHFA, have a credit score on over 680, and qualify under Fannie-Mae guidelines. The issue: There are very few home listed for sale that qualify for these programs in Sacramento County.
2) Guaranteed Rural Housing Program The Skinny: A 100% program for households with incomes up to 115% of the HUD median incomes adjusted for family size. This program will even allow closing costs to be financed if the appraised value is for more than the sales price. The Issues: Only available in rural areas. Tough property standards make if difficult to get offers accepted.
3) VA Financing The Skinny: Great program that’s been around for years. Eligible veterans can finance up to $417,000 with no down payment. Seller can even pay all of the closing costs. Qualifying is generally easier than the Fannie-Mae. The issues: Only qualified veterans and their spouses are eligible. Property standards are generally tougher than Fannie-Mae. Appraisers are selected by the VA and can be difficult to work with.
4) PERS FHA The Skinny: Basically an FHA loan, but PERS members can borrow up to half of their contribution to their retirement program to come up with the 3.5% down payment required by FHA. It’s really not 100% financing since the loan against the retirement account is not attached to the property. The issues: Must have invested their money in their PERS retirement account. The employer’s contribution does not count.
5) Grant Programs The skinny: There are many programs that come under this heading but they are all funded in some way by government funds – usually Community Development Block Grants (CDBG.) Borrowers must be 1st time buyers or buy in specific target areas. Borrowers’ household income usually must be at 80% to as much as 120% of the HUD median income adjusted for family size or under – depending on the program. These programs are offered by a number of entities including The Sacramento Housing and Redevelopment Agency, NeighborWorks, various city governments, and even CalHFA. The Issues: The low income requirement excluded many from the program. Most programs require a secondary property inspection which can be very picky. Another problem with these programs however is the amount of available funding. Many all of the programs are currently unfunded but that appears to be changing.
But, the biggest problem of them all is getting a seller to accept the offer from someone using any type of program. Sellers are usually a bank, or a short sale buyer who needs the bank to accept the short payoff. In both these cases bringing the property up to minimum standards for the program is a problem. Add to that the additional time usually required to close a transaction involving any type of program, and you have a really difficult time getting your offer accepted.
Can it be done? Yes, but it is imperative that you have two things in place: 1) a lender who has enough experience in working with these programs to actually make it happen, and 2) a Realtor who can identify those properties and sellers where this type of financing will be considered. Otherwise you will be spending a lot of time spinning your wheels.