A zero mortgage on your first home, no jokes

In the news recently, you’ve likely heard about rising mortgage down payments. The QRM (Qualified Residential Mortgage) rule that is being debated right now is a risk management issue. The government wants to avoid another mortgage collapse. So lawmakers are looking at all the factors that they say went into the first burst of bubbles. One of these factors is risk. So right now, they’re looking for anyone with past bad credit or bad debt, and they’re demanding that they put 20% cash on the mortgage. That means that on a $ 150,000 mortgage, a buyer would need $ 30,000. Think about it … do you have that kind of cash on hand? Even a home that sells for $ 80,000 would require $ 16,000 in cash to guarantee the mortgage. Imagine how much time you would have to save to have this kind of money.

Here’s how a worksheet says it would work:

  • The median home price in 2009 was $ 172,000.
  • At 20%, the down payment would be $ 43,025.
  • A median salary in 2009 was just under $ 50,000.
  • A “responsible” saver should be able to manage $ 250 a month.
  • That means about 14 years of savings for the down payment.

If you want to do it in less time, it would cost between $ 500 and $ 600 per month. The other option is that the lender (bank) must keep 5% interest on that loan. Most banks don’t want to be forced to keep their skin in the game. Many smaller mortgage banks do not have that type of capital.

It’s not just you

At this point in our country’s economic cycle, many people have some kind of credit problem. This QRM rule means that a high percentage of people will need to put a lot more on their mortgage or find a lender willing to keep money on the loan to reduce risk. Overall, it seems like a difficult situation at best, most likely impossible.

What can you do?

As a first-time home buyer, you have the option of FHA. That loan program requires a 3.5% down payment. But that can still be a difficult thing for someone who is renting and just starting out in life, such as a first-time home buyer. There are still options. In fact, these 100% financing options aren’t just for first-time home buyers. You can take advantage of these loan programs even if you already have a home and want to upgrade.

100% Financed Mortgage Loans

  • USDA Rural Development Loan: The United States Department of Agriculture supports this loan program. Covers homes outside city limits, hence the “RD loan.” But do not worry. It doesn’t mean you have to buy a house at the back of a farm in Los Palos. “Outside city limits” can mean a lot of things when it comes to where you might live. This could put you in a house in a town or a small town near a larger city. Michigan has municipalities that are similar to towns. RD loans cover many of those areas. So whether you’re looking for a home in the country or somewhere outside the city limits, a USDA rural development loan can offer 100% financing.
  • VA Loan – VA stands for “Veterans Affairs”. VA loans are available to military veterans. The loan program is fairly compliant with FHA standards. However, they often have lower closing costs and more liberal loan terms. So instead of a 3.5% down payment, VA loans offer a zero down payment most of the time. Sometimes you can even negotiate interest rates. Veterinarians must obtain a certificate of eligibility from the Department of Veterans Affairs to present to a lender when applying for a mortgage.

As the market struggles to improve, the government wants to keep risk low. However, even Democratic Rep. Barney Frank says he thinks the 20% down payment is too high. The Federal Housing Administration is also concerned about this measure. Acting FHA Commissioner Bob Ryan says the requirement will likely prevent creditworthy borrowers from obtaining low-cost QRM loans.

The bottom line

Yes, you can find what amounts to “zero mortgages” for first-time home buyers. You must be a veteran or find a qualifying home through the USDA Rural Development program.

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