A unique, low-entry mortgage may be a salve for high
The loan, a first that I’ve ever seen, is offered through Community Development Financial Institutions and doesn’t care what applicants look like or where they want to live. The minimum combined loan amounts range from
As long as the borrower has at least 15% down for an owner-occupied home or condo, a middle FICO score is at least 680 and he has some house payment reserves, they might just be able to buy a place to call home.
Buyer beware: The mortgage rates are high, though, in the 7% to 8% range.
The income portion of this particular mortgage application is a blank slate. Volatile, irregular or transitional employment (due to COVID-19, for example), cash businesses, retirees, seasonal or gig workers and even recent immigrants may qualify. Proving the ability to repay is a nonstarter. This is NINJ (no income, no job) with a small down payment.
Today’s mortgage standards are not designed for borrowers with outside-the-box or atypical income means to make monthly house payments. The conventional home financing structure is a tight, complicated institutional underwriting box. If you don’t fit the box, too bad. Every day across America, would-be homebuyers are denied access to mortgages because they can’t prove the government’s litmus-test standard for the ability to repay.
Those systematically unqualified buyers are forced to rent, often paying top dollar. Never mind their income. There are no official regulations for landlords to income-qualify or show the rental applicants’
ability to pay monthly rent. Non-income qualified applicants sign leases every day as long as they have the upfront funds to satisfy the landlord.
Those who can’t pay often are staring eviction square in the eye. So, what’s the difference between that and a no-qualifier purchase home loan?
Most family wealth comes from or starts with homeownership equity, mortgage debt pay-downs and payoffs. Without money in hand, it’s hard to build new family wealth in America, especially when traditional loan approvals are out of reach.
Empowered by the
Here’s an example of how the
A buyer lands a median-priced home at
Assuming a 740 FICO score, the interest-only first loan payment at a 7.25% interest rate is
In addition to the payment, this first loan would cost about 1.625 points, or
The down payment, closing costs and payment reserves add up to
It should be noted that the down payment and closing costs can be a gift. The house payment reserves must come from the borrowers’ own money.
Reserves must have been seasoned in the borrower’s account for at least one month.
Black or Latino applicants will get one-quarter percent off the first loan rate but not the second. All in, the house payment would be
This loan option, with slightly different terms, also includes refinances and cash-out refinances along with second homes and investment properties.
With as little as 15% down and the ability to do little more than fog a mirror to get in, could some folks naively buy and not be able to keep up with the payments, eventually losing the home and the down payment to foreclosure? Of course.
So no it’s not a perfect system. But it does give the benefit of the doubt in this imperfect mortgage financing world to a borrower who has some shekels and decent credit. Better to rule folks in than to rule them out.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: a 30-year FHA at 4.375%, a 15-year conventional at 4.125%, a 30-year conventional at 4.875%, a 15-year conventional high balance (
Note: The 30-year FHA conforming loan is limited to loans of
Eye-catching loan of the week: a 30-year jumbo adjustable mortgage, locked for the first five years at 3.75%, with 1 point.