The home financing landscape will start to change for some buyers on Oct. 1 with tighter restrictions on down payments, but there still are options, some experts say.
The federal government is abolishing programs such as AmeriDream Inc., which allows sellers to make a buyer’s down payment on government-backed loans, said Cheryl Whitehead-Parrish, branch manager of Freedom Mortgage in Chattanooga.
“The theory is that the less money you put in, the more likely it will foreclose,” Mrs. Whitehead-Parrish said. “With them putting money in, they’re less likely to walk away.”
That is the first of several changes on the way, she said. On Jan. 1, the minimum down payment on a government-backed loan will change from 3 percent to 3.5 percent.
DOWN PAYMENT ASSISTANCE
Several programs are available to help with down payments:
* Tennessee Housing Development Agency — Offers low interest rates and down payments based on income.
* U.S. Department of Housing and Urban Development — You can buy a house that was foreclosed by putting down as little as $100 plus earnest money.
* Fannie Mae — The ExpressPath program provides up to 100 percent financing on a foreclosed house.
* Chattanooga Neighborhood Enterprise — The Second Mortgage Program provides down payment help for people buying a house in the city limits.
Sources: THDA; ReMax agent Brandi Thompson; Crye-Leike agent Cindy Walker; CNE Web site
In October 2009, the rate for private mortgage insurance will rise from 1.5 percent to 1.75 percent. PMI typically is required when the down payment is less than 20 percent of the sales price or appraised value, which protects the lender against borrower default.
One Realtor predicts the stricter rules will be a boon for the rental market.
“There will be a larger rental market if the first-time buyer can’t buy right away,” said Nathan Walldorf of Herman Walldorf & Co. Realtors. First-time buyers may have a harder time affording a house until they save up a down payment, he said, but help is still available such as through the Tennessee Housing Development Agency.
THDA targets low- to moderate-income first-time buyers, said Patricia Smith, public affairs director. The agency offers 30-year fixed loans with rates between 5.8 percent to 6.8 percent as well as down payment assistance.
The U.S. Department of Housing and Urban Development allows a person to buy a foreclosed home with $100 down plus earnest money, said Brandi Thompson, an agent with ReMax Properties North. There is no income restriction, but the buyer must live in the house for at least a year.
Buyers of some homes foreclosed by Fannie Mae can qualify to borrow up to 100 percent of the properties’ value, said Cindy Walker, director of Crye-Leike Realtors’ foreclosure division. The ExpressPath program does not require private mortgage insurance, she said.
Also effective on Oct. 1, THDA will be able to refinance loans for the first time, Ms. Smith said. Loans insured by the Federal Housing Administration or through PMI will qualify for THDA’s lower interest rates, she said.
Regardless of what program a buyer uses, a good credit score helps, said Terre Webb of Mortgage Investors Group. A credit score of 720 or higher will ensure the best interest rate, she said, while FHA loans need at least a score of 620.
Even though seller assistance programs are going away, buyers can still receive a down payment gift from a family member, Ms. Webb said.