The great minds of the mortgage market continue to work overtime, coming up with fresh ideas in an effort to reach more would-be homebuyers.
Pilot programs like these don’t always prove worthwhile; in fact, some never make it beyond the testing stage. But they show the lengths to which lenders are willing to go for new buyers.
Below are some of the latest offerings from the mortgage world.
-- Mortgage giant Fannie Mae is looking at a way to help people build their own homes. In what’s known as construction-to-permanent (C2P) financing, buyers get a construction loan to build a house, and when the place is complete, the loan converts to a permanent mortgage. But Fannie Mae doesn’t purchase C2P loans from lenders until they convert to permanent status, and some lenders won’t make them because they have to keep them on their books until they change status.
Under the pilot, which still needs to be approved by federal regulators, the company would buy the loan on Day 1 of construction.
-- San Diego’s Guild Mortgage is looking at a 1-percent-down mortgage in which the lender provides a 2 percent grant and the buyer puts up the other 1 percent. Guild is also trying to develop a shared equity program with both Fannie Mae and Freddie Mac, Fannie’s chief secondary market competitor.
-- New Penn Financial of Pennsylvania has joined with Home Partners of America (HP) to offer financing to purchasers participating in Home Partner’s lease-purchase program. It is the first time HP has worked with a lender to back renters who want to buy their houses.
-- Eagle Home Mortgage, the lending arm of national home builder Lennar, went to Fannie Mae with an idea for helping would-be new homebuyers deal with their student debt. Now, Fannie has expanded the pilot to nine other lenders. Under Eagle’s plan, Lennar contributes up to 3 percent of the purchase price to pay down school loans incurred while attending universities, community colleges, trade schools and other certificate-granting programs. However, buyers whose parents took out loans to finance their educations don’t qualify.
-- Some states are passing laws that allow aspiring homeowners to create down payment savings accounts similar to the popular 529 college savings plans. Montana, Virginia, Colorado, Mississippi, Iowa and Minnesota now allow would-be buyers to open tax-free savings accounts. And Pennsylvania, New York, Oregon, Oklahoma, Maryland, Utah and Louisiana are moving to do the same.
Each program has its own subtleties and limits, but according to National Association of Realtors’ (NAR) figures, the Mississippi law could encourage 7,000 first-time buyers to enter the market over the next five years. NAR’s Oregon affiliate says if the bill passes there, 3,200 renters could become owners over the next five years.
-- Michigan’s Flagstar Bank recently rolled out a zero-down-payment program in which the company will gift the required 3 percent down payment, plus up to $3,500 toward closing costs. There is no obligation to repay the down payment money, but borrowers will have to qualify under income guidelines and buy homes in qualifying geographical areas.
-- Angel Oak Mortgage of Atlanta recently rolled out a new program for “just-missed” borrowers: those who don’t quite qualify under Fannie’s and Freddie’s guidelines. The Platinum Program features rates starting around 4 percent. Loan amounts can range from $150,000 to $3 million, with a credit score of at least 660.
-- Citadel Servicing Co. in California has come up with a loan for which buyers qualify with just a verification-of-employment document. Applicants need two years of continuous employment, plus a voice verification of employment on the day the loan closes. They must also confirm they have enough money on hand for at least a 25 percent down payment, though no other proof of income is necessary. The program is open to borrowers with a minimum 650 credit score and is good for loan amounts between $250,000 and $3 million.
-- Guaranteed Rate just launched the “Flex Power” product for loans up to $3 million ($2 million for condos). It requires as little as 10 percent down, with no private mortgage insurance, and interest-only payments are an option if the borrower boosts the down payment to 15 percent.
-- San Diego’s Credit Data Solutions has a new web-based tool called PreQual, which uses only a would-be borrower’s name and address to pull a single-bureau credit score and report. PreQual is considered soft research, meaning it won’t impact your credit score. But it cannot be used for an application for credit; your eventual lender will need to order a full-blown “hard-inquiry” credit score and report. Warning, though: Once you make a PreQual request, the lender is notified and you will receive a follow-up call, especially if you make the grade.
-- Value Insured’s down payment protection policy, now being offered by several lenders, reimburses borrowers for the full amount of their down payments -- up to 20 percent of the purchase price -- should they have to sell their homes because the market turns south. It is a lender-paid service, which may add dollars to your loan amount and result in a higher monthly payment.