Brand New 1% down payment purchase loans

[HLS]

A wholesale lender that I deal with announced this yesterday as an ‘exclusive’ program..

Borrower puts 1% down,
Lender contributes 2% toward the down payment
No monthly Mortgage Insurance
700+ Credit score
43% max DTI
700+ FICO

$429,895 is the max purchase price so the loan amount stays
<$417,000 (or buyer has to bring more $$ to close) I'm still getting more details....seems that it's good on houses OR condos. I think that military veterans deserve No down payment purchase loans for serving the country. FHA & other low down payment loans supposedly exist to make housing affordable. It seems to me that these programs make housing UNaffordable as they allow people to buy with very little of their own money, and pushes up prices. Wouldn't housing be 'more affordable' if 10% or 20% down was required as a down payment ? Fewer people might be able to buy houses, but I think they would be more affordable. This program is only inches away from nothing down ! It's not April Fools Day either.

[spdrun]

The 43% DTI will likely be the ultimate limiting factor. Average down payments are in the 10-20% range already in major metro areas. 3% has been available for years, but it’s largely theoretical.

How Much is the Average Down Payment These Days?

There’s also the paradoxical effect of low-down loans being most available to high-income people who need them the least due to DTI rules.

This being said, military is just another job. No reason why anyone on the gov’t dole (incl military and vets — considering there hasn’t been a just war in 60+ years) deserves more than the average Joe.

[HLS]

3% is not theoretical, it has been available.
With FHA it comes with mortgage insurance for 30 years if one is unable to refinance out of it. Ok for people with crappy credit.

Conventional 3% down is available for people with better credit and mortgage insurance goes away at some point.

1% down is nuts. Even at a 4% rate, payments will be much lower than they were 10 years with no money down loans at 6%+
Most people only care about their monthly payment.
Will be interesting to see if this program stays around long OR if other lenders jump in.

The crazy thing is that it can be easier for some borrowers with crappy credit to get a purchase loan with 3% down
than it could be for someone with 800+ credit and 50% down.
The system is broken. It’s difficult to understand.

IMO anyone who has been within 1000 miles of Afghanistan or Iraq deserves to be able to buy a house in America with no money down.

[bearishgurl]

[quote=HLS] . . . IMO anyone who has been within 1000 miles of Afghanistan or Iraq deserves to be able to buy a house in America with no money down.[/quote]I agree with this but the 2% funding fee at closing is an impediment to a lot of eligible vets. As you know, CA (resale) sellers have historically not agreed to help with the VA funding fee, making these 1000’s of dollars in (unnecessary, IMO) closing costs very prohibitive for homebuying vets in CA (esp an active-duty enlisted vet). Many (most?) of these vets have been trying to raise their families on their salaries only, which isn’t much if they are residing in military housing and thus don’t have a housing allowance. This is due to many (most?) of their spouses following them around from one duty station to the next every 1-5 years and thus never really getting their own “careers” off the ground. The vast majority of military spouses (both active duty and retired) are only marginally working PT, currently unemployed or have never worked at all!

I also believe the VA guarantee is too high and thus the VA mortgage loan ceiling is too high (currently $580,750 for SD Co, CA). This is wa-a-a-ay too high for a veteran (married or not), but ESPecially one with a spouse and minor child(ren) in tow who is subject to frequent change of station orders and deployments. Even an E-8 with a family and a housing allowance should not be borrowing that much money, even if they seem qualified on paper, imho. There are too many unknown variables in their lives and thus they (and their families) are far too vulnerable to be carrying anywhere near that much debt. An active duty veteran very often cannot pick and choose the best time to sell their home and cannot carry the debt from a home they bought with no money down into a new duty station. Even if rented, they or their families cannot financially handle the vacancies, cleanup and repairs between tenants, property mgmt fees and likely negative cash flow every month from being an over-indebted, long-distance landlord.

In short, the VA loan program is impractical for many who are eligible to take advantage of it, in spite of its “zero-down” feature. The existence of the funding fee has always landed the new VA buyers in the “underwater zone” immediately after closing, if financed (as most are).

The program is great for “retired” vets (usually over the age of 40) who are buying in slower-moving, lower-cost regions of the country where resale sellers will help with the buyer’s funding fee to get their (stagnant) listing finally sold.

[spdrun]

Why would a seller want to lose 2% profit just to help a vet? Would you take a 2% haircut just to sell to the right buyer?

[bearishgurl]

HLS, I’d be interested to know what the closing costs will be on the *new* mortgage loan you described in the OP :=0

[bearishgurl]

[quote=spdrun]Why would a seller want to lose 2% profit just to help a vet? Would you take a 2% haircut just to sell to the right buyer?[/quote]No they wouldn’t … not in Cali. Because they don’t have to. Especially sellers in coastal counties.

[mixxalot]

Ugh here we go again! NINJA loans redux, this won’t end well.

[bearishgurl]

Up until about ’92, some “VA no-no” transactions WERE successfully completed in areas of SD County where the majority of home-shoppers were in the military or retired vets. HOWEVER, a nice 4/2+/2+ SFR with a decent-sized yard only cost from $73K (lower “enlisted” area) all the way up to $160K (senior “officer” area) back then. Thus, the funding fee (paid fully or partially by sellers) was much less than what would be asked of them now :=0

Often, the buyer’s and seller’s agents ended up splitting the buyer’s funding fee with the seller just to close a (frequently 100+ day escrow) “VA no no” deal … especially if the VA appraisal came in lower than the agreed-upon purchase price :=0

[spdrun]

Those aren’t NINJA loans since they’re limited to 43% DTI with (I assume) strict proof of income. This being said, if they can blow up another bubble and have it pop within (say) 5 years, it would be beautiful. A good neighbor is one in foreclosure, with my knowing the date of his sheriff’s sale 🙂

[bearishgurl]

[quote=mixxalot]Ugh here we go again! NINJA loans redux, this won’t end well.[/quote]I honestly don’t understand why the current RE market needs another ultra-low downpayment mortgage loan program. Isn’t it doing just fine all over the US without it?

As HLS said, there is always the FHA (w/MIP) as well as FF 5% down programs (w/PMI). Haven’t today’s buyers figured out by now (after watching the FC crisis of the aughts) that it isn’t a good idea to buy a home with little or no money down?

Why can’t these (mostly college-educated) millenials stop buying $800 iphones and Starbucks every day and stop spending their weekends at craft beer bars (speaking for my own kids here :=0) and start saving some of their large salaries for their first home?

[spdrun]

Better they don’t. Better they keep high card balances, not pay off their student loans, and be renters for life! No need for them to get uppity and think they deserve to own a home.

[Coronita]

Any income requirements, either upper bound or lower bound.

Fixed or adjustable?

[spdrun]

43% debt to income max which sets the lower bound.

[FlyerInHi]

[quote=bearishgurl] Haven’t today’s buyers figured out by now (after watching the FC crisis of the aughts) that it isn’t a good idea to buy a home with little or no money down?[/quote]

It’s actually a good deal for the buyer, if debt service is lower or comparable to rent. You always have the option to walk away.

I know someone buying in a beach town. Not a bad deal because rents are so high.

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