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It's All About the Money

We've got the dreams...now we need the money. Looking for help getting buyers into homes? Here are some new mortgage options.

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Marisa DiLenge’s buyers, on a limited income,  were wary of the interest rates and private mortgage insurance (PMI) that came along with the mortgages that were being presented to them. Intent on getting them into a loan that they would be comfortable with, this sales associate, with Coldwell Banker Residential Real Estate in Fort Lauderdale, worked with a Bank of America loan officer and immediately saw a good fit for them.

“I introduced [a program] to my buyers. Once they realized that the monthly payments would be affordable, it gave them a new perspective,” says DiLenge, who tapped the ACORN program through her local Bank of America office.

The program—offered in conjunction with the nonprofit group Association of Community Organizations for Reform Now (ACORN)—is available to buyers whose incomes are at or below their respective county’s median income. (A Broward County buyer, for example, would have to have a household income of $61,000 or less to qualify.) The program offers reduced interest rates, up to 100 percent financing (with no PMI), and no prepayment penalties, no points, no origination fees and low closing costs. 

DiLenge has since used the program with other buyers, including a seller who was afraid to put her house on the market for fear that she wouldn’t qualify for a mortgage on her next home. “When I introduced her to the loan officer handling the ACORN program, she immediately listed, based on the low payments that the program could provide.”

Calling the program “the kick we need in this market,” DiLenge says that creative lending options will prove increasingly valuable for real estate professionals over the next few months as the market continues to normalize, with interest rates rising and home prices staying relatively high.

Britt Maxson, vice president at Bank of America in Fort Lauderdale, handles the institution’s ACORN program, which provides 30-year fixed, 40-year fixed and 10-year interest-only loans. He says that such lending innovations can be particularly useful for real estate professionals working in a stabilizing market.

“These programs are extremely important not just for first-time homebuyers,” says Maxson, “but also for second- and third-time buyers who would benefit from low-interest-rate loans with no PMI.” 

Open Market
In an attempt to get their piece of a shrinking pie of buyers, lenders across the state are doing what they can to keep their business pipelines full. Many are using creative tactics to make that happen and, in doing so, are helping real estate professionals get their clients into the homes they want.

“Only about 25 percent of all homebuyers qualify for Federal National Mortgage Association (FNMA) type financing,” says Patricia V. Cohen, a real estate attorney, licensed sales associate and mortgage broker at Boca Raton–based Patricia V. Cohen & Associates P.A. “That means 75 percent of the market needs alternative types of loans, which are important and cover the needs of a large segment of the market.”

Terry Claus, president at Miami-based Home Financing Center Inc., concurs, saying that soaring homeowners’ insurance costs, high property tax rates and rising property values are taking their toll on the state’s homebuyers, making it increasingly difficult for them to qualify for traditional mortgages.

“Programs designed to lower the cash needed to purchase a home while keeping the payment affordable are critical in providing [buyers from] all walks of life that opportunity to realize the dream of homeownership,” says Claus, whose firm offers a variety of creative financing options. The first, a Fannie Mae initiative known as “Extended Families Together,” allows loan officers to increase the borrowers’ qualifying income by 30 percent. The program is geared toward families with two or more generations in the same home. Borrowers can count income from extended family members when applying for a mortgage.

Claus says the senior family member is not an owner of the property, nor does he or she have to qualify for the loan. “The increase in qualifying income is based on the rationale that the senior family member will be contributing towards household expenses,” says Claus.

The lender also offers a 100 percent financing program that provides lower interest rates for borrowers whose income is no higher than the median income for the county in which they are purchasing. “We’ve done many of these loans over the past 18 months,” says Claus.

Other Home Financing Center options include a program that allows seller contributions of up to 6 percent on 100 percent financing loans, one that allows employers to help employees with down payment and closing costs, and “Smart Commute,” a program through which a buyer’s qualifying income can be increased by up to $250 a month, provided that the property in question is located within a quarter mile of a mass transit location.

Chipping In
To do its part in helping buyers in unconventional situations, Cohen’s firm provides hard-equity second mortgages. Where a first lender finances up to 65 percent of the home’s value/purchase price, for example, her company will lend up to 75 percent of the home’s value/purchase price (based on an approved appraisal) on primary residences, second homes, and investment and commercial properties. “This allows a significant additional choice for the borrower in this scenario,” says Cohen.

The lender also makes loans on homes in foreclosure, in bankruptcy, under a court order or for sale.  “For the latter, we’ll do a first or second mortgage, depending on the condition of the first,” Cohen explains. “If the rate is good on the first, and if we can pay down any delinquent amounts, get the taxes and homeowners’ association/condo association fees current, then we can give the borrower a cushion while the house is being sold.”

At Wells Fargo Home Mortgage in Jacksonville, sales manager John O’Connor says the lender’s two-year rate lock is popular for buyers who are building a new home and concerned about rising interest rates. “They want to sign a contract and buy it now, but a home or new condo project could take 18 months to finish,” says O’Connor. “For those buyers, we offer a two-year rate lock that helps them grab today’s rates even though they may not close until 2008.”

O’Connor is also helping buyers get into their homes with virtually no cash investment, thanks to a 100 percent financing arrangement that requires no closing costs, upfront homeowners’ insurance payments or tax escrows. To get there, buyers take out a mortgage for 75 percent of the purchase price and pair that with a 25 percent equity line of credit and seller-paid closing costs.

“Fannie Mae and Freddie Mac are allowing for 9 percent seller contributions. Depending on the success of the home purchase negotiation, a buyer could basically have the seller pay all of the closing costs and prepaids,” says O’Connor, “and get into a home with no cash investment.”
 
Easing the Pain
Along with the ACORN program, Maxson says, Bank of America uses a “paper-saver approval process,” which helps certain buyers get financing without having to produce tax returns, W-2s or bank statements. “Based on certain information that the customer gives the loan officer, we can put it into the system, and it’s a done deal,” says Maxson.

Maxson estimates that 65 percent of buyers are approved through the paper-saver process, which results in much less paperwork and time required for the approval process. He sees such programs—plus those that use creative means of getting buyers into homes—as especially vital for sales associates, regardless of the market conditions.

“Clients can buy better-quality properties, versus what they’d normally be able to qualify for, without getting saddled with huge interest rates and unaffordable monthly payments.” 

Bridget McCrea is a Clearwater-based freelance writer.