ISince the housing market crash of 2010, getting a mortgage has become more difficult. Low-interest rates are tempting to many who are looking to quit renting and to start building equity. But getting the loan approved is a huge task. Often these loans require you to pay a big down payment. But wait, you have an alternative solution, where you can only pay 3% down payment to get the home you wish to buy.
With so much scrutiny, finding someone to lend you money has become increasingly difficult. If you are being dissuaded from owning the American dream, take heart. The Bank of America has announced that they will begin a new program which will allow those who have as little as 3 percent down to give, to get a mortgage for home ownership.
Bank of America’s new loan program is being targeted to help moderate to low-income families who have become frustrated with all the information needed and high standards which box out anyone who doesn’t have the money or the impeccable credit to buy a home. The loans are those which are below $417,000.
Are you eligible?
Determining your eligibility by using a rrsp calculator, those who qualify must make more than the median income for the locale that they live and have a credit score that is higher than 660. Also, the loan only applies for those in the market for their primary residence. So, if you are someone who is looking to invest in a rental property, the new program will not apply.
It isn’t that you can’t get a mortgage without money down. The problem is that, if you can secure a mortgage loan without a hefty down payment, you will likely be subject to a higher interest rate offering, and something called a PMI or private mortgage insurance addition. That can price you out of your income to debt ratio and stop you from getting the loan you desire.
Those homeowners who can get a loan without a minimum of 20% are usually funded by the Federal Housing Administration, and there is a price to pay. A monthly insurance premium is added to the total cost of the mortgage payment, which can price them out of the home that they are looking at, or make them pay considerably more over the term of the loan.
Due to the lending scare created by the foreclosure disaster, the banks use the monthly premium insurance to secure their end of the contract. It is an insurance policy for the bank should the mortgage carrier default and not be able to make their monthly payment.
The same rules will apply to the types of loans with the income to debt ratio resting at 45%, but Bank of America is the first to consider a more non-traditional form of lending practices. They are willing to use things like health club memberships, daycare expenses, and your rental payment history, as proof of your ability to pay and be responsible.
They hope to target those who are falling through the cracks due to stringent rules about finances. Bank of America believes there are many who are credit worthy to hold a mortgage, but just can’t come up with the capital, and shouldn’t be penalized for it.
The rates will be determined by the borrower’s credit rating and their credit score. Bank of American insists that they can offer the consumer rates that are less expensive than what FHA is currently quoting. For those who are looking to buy their first home, they will also be required to attend a first-time buyer education program to ensure that they understand how the process works and what their obligations will be.
How can they afford to take a chance on this segment of the population that other banks consider too risky? They intend to sell these higher risk loans to nonprofit agencies like Self Help who will then turn them around and sell them to Freddie Mac
Are these loans for you?
If you are someone who doesn’t want to throw money away on rent but doesn’t have the disposable income to save up for a down payment, they just may be for you. If you wait to build a down payment, there is a good chance that you could miss the boat on historic low-interest rates.
In the same respect, however, if you to save, your interest rate will be less because it will be considered a less risky loan. Likely, it may be a wash. If you find the house you love and it makes sense for you right now, then consider giving it a try. It may just be the break you have dreamed of.
Readers, have you had an experience of this low-cost home ownership. Or, do you have an opinion? Share what you know to us.