Tag: RD Loan

Buy A House with a Small Down Payment

If you are a first-time homebuyer, getting a mortgage may seem overwhelming — especially with all the different options available. Maybe you don’t have a lot of money for a down payment or your credit isn’t great. The good news is, you can still qualify for a home loan. Here are 4 low or no down payment options that can help you, as a first-time homebuyer, get into the house of your dreams.

FHA Loan

With an FHA loan, all you need is a 3.5% minimum down payment to buy your first home. Because the Federal Housing Administration backs the FHA loan, the qualifications are a bit more lenient. People who have no established credit or small savings for a down payment, and even a credit score as low as 580 can qualify. The FHA loan is also available to immigrants who have a Visa or Green Card, as well as those who have gaps in their employment.

It’s also easier to qualify for an FHA loan if you’ve filed for bankruptcy. With a conventional loan, you have to wait four years after filing Chapter 7 to apply for a mortgage. With the FHA loan, you only have to wait two years. If you filed for Chapter 13, you only have to wait one year. You can also get an FHA loan three years after being foreclosed on your previous property.

VA Loan

The government created the VA loan to provide home ownership to veterans and military personnel. Like the FHA loan, the government backs the VA loan for extra security, so qualifying is easier. To qualify, you must get a certificate of eligibility from the Veterans Administration. Having bad credit may not hinder you from getting approved. VA loans require no down payment or Private Mortgage Insurance (PMI). Veterans can choose either a 30-year fixed VA loan or a 15-year fixed VA loan for up to $424,100. They may also get a cash-out refinance of up to 100% of their home.

USDA Rural Development Loan

For those wishing to buy a home in a rural area, the USDA Rural Development Loan requires zero down payment, making it great for first-time home buyers. The government also backs this loan for added security, so there’s low or no PMI attached to it. You only have to pay a 1% guarantee fee upfront and 0.5% each year after that. That’s less than the 1.75% up front and 0.85% each year with the FHA loan. If you’ve recently filed for bankruptcy or were foreclosed, you won’t have to wait too long to qualify for a USDA loan.

Conventional 1% Down Mortgage

Important Update! Last date for loan submissions is 5/31/2018. Program is being discontinued.

Riverbank Finance offers homebuyers a way to put only 1% down on a home and still get a conventional mortgage. In this case, the home buyer puts 1% down and the lender (Riverbank Finance) contributes 2%, giving home buyer 3% equity when closing on the home. Freddie Mac created this option to make homes more affordable for new buyers. It allows people to buy a new home for, essentially, the cost of one month’s rent and avoid PMI altogether or drop PMI in the future. Your 1% down payment may be a gift from someone, you must have at least a 700 FICO score, and your debt-to-income (DTI) ratio is limited to 43%.

For more information or to speak with a loan officer about any of these mortgage options, call Riverbank Finance at (800) 555-2098.

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USDA Lowers Upfront and Annual Fees for RD Loans

USDA Lowers Fees for RD Loans

Great news for homebuyers considering a USDA rural development home loan (RD Loan)!  The already popular zero down mortgage is getting even better. The USDA announced this week that they will be decreasing both the upfront guarantee fee—a closing cost which is financed into the total loan amount at close; and the annual fee—the USDA version of PMI, which is paid monthly.  Effective October 1st, the first day of fiscal year 2017, the upfront guarantee fee will decrease from 2.75% to 1%, and the annual fee will decrease from .5% to .35%.

Now, unless you spend your spare time studying loan program guidelines, that might sound like gibberish—so let’s do some math to show the savings.  On a $200,000 home purchase, the upfront guarantee fee would decrease from $5,500 to $2,000 and the annual fee would decrease from $83 to $58.  That is a savings of $3,500 on the total loan amount and $25 per month over the life of the loan!

Requirements for a USDA Rural Development Loan

You might be thinking, that’s great, but how do I know if a USDA rural development loan is the right fit for me?  I’m glad you asked!  Qualifying for a USDA RD loan is very similar to an FHA mortgage, but requires no down payment and has two important requirements for income limits and location.

Traditionally, when purchasing a home with less than 20% down, most loan programs require private mortgage insurance (PMI) to be added to your monthly payment.  For this reason, USDA loans are more favorable, because their annual fee of .35% is significantly smaller than the .85% required for FHA loans.

Have a specific scenario you’d like to run past us?  Give us a call to speak with one of our licensed loan officers, or check out our USDA Mortgage Calculator.  We would love to recommend the best loan program for you and your situation.

Apply for a Rural Develoment Mortgage

Buying a home with no down payment has never been better. Call Riverbank Finance today at 1-800-555-2098.

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New MSHDA Grant | MSHDA Down Payment Assistance Flaws

 MSHDA Down Payment Assistance

What everyone is referring to as the new MSHDA grant is not free money. Actually, it is not even a grant. It is a second mortgage that may be used in place of a down payment when buying a new home in the form of down payment assistance. Contrary to what most people assume, it is not free money and must be repaid.

What is the MI Next Home Program?

The MSHDA MI Next Home Program is a program announced February 24th, 2014.  It was highly publicized making its way onto local news channels and newspapers.  Many potential home buyers will have heard of this program so it is crucial to know the details so time is not spent under the assumption that they can received the funds only to find out they do not qualify for the program and cannot complete the closing.

Michigan State Housing Development Authority’s new program is a down payment assistance loan that may be used to pay the down payment, prepaid items and closing costs when buying a new home. An eligible borrower may receive a second mortgage up to $7500 or 4% of the purchase price, whichever is less. This money will be funded to the escrow agent at close and a lien will be recorded against the property. When the property is sold or transferred, the homeowner must repay this money.

Who is Eligible for the MSHDA MI Next Home Program?

While there are some people that may be eligible for the $7500 down payment assistance from the MSHDA MI Next Home Program, many will not qualify due to income limits, too much in assets or even not enough in assets.

A home buyer that may be eligible for the new program must have owned a home in the past. They must be under the income maximum requirements and loan size limits. They also must be able to cover a minimum of 1% of the loan amount with their own assets but still not have assets available to cover the full down payment themselves.

Downsides to the Down Payment Assistance Program (DPA)

While many homeowners would like to keep extra money in their pockets when purchasing a home, the down payment assistance program may not be a wise choice for most home buyers even if they are eligible. The downsides to this DPA program include, potentially higher rates, potentially higher costs, less loan options, a lingering lien that never goes away and unexpected loan denials.

MSHDA Downsides to Consider

  • Not Free Money – It is a Second Lien that MUST be repaid
  • Property cannot be transferred without paying off the 2nd mortgage
  • Property cannot be refinanced without paying off the 2nd mortgage
  • Interest Rates may be Higher
  • Borrower is Required to pay a minimum of 1% in closing costs out of pocket
  • Borrower may not have funds available to cover the down payment on their own
  • Borrower cannot receive down payment funds from the sale of their current home
  • 2nd mortgage never goes away until it is repaid
  • Conventional financing is not available
  • May delay the Home Buying Process as it must be approved by MSHDA after full loan approval
  • There are Income Limitations
  • There are purchase price limitations

MSDHA sets the mortgage rates for the first mortgage that goes with the down payment assistance loan. There is no rate shopping or qualifying for a better rate if you have better credit – it is a take it or leave it rate option.  Below is a comparison of a Rural Development loan with the DPA program and a standard Rural Development mortgage. On Rural Development loans, mortgage insurance, taxes and home owners insurance will be the same so let’s compare just the principal and interest of the loan itself.

Standard RD Loan
MSHDA DPA RD Loan
Interest Rate3.75% / 4.138% APR**4.75% / 4.857% APR**
P&I Payment$ 708.57$ 798.12
Down PaymentZero DownZero Down + 2nd Mortgage
Borrower Required to Pay $0 (seller paid costs)1% = $1,500+ Minimum
Cost Over Life of Loan $255,085.20$287,323.20 + $6000 DPA

**Note: MSHDA rate quoted on 3/22/14 from Michigan.gov | Standard RD Loan quoted with similar costs of 1% origination, 740 credit score for a 100% financing USDA Rural Development loan in Michigan with a 30 day rate lock on 3/22/14. This example is for illustration purposes only. Exact rates, fees and costs may vary based on individual circumstances. Not all will qualify. For buyer to have $0 cost it may require a seller contribution at close. Contact your loan officer for a full mortgage quote based on your scenario.

As you can see from the above example, a home buyer that uses the MSHDA down payment assistance loan may end up paying an additional $32,238 in mortgage interest over the life of the loan. In additional to the extra interest paid, you still have to repay the $6,000 second mortgage. A better alternative may be to do a standard RD loan with seller paid closing costs built into the purchase agreement.

Flaws of the New MSHDA DPA Program

There are several flaws of the new MSHDA DPA program that could affect home buyers from qualifying for the program. Many times, real estate agents and home buyer will not realize that they do not qualify until they already have boxes packed and a purchase contract signed. This can be a very disappointing event in the home buying process.

Borrower Cannot Have Funds of Their Own Available for the Down Payment and Closing Costs

To qualify for the new MSHDA DPA program, a home buyer cannot have the funds available to cover the down payment themselves. This includes in any bank accounts, savings accounts, joint accounts, stocks, bonds, mutual funds, funds from gift letters, money borrowed from IRA/401k accounts, CDs, trust funds and the big kicker – not even equity in real estate. This is a major flaw considering the program is designed for home owners to upgrade or downgrade their homes and have the option to move into a house more suitable for their situation. What many people do not realize is that if you sell your current home and receive money from the sale, this automatically disqualifies you from the program. Even if you own some vacant land as real estate and it has no mortgage, the equity in this real estate may disqualify you from receiving the MSHDA loan.

The Property Cannot be Transferred or Refinanced Without Paying off the MSHDA mortgage

In today’s society it is a sad fact that 50% of all marriages end in divorce. With this statistic, the MSHDA grant could cause a large problem allowing one spouse to fully take over the house in the case of a divorce. The MSHDA 2nd mortgage that is placed on the home requires full repayment upon the transfer of a deed on the property. To record a standard quit claim deed and transfer ownership is not permitted.

This also is the same for those that wish to refinance their MSHDA mortgage. With a higher rate loan for the DPA program, a home buyer may want to refinance their mortgage to a lower rate or term if the opportunity presents itself. This is not allowed if a homebuyer uses the MSHDA funds. They will not make any exceptions in subordinating the 2nd mortgage lien that they place on the home which would be a requirement to refinancing. The home owner must repay the 2nd mortgage in full to qualify for a refinance.

Alternatives to the MSHDA DPA program

If a home buyer chooses not to apply for the MSHDA program or is disqualified for the program there are many great alternatives for home loans. One great mortgage option is the USDA Rural Development Loan which is a zero down mortgage program. A home buyer may be able to buy a home with zero down and nothing out of pocket. USDA mortgage rates are very low and the sellers may pay the closing costs.

If a home buyer is selling their current home and receiving a large chunk of money, they may want to consider a conventional mortgage. With 20% down there will be not mortgage insurance (PMI) which will help keep the payment low and avoid extra costs.

For more information on alternative mortgage options contact Riverbank at 1-800-555-2098 or apply for a mortgage online.

Summary: MSHDA Grant and Down Payment Assistance Flaws

The New MSHDA program is not free money that home buyers can receive when buying a home; it is a 2nd mortgage that must be repaid. There are limitations on income and assets to qualify for the program. If a homebuyer has money in the bank or even receives cash from the home they are selling, they may be denied financing. The rates may be higher for the DPA program than what a standard mortgage can offer and it may require the home buyer to pay more out of pocket than if they buy with a standard mortgage (See the MSHDA comparison chart above). If a home buyer does qualify for the program, it may cause unforeseen issues which may prevent the home buyer from transferring the property or even refinancing.

While there are some home buyers that will be able to utilize the new MSHDA DPA program, many will not qualify and will have great alternatives available. Before you apply for MSHDA it is important to know all the details and how it will affect you and your family now and in the future.

Where to Find more Information about MSHDA

Information about the new MSHDA program was communicated from Michigan.gov and a MSHDA employee, Sarah Nelson Bohné from the Homeownership Division. Information is reliable however not guaranteed and should be verified individually based on your circumstances.

2014 USDA Rural Development Loan Eligibility Updates

USDA Rural Development Home LoansThe National USDA Office in Washington DC has confirmed that they will be using 2010 Census data to update the USDA Rural Development program eligibility maps. Current USDA maps are based on the dated 2000 Census data. This change will not take effect until October 1st, 2014 however the changes will affect many areas nationwide including West Michigan. It is crucial that home buyers, real estate agents and loan officers make note of the upcoming changes ahead of the upcoming deadline.

What is a USDA Rural Development Mortgage?

The USDA Rural Development Mortgage, commonly referred to as an “RD Loan” or “USDA Loan”, is a no down payment mortgage program that allows a home buyer to purchase a home with no money out of pocket. Sellers paid closing costs are also acceptable to cover closing costs, taxes, insurances and escrow setup.

It is important to note that not all borrowers will qualify for RD Loans. There are income limits and property eligibility limitations based on population. This program is intended to serve the rural communities therefore highly populated cities such as Grand Rapids, Kalamazoo, Lansing and Detroit are mostly ineligible for financing.

Future Changes to USDA Loan Eligibility Areas

Changes to eligible areas can be viewed by selecting the applicable program listed under “Future Eligible Areas” at http://eligibility.sc.egov.usda.gov.  It is important to note that all applications must close prior to the deadline date of October 1st, 2014 if it is in a future ineligible area. If a real estate transaction is still in process after this deadline, the borrower’s financing will not be approved.

The Map Below shows changes for the Grand Rapids USDA Rural Development program. While Grand Rapids, MI itself has been an ineligible area for the 100% financing program, many of its surrounding areas have been eligible for USDA Guarantee Housing Loans. The upcoming map updates will affect surrounding areas in West Michigan.

Current 2014 USDA Rural Development Eligibility Areas:

Current 2014 USDA Rural Development  Ineligible Areas Map

 

Future USDA Rural Development Eligibility Areas Starting October, 1st 2014:

2014 USDA rural development future ineligible areas

Future Ineligible Areas for West Michigan USDA Rural Housing Loans

Notable additions to future ineligible areas include Allendale, Ada, Forest Hills, Zeeland, Ferrysburg and North Muskegon. On the positive side, areas opening up as eligible include a small section south of Hudsonville/Jamestown Area and a small sliver of Whiteneyville South East of the I-96/M-6 junction.

While it is much easier to use the USDA eligibility map online, ineligible areas do have written descriptions that determine eligibility.

Michigan Counties with Ineligible Areas include:
  • Allegan
  • Bay
  • Berrien
  • Calhoun
  • Cass
  • Eaton
  • Genesee
  • Ingham
  • Isabella
  • Jackson
  • Kalamazoo
  • Kent
  • Lenawee
  • Macomb
  • Midland
  • Monroe
  • Muskegon
  • Oakland
  • Ottawa
  • Saginaw
  • St.Clair
  • Washtenaw
  • Wayne

For a complete list of ineligible areas in Michigan visit: Michigan USDA Loan ineligible Areas

MI Allegan County USDA Rural Development Ineligible Area:

Urban areas in Allegan County are described as:

Bounded on the North by the County Line, on the East by 52nd Street, on the South by 143rd Avenue, and on the West by 61st Street, North to 146th Avenue, West on 146th Avenue to Lake Michigan.

MI Kent County USDA Rural Development Ineligible Areas:

Urban areas in Kent County are described as:

All that area bounded by a line from the Ottawa County Line along 4 Mile Road, East to Cordes Ave, North to 6 Mile Road, East to Grand River, Southeast following the Grand River to Buttrick Avenue, South to 60th Street, West to Hanna Lake Avenue, South to 76th Street, West to Kalamazoo Avenue, South to 84th Street, West to Homerich Avenue, North to 68th Street, West to County Line and North to beginning

MI Muskegon County USDA Rural Development Ineligible Areas:

Urban areas in Muskegon County are described as:

The City of Muskegon and all of the area from Lake Michigan East on Giles Road extended to Hilton Park Road, South to Heights Ravenna Road, West to Dangl Road, South to I-96, South East to County Line, West to Lake Michigan.

MI Ottawa County USDA Rural Development Ineligible Areas:

Urban areas in Ottawa County are described as:

The City of Grand Haven bounded on the North by the County Line from Lake Michigan to 144th Avenue, South to Ferris Road and West to Lake Michigan.

The area in Tallmadge and Georgetown Townships from the East County Line West on Lake Michigan Drive to the Grand River, South-Southeast to 28th Avenue, South to Bauer Road, West to 48th Avenue, South to Quincy Street and East to the County Line.

The Cities of Holland and Zeeland bounded on the North by Quincy Street from Lake Michigan to 88th Street, South to I-96, and South on I-96 to County Line.

Summary: 2014 USDA Rural Development Loan Eligibility Updates

In summary, the USDA has announced they will change the eligibility areas for RD Loans based off more recent Census data. These changes will affect all homebuyers that are seeking USDA Rural Development financing. Buyers, agents and loan officers should make note of the changes in their areas to prepare for the October 1st, 2014 deadline. All loans must close prior to this date if they are in a Future Ineligible Area.

For additional information on USDA Home Loan call a licensed loan officer at 800-555-2098 or request information below:

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