Back in the day, it used to be that 100% financing was pretty common – you could buy a property, literally, with no money down. It was this “easy money,” coupled with “no-documentation” (aka “liar”) loans that drove housing prices through the roof and ultimately led to the housing crisis which we are still working through.
The demand for 100% financing has not diminished; there is no shortage of buyers out there who are short on cash but long on the desire to own a home. While there are still some 100% financing loans out there (USDA, VA loans), for the past several years, most buyers with little cash have been availing themselves of FHA loans, which require only 3.5% down.
However, FHA loans are beginning to lose their appeal, as the loan program is changing. FHA loans with less than 20% down require PMI (Primary Mortgage Insurance). The PMI for a FHA loan requires a significant initial up-front cost, and a yearly cost as well – both of which are set to rise. In addition, the PMI on a FHA loan will now stay with the loan as long as the loan is in place – even if the equity in the property rises to 20% or more. Previously, a borrower could get the PMI removed once they had at least 20% equity in the property; this is changing effective April 1 2013.
Fortunately though, the mortgage market is stepping up with an alternative: welcome to the 97% financed conventional loan. A “conventional” loan is one which can be re-sold to Fannie Mae and meets all of Fannie’s loan guidelines. Gone are the days when you need 20% down for a conventional loan – in fact, the down payment has steadily been decreasing, down to 10, then 5, and now – you can get a conventional loan with only 3% down. What’s more, you can use this loan to do a re-finance, which will be great news for a lot of folks who have little equity in their properties but don’t qualify for HARP.
The 97 Conventional loan as it’s called does have a a loan limit of $417,000 whereas other conventional and FHA loans do have a limit of $625,000 in many parts of California, and there are some strict credit score and debt-to-income ratios which means that not all borrowers will be able to avail themselves of this loan – but for lots of borrowers out there – particularly first-time buyers – this is a program that’s definitely worth checking out.
If you need a referral to a great lender who can help you out with this new 97 Conventional loan, please don’t hesitate to contact us!