June 15th, 2013 3:52 PM by Bob Rutledge
As a Mortgage Loan Officer for nearly 20 years, I have always considered First Time Home Buyers my number one niche. Mostly, I work with home buyers in the St. Louis, St. Charles, Lincoln, Jefferson Counties area but have helped many home buyers all throughout the State of Missouri.
My experience with First Time Home Buyers has shown that there are two items that most first timers are concerned with, getting approved and money.
Getting approved for a mortgage today initially starts with your credit and especially your credit scores. Since 2008 credit scores have become vital to the process of getting approved. Every mortgage program is different than the other and each lender can be different than the next when it comes to minimum needed credit score. A good estimate is that all borrowers on an application will need a minimum middle credit score of 620 or higher for most mortgage programs.
MORTGAGE PROGRAMS
FHA: I start with this mortgage program because it has become the most widely used program for First Time Home Buyers. FHA has a low down payment requirement of 3.5%, very good interest rates, and the easiest of qualification guidelines.
VA: This mortgage program is for qualified Veterans that have served within the Armed Forces. 100% financing, no down payment, low interest rates, no mortgage insurance, and closing cost restrictions that benefit the borrower. Must have a Certificate of Eligibility and a DD214.
USDA Rural Development: Very similar to VA, 100% financing, low interest rates and no mortgage insurance. This program has income limitations being geared to low to moderate income families. There are also geographical restrictions, this is not a program for urban home buyers and not all suburban areas. A link is provided to check addresses at my USDA web page for geographical eligibility.
Conventional: Everyone seems to think that conventional mortgages require a 20% down payment, this is not true. Generally, the minimum is 5% down payment but I now have a conventional mortgage with a minimum 3% down payment. Conventional is harder to qualify for, requiring higher credit scores and tighter guidelines. The optimal borrower should have higher than average credit scores and larger down payment to get the best interest rates.
FHA 203k Renovation Mortgage: with the available housing market being very limited today the FHA 203k Renovation program has become very popular. This is an FHA mortgage that provides the funds to purchase plus rehab, renovate, fix up, modernize, or update the home you want to buy. Low 3.5% down payment, easy qualification guidelines, decent interest rates.
Down Payment Assistance and Grants
Since there are no first time home buyer mortgage programs what is available to help first time home buyers? Down Payment Assistance programs that work hand in hand with the mortgage program you are approved for.
MHDC: This is a down payment assistance program available to all qualified first time home buyers in the State of Missouri. There are two different MHDC programs but the most popular is the Cash Assistance Loan, CAL, which provides funds for down payment help. There is a non-CAL program that sometimes has a lower interest rate than the market rate, but rarely.
MHDC is designed for low to moderate income households, every county has their own income limits determined by the medium income of the area and the household size. The Cash Assistance Loan is a 5 year forgivable second mortgage that provides 3% for down payment assistance.
Ask your lender if they are an approved MHDC lender as not all lenders in the State of Missouri provides this down payment assistance program.
LOCAL GRANTS: Since I work mainly in the St. Louis and St. Charles area I am only aware of other down payment assistance program in the area but I know of a few others in KCMO and Columbia.
There are down payment assistance programs available throughout the entire St. Louis County with Florissant having their own program. Jefferson County and St. Charles County has their own program as well. As does many cities located within St. Charles County, Wentzville, O'Fallon, Dardenne Prairie, St. Charles City, St. Peters, and a couple more.
Local Grant programs are generally second mortgage and some are forgivable some are not. The amount of funds available for assistance can range from $3000 to $5000. They are all income restrictive but as a whole they have much lower income maximums than MHDC.
Work with your lender to help determine the best down payment assistance program for you.
Closing Cost Assistance
Did you know that with many mortgage programs the seller of the house you are purchasing can provide a seller concession that can be used to pay for some to all of your closing costs? Seller concessions can range from a maximum of 3% to 6% of the sales price.
Did you know that many lenders (not all) can provide a credit at closing to help pay for closing costs too?
Little to Zero Out of Pocket
If you can qualify for a mortgage AND down payment assistance plus get help with closing costs from your seller or lender it can be very possible to purchase a new home as a first time home buyer with very little to zero out of pocket expense.
This is the type of first time home buyer mortgage programs that many are looking for but end up with something completely different because they did not work with the right mortgage loan officer. Call me and allow me to show you how this can be done for you too.