Don’t have the funds for a down payment? Keep reading.
Increasingly, millennials and other first-time homebuyers have trouble finding the money for the down payment. Along with debt and low credit, it’s a major barrier to homeownership.
The Virginia Housing Development Authority recognized the issue and has taken steps to make it easier for first-time homebuyers who may not have the required down payment needed to purchase a home. Thanks to VHDA’s new conventional loan program option, you can finance the down payment into a second mortgage and pay off the down payment over time – rather than provide a lump sum of money at the time of purchase.
VHDA previously only had this option for Federal Housing Administrationloans. This option is now extended to conventional financing. The second mortgage, which covers the down payment, has the same interest rate and terms as its main mortgage. This program allows buyers who do not have all the down payment money to buy a house. The borrowers will need to have 1 percent of the sales price/appraised value in reserves for these programs.
To participate, you can choose from two conventional options. The first is with reduced mortgage insurance and the second is with no mortgage insurance, but the rate is typically higher.
With each option, the maximum second mortgage amount will be 3 percent for buyers with credit scores below 680 and 4.5 percent for buyers with credit scores equal to or above 680. The extra 1.5 percent is intended to assist with the closing costs.
The two loans are great news for people who want to use a conventional loan to buy a home but may not have the down payment savings. What are the benefits to a conventional loan?
The biggest upside is that the mortgage insurance can “fall off.” With your loan, you need to pay a monthly insurance premium. If you meet federal regulation, when you reach 20 percent equity in the property, you may ask the mortgage company to cancel the fee.
You cannot cancel mortgage insurance with an FHA loan. The insurance remains for the life of the loan (unless you refinance to another loan program).
That’s why the new conventional loan options are a great alternative. Qualified buyers can access conventional loans in a way they could not previously through VHDA.
VHDA also made additional enhancements to its other loan programs. Previously it did not allow you to combine its down payment assistance grants with others (e.g.: Federal Home Loan Bank or local municipalities). Now, you can use multiple grants to purchase a primary home.
VHDA recognizes the down payment is too often a roadblock on the path to homeownership. With these new conventional loans, buyers have excellent options to secure a mortgage and receive the keys to their first home.
Shikma Rubin is a loan officer at Tidewater Home Funding in Chesapeake. She specializes in lending for the millennial generation. Sign up today for Rubin’s free webinar, “First-Time Homebuyer Crash Course,” at shikmarubin.com/webinar. You can reach her at srubin@tidewaterhomefunding.com or 757-490-4726.