How difficult is it now to get a mortgage with no money down?
December 26, 2007 9:18 AM   Subscribe

Since the subprime market bust, how difficult will it be for my boyfriend to get a mortgage for a house with little-to-no money down? Are there things he should know before beginning the process?

My boyfriend is looking at purchasing a house within the next year, but will be unable to save much of a down payment. We're already researching first-time homebuyer programs, but advice on those would be great, too.

I live with him now and will be moving to the new house with him as well. Due to circumstances beyond my control, I will not be able to go into a mortgage with him, so we may also explore options involving my signing a lease for living with him in the newly-bought house and being able to use that "rent" as income to increase the monthly mortgage payment he'd be eligible for. Do they allow that in the special programs, or would that require a conventional loan? And how difficult is that to swing with a bank?

He's got pretty stellar credit, so hopefully that will help.
posted by scarykarrey to Work & Money (18 answers total) 4 users marked this as a favorite
 
His income plays a big role here - or, more accurately, the ratio of his income to the house price.
posted by Tomorrowful at 9:26 AM on December 26, 2007


It is difficult to begin to answer your question without knowing the details, like how much of a house he wants to buy, in what market and what the income is, what the debts are. He should sit down with a mortgage broker and get a rough idea of what he can afford given his particular income and debt scenario.

What you propose regarding your contribution isn't going to fly. Maybe if he buys a duplex the lender will consider a portion of the second unit against the mortgage, but even with "no money down" programs you still need to have several thousand dollars reserved for closing costs. It is not realistic to think you can make the leap with little out of pocket expenses. Buying a house can be very expensive. I don't know if www.naca.com operates in your area, but look them up online and consider going through their homebuyer program. They are not a conventional lender and don't require a huge down payment but they do require at least $3,000.
posted by 45moore45 at 9:27 AM on December 26, 2007


We'll definitely be checking with banks in the area, as well as mortgage brokers, and hopefully they'll have some options for him. We've got a particular house in mind, and currently his income is about 20% of what we think the sale price will be for this house.

The reason I brought up the possibility of me signing a lease for him to use as income is because I've heard of people doing this before, and in fact a friend of his was able to purchase a house with this type of situation. However, that was a few years ago, before banks started cracking down on higher risk mortgages, and I wasn't sure if anybody was still willing do to that with the market like it is.

Also, we'd be looking at buying this house in Fall of next year, so we'd definitely be able to save a few thousand by then. I just meant that we wouldn't be able to come up with a 20% down payment in that amount of time.
posted by scarykarrey at 9:34 AM on December 26, 2007


Also, check out www.dinkytown.net It is a free site with a bunch of financial calculators, including several mortgage calculators where you can plug in income, debts, downpayments, etc and get a rough idea of what is affordable. You can play around with things like if the car payment is eliminated, how much more house will that give you and other "what if" financial changes and how they impact on your possible mortgage amounts.
posted by 45moore45 at 9:35 AM on December 26, 2007


Our local community college offered a non-credit course for first time home buyers that was somewhere around $50/person. It answered all the questions we really needed to know and we're extremely glad we did it. They even brought in a real-estate agent and a mortgage broker to give us an idea of what to expect in finding and closing on a house. I highly recommend seeing if your community has a similar course.
posted by dereisbaer at 9:39 AM on December 26, 2007


If you are within the guidelines as far as the value of the house and the amount of the loan, as well as this being his first house, then he may qualify for an FHA loan. FHA. We got our house with an FHA loan in 2003, little down, and have had no problem. We got a competitive rate, and one of us did not have great credit at the time.

I've heard people slam FHA before, but for us it was great, and we have as good a rate or a better rate than everyone we know who bought around the same time.
posted by Medieval Maven at 9:42 AM on December 26, 2007


"We've got a particular house in mind, and currently his income is about 20% of what we think the sale price will be for this house."

Maybe things have changed a lot since I was working in the industry but what you're talking about here is twice as much house as he will probably be able to purchase.
posted by 517 at 9:42 AM on December 26, 2007


When I bought a two-family house about four years ago, the mortgage company allowed us to count 75% of the documented historical rent on the rental unit towards our income when calculating our loan qualifications. As 45moore says above, this probably only applies if you are buying a multi-unit dwelling.

In any case, a quick call to a mortgage broker should clear this all up. It may be that your boyfriend missed his opportunity to get a house without a down payment. Given that housing prices are on a downward trend with no bottom in sight, it's hard to see why a lender would want to issue a mortgage that would almost immediately be underwater (i.e. more than you or they could recover by selling the house, especially when considering sales costs). But still, it may be possible, and a mortgage broker would be able to give you the definitive answer.
posted by alms at 9:44 AM on December 26, 2007


No, it was adjustable-rate and subprime mortgages (particularly ones advertised in large print as being low-payment because the fees/insurance/etc was in the small print) that got us into this mess. FHA's been doing conservative low/no down loans for a long time with no major trauma.

Call a mortgage broker to talk numbers. Right now there is no other way to second-guess the possibilities. Talking to one or more at this point isn't going to obligate you to anything but will be a starting dose of reality. Before you guys talk to anyone, though, he needs to decide what he can afford by himself, monthly, as an absolute upper limit. It doesn't matter what someone offers to lend him, it's what he can actually afford, and what he can actually afford may be less that what he's offered. That's that mess mentioned above.

Keep in mind that there's the simple math on house payments (just the house payment) and then there's the complex math with the fees, insurance, taxes and PMI if he's not got a down payment. The difference is, at the very least, a couple hundred dollars. The crib sheet math is that the payment including everything will be about 1% of the purchase price. Can he afford that?

Don't buy a house he can't afford alone, if you can't get on the paperwork. If something happens, he's stuck needing a renter in his house, and somebody off Craigslist isn't going to be willing to pay as much "rent" as you are.
posted by Lyn Never at 10:16 AM on December 26, 2007


Someone asked a very similar question a little while ago.

It seems as though prices haven't skyrocketed in Iowa City, where I presume you're living, so it's possible there won't be a crash in prices there.
posted by Coventry at 10:19 AM on December 26, 2007


It made hella sense to buy 0-3% down when houses were going up 10% pa, 2002-2006.

Now, not so much. Save money for the 5% down, PLUS a 5 month savings cushion. THEN shop for a house. Prices won't be any more expensive a year or two from now, and quite possibly less, even where you are.
posted by panamax at 10:26 AM on December 26, 2007


I have a cousin who's a mortgage broker and he said the only way this kind of thing will fly these days is if you can find a situation where the seller (current owner) will carry the loan with the house as security. He was talking about the market in Denver, so YMMV.
posted by jasper411 at 11:11 AM on December 26, 2007


He can find a realtor who he likes and ask that realtor for a recommendation with a mortgage person. Some mortgage people are better at finding loans than others.

But the truth is, he's probably gonna have to do some more saving. Still, couldn't hurt to find out just what he'll need to do, and the professionals will be able to tell him exactly what that will be.
posted by konolia at 1:47 PM on December 26, 2007


0% down fixed-rate mortgages for first time homeowners definitely exist; I used one to buy my current home. I called around to find mine and my clean credit record kept the interest rate low. Make sure to ask about penalties for early repayment, some banks will charge a fee if you try to pay everything off early. Our bank (Dollar Bank) didn't charge one and now that I'm married and there are two incomes in our household we are paying everything off quickly; it's like a delayed down payment.

Also, one of the drawbacks to not having a down payment is that you will be paying mortgage insurance for an extra long time. Mortgage insurance doesn't benefit you, it's for the bank's peace of mind and you'll be paying it until you have 10-20% equity, depending on the bank. Our program waived the insurance requirement for lower risk loans, so not having the extra monthly fee is a blessing.
posted by Alison at 8:41 PM on December 26, 2007


Did you get your mortgage prior to the Summer, Alison? It's been a bit tougher recently.
posted by Coventry at 9:30 PM on December 26, 2007


Our program waived the insurance requirement for lower risk loans

What rate are you paying though . . . Mortgage insurance as a separate payment is .875% where I am.
posted by panamax at 9:38 PM on December 26, 2007


I secured my mortgage two years ago, but a friend and neighbor managed to obtain a similar loan from ESB bank this August.

My interest rate is around 5%, which is good, right?
posted by Alison at 8:13 AM on December 27, 2007


I suggest researching credit unions in your area and then joining one. Credit unions tend to have fabulous programs for these sorts of things. You can have a conversation with them or attend a class without there being a lot of pressure. It's ok that you aren't ready to buy right this second and just want to see what the options are.

These loans still exist, but they are a bit harder to find, and you will have the best luck getting them from a place where you have a relationship. Like maybe the bank you already use.
posted by Mozzie at 9:40 AM on December 27, 2007


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