Brand New 1% down payment purchase loans

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Submitted by HLS on July 14, 2016 - 10:09am

A wholesale lender that I deal with announced this yesterday as an 'exclusive' program..

Borrower puts 1% down,
Lender contributes 2% toward the down payment
No monthly Mortgage Insurance
700+ Credit score
43% max DTI
700+ FICO

$429,895 is the max purchase price so the loan amount stays
<$417,000 (or buyer has to bring more $$ to close)
I'm still getting more details....seems that it's good on houses OR condos.

I think that military veterans deserve No down payment purchase loans for serving the country.

FHA & other low down payment loans supposedly exist to make housing affordable.
It seems to me that these programs make housing UNaffordable as they allow people to buy with very little of their own money, and pushes up prices.

Wouldn't housing be 'more affordable' if 10% or 20% down was required as a down payment ?
Fewer people might be able to buy houses, but I think they would be more affordable.
This program is only inches away from nothing down !
It's not April Fools Day either.

Submitted by spdrun on July 14, 2016 - 10:48am.

The 43% DTI will likely be the ultimate limiting factor. Average down payments are in the 10-20% range already in major metro areas. 3% has been available for years, but it's largely theoretical.

http://www.themreport.com/headline/07-12...

There's also the paradoxical effect of low-down loans being most available to high-income people who need them the least due to DTI rules.

This being said, military is just another job. No reason why anyone on the gov't dole (incl military and vets -- considering there hasn't been a just war in 60+ years) deserves more than the average Joe.

Submitted by HLS on July 14, 2016 - 10:59am.

3% is not theoretical, it has been available.
With FHA it comes with mortgage insurance for 30 years if one is unable to refinance out of it. Ok for people with crappy credit.

Conventional 3% down is available for people with better credit and mortgage insurance goes away at some point.

1% down is nuts. Even at a 4% rate, payments will be much lower than they were 10 years with no money down loans at 6%+
Most people only care about their monthly payment.
Will be interesting to see if this program stays around long OR if other lenders jump in.

The crazy thing is that it can be easier for some borrowers with crappy credit to get a purchase loan with 3% down
than it could be for someone with 800+ credit and 50% down.
The system is broken. It's difficult to understand.

IMO anyone who has been within 1000 miles of Afghanistan or Iraq deserves to be able to buy a house in America with no money down.

Submitted by bearishgurl on July 14, 2016 - 12:31pm.

HLS wrote:
. . . IMO anyone who has been within 1000 miles of Afghanistan or Iraq deserves to be able to buy a house in America with no money down.
I agree with this but the 2% funding fee at closing is an impediment to a lot of eligible vets. As you know, CA (resale) sellers have historically not agreed to help with the VA funding fee, making these 1000's of dollars in (unnecessary, IMO) closing costs very prohibitive for homebuying vets in CA (esp an active-duty enlisted vet). Many (most?) of these vets have been trying to raise their families on their salaries only, which isn't much if they are residing in military housing and thus don't have a housing allowance. This is due to many (most?) of their spouses following them around from one duty station to the next every 1-5 years and thus never really getting their own "careers" off the ground. The vast majority of military spouses (both active duty and retired) are only marginally working PT, currently unemployed or have never worked at all!

I also believe the VA guarantee is too high and thus the VA mortgage loan ceiling is too high (currently $580,750 for SD Co, CA). This is wa-a-a-ay too high for a veteran (married or not), but ESPecially one with a spouse and minor child(ren) in tow who is subject to frequent change of station orders and deployments. Even an E-8 with a family and a housing allowance should not be borrowing that much money, even if they seem qualified on paper, imho. There are too many unknown variables in their lives and thus they (and their families) are far too vulnerable to be carrying anywhere near that much debt. An active duty veteran very often cannot pick and choose the best time to sell their home and cannot carry the debt from a home they bought with no money down into a new duty station. Even if rented, they or their families cannot financially handle the vacancies, cleanup and repairs between tenants, property mgmt fees and likely negative cash flow every month from being an over-indebted, long-distance landlord.

In short, the VA loan program is impractical for many who are eligible to take advantage of it, in spite of its "zero-down" feature. The existence of the funding fee has always landed the new VA buyers in the "underwater zone" immediately after closing, if financed (as most are).

The program is great for "retired" vets (usually over the age of 40) who are buying in slower-moving, lower-cost regions of the country where resale sellers will help with the buyer's funding fee to get their (stagnant) listing finally sold.

Submitted by spdrun on July 14, 2016 - 12:40pm.

Why would a seller want to lose 2% profit just to help a vet? Would you take a 2% haircut just to sell to the right buyer?

Submitted by bearishgurl on July 14, 2016 - 12:41pm.

HLS, I'd be interested to know what the closing costs will be on the *new* mortgage loan you described in the OP :=0

Submitted by bearishgurl on July 14, 2016 - 12:43pm.

spdrun wrote:
Why would a seller want to lose 2% profit just to help a vet? Would you take a 2% haircut just to sell to the right buyer?
No they wouldn't ... not in Cali. Because they don't have to. Especially sellers in coastal counties.

Submitted by bearishgurl on July 14, 2016 - 12:56pm.

Up until about '92, some "VA no-no" transactions WERE successfully completed in areas of SD County where the majority of home-shoppers were in the military or retired vets. HOWEVER, a nice 4/2+/2+ SFR with a decent-sized yard only cost from $73K (lower "enlisted" area) all the way up to $160K (senior "officer" area) back then. Thus, the funding fee (paid fully or partially by sellers) was much less than what would be asked of them now :=0

Often, the buyer's and seller's agents ended up splitting the buyer's funding fee with the seller just to close a (frequently 100+ day escrow) "VA no no" deal ... especially if the VA appraisal came in lower than the agreed-upon purchase price :=0

Submitted by mixxalot on July 14, 2016 - 12:52pm.

Ugh here we go again! NINJA loans redux, this won't end well.

Submitted by spdrun on July 14, 2016 - 1:02pm.

Those aren't NINJA loans since they're limited to 43% DTI with (I assume) strict proof of income. This being said, if they can blow up another bubble and have it pop within (say) 5 years, it would be beautiful. A good neighbor is one in foreclosure, with my knowing the date of his sheriff's sale :)

Submitted by bearishgurl on July 14, 2016 - 1:04pm.

mixxalot wrote:
Ugh here we go again! NINJA loans redux, this won't end well.
I honestly don't understand why the current RE market needs another ultra-low downpayment mortgage loan program. Isn't it doing just fine all over the US without it?

As HLS said, there is always the FHA (w/MIP) as well as FF 5% down programs (w/PMI). Haven't today's buyers figured out by now (after watching the FC crisis of the aughts) that it isn't a good idea to buy a home with little or no money down?

Why can't these (mostly college-educated) millenials stop buying $800 iphones and Starbucks every day and stop spending their weekends at craft beer bars (speaking for my own kids here :=0) and start saving some of their large salaries for their first home?

Submitted by spdrun on July 14, 2016 - 1:06pm.

Better they don't. Better they keep high card balances, not pay off their student loans, and be renters for life! No need for them to get uppity and think they deserve to own a home.

Submitted by Coronita on July 14, 2016 - 1:48pm.

Any income requirements, either upper bound or lower bound.

Fixed or adjustable?

Submitted by spdrun on July 14, 2016 - 2:54pm.

43% debt to income max which sets the lower bound.

Submitted by FlyerInHi on July 14, 2016 - 3:14pm.

bearishgurl wrote:
Haven't today's buyers figured out by now (after watching the FC crisis of the aughts) that it isn't a good idea to buy a home with little or no money down?

It's actually a good deal for the buyer, if debt service is lower or comparable to rent. You always have the option to walk away.

I know someone buying in a beach town. Not a bad deal because rents are so high.

Submitted by FlyerInHi on July 14, 2016 - 3:21pm.

HLS wrote:

IMO anyone who has been within 1000 miles of Afghanistan or Iraq deserves to be able to buy a house in America with no money down.

err... isn't that social engineering?

Why not pay a competitive wage without all the ancillary benefits that require huge bureaucracies and let the market decide? Up the wages if not enough people apply. And lower wages when there are too many applicants.

Submitted by bearishgurl on July 14, 2016 - 3:26pm.

FlyerInHi wrote:
HLS wrote:

IMO anyone who has been within 1000 miles of Afghanistan or Iraq deserves to be able to buy a house in America with no money down.

err... isn't that social engineering?

Why not pay a competitive wage without all the ancillary benefits that require huge bureaucracies and let the market decide? Up the wages if not enough people apply. And lower wages when there are too many applicants.

err... FIH?? I take it you have never been in the military. If you had, you would know that while an active servicemember, your a$$ does not really belong to you :=0

Submitted by FlyerInHi on July 14, 2016 - 3:29pm.

bearishgurl wrote:
err... FIH?? I take it you have never been in the military. If you had, you would know that while an active servicemember, your a$$ does not really belong to you :=0

In an all volunteer military, your ass does belong to you.

When there was a draft, VA benefits made sense. Not anymore.

Submitted by spdrun on July 14, 2016 - 3:31pm.

^^^

So actually pay/pension soldiers enough to get good medical insurance after they retire, buy a home, etc. Why create a bureaucracy when it might be cheaper to simply pay a wage that reflects the hardships of the profession?

Submitted by bearishgurl on July 14, 2016 - 3:55pm.

spdrun wrote:
^^^

So actually pay/pension soldiers enough to get good medical insurance after they retire, buy a home, etc. Why create a bureaucracy when it might be cheaper to simply pay a wage that reflects the hardships of the profession?

They don't pay wages reflecting those hardships BUT a service member stationed in a "dangerous area" does get a stipend for working in a danger zone ONLY WHILE stationed there. They DO get a housing allowance (and COLA, if applicable) if they have a spouse and/or minor children and are not offered a military housing unit OR do not elect to take one. The housing allowance is now about four times the size it used to be BUT it still does not keep up with current rents PLUS utilities in a high-cost area such as SD County. If they elect to apply for military housing, it is offered to them and they accept the quarters, all utilities are paid except landline phone and cable TV/Internet inside the unit.

Their retirement pay is based upon their base pay only, with no allowances, COLAs or extra pay for working in dangerous areas factored into the calculation.

The current housing allowances would be instrumental in helping a servicemember pay PITI BUT if they lived in government quarters, they wouldn't have ANY housing expenses except for TV/internet/phone (if desired). Most of them stationed in SD County elect this option, especially those families whose sponsor's pay grade is E6 or below.

If the service member is single or unaccompanied (their spouse and/or children are living in a locale other than their current duty station), they will be offered shipboard quarters or "barracks" (now modern high-rise apts at NavSta SD, with one or more roommates).

Submitted by FlyerInHi on July 14, 2016 - 4:12pm.

BG, all the details are irrelevant. People know what they sign up for. There's an argument for letting the markets decide, especially if you believe the markets should decide. People tend to sign up during times of conflict. If they do, then they see the value, notwithstanding the potential dangers.

Submitted by bearishgurl on July 14, 2016 - 4:24pm.

FlyerInHi wrote:
BG, all the details are irrelevant. People know what they sign up for. There's an argument for letting the markets decide, especially if you believe the markets should decide. People tend to sign up during times of conflict. If they do, then they see the value, notwithstanding the potential dangers.
A lot of people sign up before or after graduating from HS for Veteran's benefits to later attend college. Their families can't afford to send them to college and there are no living-wage jobs within a 50 mile radius of where many of these kids/new enlistees grew up. They want to "see the world" and eventually go to college, and for many, the military is the only way out of their hometown. I don't think very many of them sign up with a plan to make a career out of the military. The decision to continually re-enlist evolves as they get trained and experience different duty stations.

Submitted by bearishgurl on July 14, 2016 - 4:30pm.

"Military duty" isn't the same as a job gotten on the "open market." A servicemember stands 24-hour duty routinely and never gets paid overtime. They are sometimes called to show up at their duty station on the spur of the moment, in uniform for impromptu exercises. Their seabag (Navy and Marines) must always be fully packed and ready to take with them at any time. US labor laws do not apply to military personnel. If they are sick, they must report to work, anyway (even if they have to be brought in), unless they are in the hospital. They will be taken care of at work if they are really sick. As I stated, when one is an active-duty military member, their azz really does not belong to them.

Submitted by HLS on July 14, 2016 - 4:45pm.

bearishgurl wrote:
HLS, I'd be interested to know what the closing costs will be on the *new* mortgage loan you described in the OP :=0

There is a pricing factor to compensate for the risk, so there is a choice with this loan AND VA to choose a rate
that has a rebate that will cover all the closing costs.
It's simply risk based.

VA funding fee is not the same for every veteran.
The 2% fee does not have to be paid by seller nor paid in cash by the buyer, above market rate can cover it all.

According to the media, it's hard to qualify for a loan.
This is utter nonsense. In some ways it's easier than ever, especially for people who can barely afford to buy a house, as long as they qualify for the program.
easiest for W2 Salaried employees.
Harder for self employed, contract workers, and those who need commission, bonus or overtime pay to qualify.
Regardless of credit scores.

$1 million dollars in the bank makes it no easier to qualify for a conventional loan. Verified monthly income & expenses ON A CREDIT REPORT matter. Lots of monthly expenses aren't on a credit report.

I priced out a scenario and it looks like 4.00% rate covers the pricing hits and gets the 2% down payment from the lender, vs. 3.375%-3.50% with 20% down.

1% down with 4.00% 30yr rate... it's better than nothing down and a 6.50%+ rate in 2006

I don't like that it inflates the bubble.

Submitted by FlyerInHi on July 14, 2016 - 4:48pm.

Ok, BG. But it's nothing the right amount of money can't fix.

Unless you consider it a jobs program and "social engineering" as some might put it.

Milton Friedman is the one who suggested we should apply economics and recruit a military through the normal labor markets. So a soldier is just a employee who gets paid a fair wage, commensurate with the working conditions.

Submitted by bearishgurl on July 14, 2016 - 5:09pm.

HLS wrote:
bearishgurl wrote:
HLS, I'd be interested to know what the closing costs will be on the *new* mortgage loan you described in the OP :=0

There is a pricing factor to compensate for the risk, so there is a choice with this loan AND VA to choose a rate
that has a rebate that will cover all the closing costs.
It's simply risk based.

VA funding fee is not the same for every veteran.
The 2% fee does not have to be paid by seller nor paid in cash by the buyer, above market rate can cover it all.

According to the media, it's hard to qualify for a loan.
This is utter nonsense. In some ways it's easier than ever, especially for people who can barely afford to buy a house, as long as they qualify for the program.

easiest for W2 Salaried employees.
Harder for self employed, contract workers, and those who need commission, bonus or overtime pay to qualify.
Regardless of credit scores.

$1 million dollars in the bank makes it no easier to qualify for a conventional loan. Verified monthly income & expenses ON A CREDIT REPORT matter. Lots of monthly expenses aren't on a credit report.

I priced out a scenario and it looks like 4.00% rate covers the pricing hits and gets the 2% down payment from the lender, vs. 3.375%-3.50% with 20% down.

1% down with 4.00% 30yr rate... it's better than nothing down and a 6.50%+ rate in 2006

I don't like that it inflates the bubble.

This is what I was afraid of, HLS. A LOT of people (W-2/Military) look "good enough" on paper to qualify for much more home loan than they should be taking out, given the size of their families and all their other financial obligations. The VA has had a ton of foreclosures in the past (even in the '80's and '90's) and "nothing down" along with a change of duty station, slight downturn in the market, ONE bad tenant, too many weeks/months between tenants, etc, caused the borrowers to default, ESPecially if they had homeowner assn dues to pay as well. And almost all of these "circumstantial landlords" were "upside down" every month. I can't tell you how many veterans I've known over the years who lost their VA loan eligibility forever because they quickly defaulted on a SD County home which they should have never purchased. When they eventually retired back to Pudunk, USA (where they were from and where houses are relatively cheap), they didn't have their VA eligibility to use and so lost that option at at time when they were finally stable enough in life to use it and needed it most.

I volunteered for the Navy Relief Society for about 14 mos back in the late '80's. I know the pay/benefits are much better now but I can honestly say that the vast majority of (enlisted) Navy families live paycheck to paycheck and are perpetually in debt over small problems such as vehicle repairs (so the sponsor can get to work). Many of these families often run out of food before they get paid again.

Based on your post, I'm going to assume that a $417K mortgage loan on the *new* 1%/3% FF loan program costs at least $12K to close. Please correct me if I'm wrong on this :=0

Submitted by spdrun on July 14, 2016 - 7:11pm.

Verified monthly income & expenses ON A CREDIT REPORT matter.

Property tax, insurance, and HOA are not on a credit report but are used.

Submitted by HLS on July 15, 2016 - 10:08am.

Of course;
I was referring to non housing debt.
>
Private schools
Childcare
Utility bills
Auto gas

can be 4 major monthly expenses that are not on a credit report.

Submitted by HLS on July 15, 2016 - 10:24am.

BG Wrote:
"I'm going to assume that a $417K mortgage loan on the *new* 1%/3% FF loan program costs at least $12K to close. Please correct me if I'm wrong on this"
****************
Of course there is a 'cost' for the program that is a fixed % of the loan amount.. If the lender needs to make up 2% of the loan to give back to the borrower + some other fees, it certainly could be $12K on a $417K loan, however the $12K is not paid in cash, it just translates to a higher rate for the life of the loan, no cash from borrower.

If the payment is affordable, most people don't care that it will cost them $30K +/- over the life of the loan,they only care about their monthly payment.
Even at 4.00%-4.25% with the kitchen sink rolled in, it is still near historically low rate for a 30yr fixed loan.

I'm surprised that FNMA approved this program but their goal is to generate new loans and collect fees.
They assume a certain level of default just as credit card issuers do.
There's enough anticipated profit to justify the loss ratio.

Inflating the bubble is in the best interest of 'the system' ~People are happier with perceived wealth.

The Road to Ruin is littered with paper profits.

Submitted by The-Shoveler on July 15, 2016 - 10:52am.

It is not just the happiness of perceived wealth,

The Gov has a real vested interest in rising tax base and moderate inflation (monetizing old debt).

Submitted by spdrun on July 15, 2016 - 11:07am.

Then here's to a serious recession that will throw a monkey wrench in our government's plans for a few years. We're paying taxes for too many thugs (police, military, etc) with nothing better to do than harass the public and harass countries abroad. Time to put some of them out to pasture. America needs to be cut down to size.

As far as FNMA, it's being run by that twit Mel "the Skell" Watt at the moment. His goal seems to be to give as many loans to as many trailer-trash as possible without pissing off Congress -- De Marco was a hard-headed accountant type and a better steward than the Old Skell. Let's hope the head of FHFA under the next President will be less of a bleeding-heart.

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