One of the biggest obstacles for both first-time and experienced homebuyers is the down payment. If you work in real estate, you’re sure to understand the frustration. Now, Quicken Loans may have a solution that works for your clients.
Under this loan option, your clients can put as little as 1 percent down on their new home. At the same time, they get 3 percent equity in the property immediately.* This means they could get a $200,000 home while putting down as little as $2,000.
Property values have been on a general upward trend. While good for homeowners, it does raise the barrier to entry for prospective buyers, particularly in many of the nation’s hottest housing markets in the West and South. A lower down payment option helps with that.
There are requirements for every loan option and this is no different. We’ll go over some of the basic requirements and then answer some of the most common questions we get.
There are a few basic guidelines; first, we’ll go over some things we’ll need to see from the homebuyer, and then we’ll look at a couple of basic property requirements.
Guidelines for Clients
In order to qualify for this option, clients have three major financial considerations. Their FICO® Score must be 680 or higher. In order to qualify for this program, a homebuyer can’t make any more than the median income in their area in most cases. This limit may not apply if they’re in an underserved area.
Finally, they’ll most likely qualify with a debt-to-income (DTI) ratio under 45. Anything over that is less likely. Let’s look at a quick example.
Let’s say a client has $3,500 in monthly income. They have $400 in monthly credit card debt and their car payment is $300. Let’s say their house payment is going to be $800 per month. Their DTI would be about 43 percent ($1,500/$3,500).
Allowed Property Types
To use this loan, buyers have to be purchasing a single-unit primary residence, condo, PUD or townhouse. Co-ops or multi-unit residences don’t qualify.
In addition to these guidelines, the loan option can’t be used for a second home or investment property.
Frequently Asked Questions
Now that you’ve got the basics, it’s time to jump right in to some of the most common questions our clients have.
Where Does the Additional 2 Percent Come From If a Client Puts 1 Percent Down?
As mentioned above, clients can put 1 percent down, yet start with 3 percent equity in their home. So where does the other 2 percent come from? That’s a fair question.
The additional 2 percent equity comes in the form of a grant from Quicken Loans that the client doesn’t have to pay back.
How Does This Loan Option Compare to an FHA Mortgage?
For clients with a FICO® Score of 680 or higher, this option could make a lot of sense when compared to an FHA mortgage for a couple of reasons. The most obvious one is a 1 percent down payment versus 3.5 percent down on an FHA loan.
In addition, if they make the minimum down payment on an FHA loan, their monthly mortgage insurance premium will never go away for as long as they have the loan. That dovetails nicely into our next question.
Does This Option Have Private Mortgage Insurance (PMI)? Will the PMI Come Off?
The trade-off for having a down payment of less than 20 percent is that the client will have to pay PMI; however, unlike an FHA, this loan follows standard conventional guidelines and mortgage insurance payments eventually end.
If your client wishes to avoid a monthly mortgage insurance payment, they can take a look at our PMI Advantage lender-paid mortgage insurance option.
Where Can I Find the Income Limits in My Area?
This program does require the client to not make more than 100 percent of the area median income (AMI) in most areas of the country. If you happen to be in an area that’s considered underserved, this doesn’t apply. So where can you find the limits in your area?
Freddie Mac has a search engine that allows you to find the income limits by putting in the address of the property.
Do you have a client for whom this loan might be a good option? Have them give one of our licensed Home Loan Experts a call at (888) 854-3023. We’ll be happy to get them started.
*The payment on a $200,000 30-year fixed-rate loan at 4.75% (5.289% APR) with an LTV of 97% is $1043.30, which includes a mortgage insurance payment of $95.00. Taxes and homeowners insurance are not included. Rates shown valid on publication date of 4/24/2017. Restrictions may apply.
Call me for additional detail on this GREAT program Allan Feinstein, Broker - eXp Realty-Raleigh, 919-670-1400
A version of this article originally appeared on Zing! by Quicken Loans.