So you say you want to buy a home but you’re locked out of the market because you don’t have enough money for a down payment. Or you don’t have adequate savings to meet lenders’ requirements on financial reserves. Or you have a “thin” credit file that lenders find tough to score and accept.
Pushed by regulators and consumer groups to expand home loan opportunities for first-time and moderate-income buyers, major mortgage players have come out with nationwide programs designed to turn renters who are creditworthy – but don’t have big down payments or closing-cost cash – into home owners.
The newest option, known as the Affordable Loan Solution plan, launched Feb. 22. It allows for down payments as low as 3 percent, no minimum cash reserves, loan amounts as high as $417,000 and, unlike other low-down-payment mortgages, there are no charges for traditional private mortgage insurance. The latter alone can sometimes add hundreds of dollars a month onto buyers’ costs and make ownership difficult to afford, so this is a big deal. For applicants with thin or no credit bureau files, the program allows for consideration of non-traditional forms of credit, such as monthly rent payments, utility bills and the like. There is no minimum required contribution toward the down payment and closing costs, so applicants can supplement their own cash with gifts, such as from parents, or even use grants or secondary financing that is available through some local government agencies. Significantly, applications won’t go through the usual automated underwriting systems that generate instantaneous approval-disapproval decisions. Instead, they’ll be handled the old-fashioned “manual” way, allowing for more individualized evaluation – and verification – of applicants’ situations.
The program is a joint effort of Bank of America, giant mortgage investor Freddie Mac and the Self-Help Ventures Fund, an affiliate of Self-Help Credit Union, a community development lender. Starting Feb. 22, Bank of America began offering these mortgages through its network of 4,800 local financial centers around the country, as well as through its online and call center channels. The bank plans to sell the mortgages to Self-Help, which will provide early-intervention servicing to borrowers who experience payment difficulties. Freddie Mac will ultimately purchase the loans. Self-Help will provide a financial backstop to cover default losses in lieu of traditional private mortgage insurance coverage.