Jessica Anderson of Kiplinger recently wrote an article on how loans are still out there to be found via the FHA and VA programs. Here is an excerpt:
Richard Khoe used to wonder how he could ever afford to buy a home of his own. Coming up with a down payment in the ever-escalating Washington, D.C., market seemed like a pipe dream.
But last February, after years of living in a studio apartment, the 36-year-old public-policy researcher finally saved enough to buy a three-bedroom rowhouse in D.C.’s gentrifying Columbia Heights neighborhood. He had 5% of the purchase price, and his parents kicked in an equal amount so he could make a 10% down payment.
Timing was key for Khoe. The seller had reduced the price from $560,000 to $460,000 as the market dipped. And because the owner hadn’t updated the appliances — or the flowered wallpaper in the bathroom — she accepted an offer of $426,000, with a $5,000 credit for repairs. “Everything was old, but it was in good condition,” says Khoe. “So I didn’t have to spend more money right away to make the place livable.”
The new deal
The housing boom made it easier for all buyers to qualify for a mortgage. In fact, over the past five years, four in ten buyers were first-timers, with a median age of 32. But now there are fewer sources of credit, so lenders are tightening up.
For example, borrowers applying for an adjustable-rate mortgage will have to qualify for the fully indexed interest rate, not the initial teaser rate. And 100% financing deals are drying up. “The whole market is in a panic right now,” says Jim McMillan, a senior loan officer with JP Mortgage/JPMorgan Chase. Until the subprime mess gets sorted out, he says, larger institutions are staying away from any loan except 30-year fixed-rate mortgages with 20% down.
First-timers with credit dings are among the hardest hit. One alternative for them is a program that fell into disuse in the easy-credit days: the Federal Housing Administration loan. You apply for the loan at a private lender, but the FHA insures the loan against default. You generally pay a 3% down payment-money that can come from a gift-plus mortgage insurance premiums. Veterans who want to put zero down can turn to VA loans.