First Time Home Buyers must read this information. This is an extremely valuable program, but one that no one ever talks about. If you’re in the market trying to purchase a home for the first time, you need to be asking your lender about My Community Mortgage.
An audio recording of this essay may be heard by visiting https://www.dependableloanofficer.com/AB_My_Community_Mortgage.html
My Community Mortgage
Before we can open this discussion, we need to distinguish between an “A Paper Loan” and a “Non Prime Loan.” A Paper Loans are the really good loans. They’re the loans everyone wants to get because they offer the lowest interest rates coupled with lower closing costs. These loans are typically the standard 30 year fixed rate mortgages that have no pre payment penalties.
However, the challenge with these loans is that they’re also the hardest to get. A Paper underwriters require a strong credit score, significant down payments, reserves in the bank, verifiable rent payments, two years worth of employment history, stringent income requirements, etc.
Unfortunately, a lot of first time buyers can’t meet the strict requirements of A Paper Loans. As a result, these clients typically are offered what’s called a Non Prime Loan which is more easy going in underwriting guidelines. The challenge with these loans, however, is that they’re more expensive. These loans have higher interest rates and greater closing costs.
In the past, home buyers who were unable to meet A Paper requirements were asked to take a Non Prime loan for the first couple years. The idea was that if the borrower took the Non Prime loan and made all the payments on time for at least two years, then they’d increase their chances of qualifying for an A Paper loan in the future.
And I have to say that at the time, this strategy made sense. It got the person into the home, and made them a homeowner where they’d have a chance to establish a mortgage credit history and begin earning equity in their properties.
But now there’s My Community Mortgage. What is My Community Mortgage? My Community Mortgage is a government loan program that offers home buyers who don’t meet the A Paper guidelines a loan with A Paper pricing right from the onset. This program offers challenged home buyers A Paper Pricing, while at the same time still offering the flexibility in underwriting criteria that None Prime offers.
Thus, this is an opportunity for the first time buyer to get the best of both worlds. If have someone you care about, who wants to own a home but doesn’tI can’t encourage you enough to forward this message to them.
So where is this program coming from? It’s coming from the federal government. You see, the government knows that they’re judged by how many people in America own their own homes. The more Americans who can call themselves homeowners, the more favorably they are looked upon.
Now what really excites me is that this program offers home buyers a greater opportunity to succeed. With the Non Prime loans, we’re basically saying to the borrower, “We know you don’t have the credit or the income, therefore we’re just going to charge you more.”
As a former investment advisor, I can certainly understand adjusting the price of a loan to bring it on par with the risk level of the borrower. However, in a lot of cases, charging more for the loan only sets the borrower up for failure.
My Community Mortgage, however, sets the person up for success. Let’s face it. Lower interest rates equal lower payments. Lower payments equal less stress on the monthly budget. Less stress on the monthly budget equals a greater chance that payments will be made on time. And payments made on time equals higher credit scores. And higher credit scores coupled with equity growth equals the person being able to qualify for the traditional A Paper loan when they go to purchase their second home.
Another huge advantage of My Community Mortgage is not only the A Paper pricing in the interest rates, but also A Paper pricing in terms of closing costs. Non Prime loans are more expensive to originate than A Paper loans. For first time home buyers, who don’t have money for closing costs, asking their seller to pay less money to help them out means more sellers will be willing to work with them. Thus, they have more properties they can look at.
And if that’s not enough, another big advantage of My Community Mortgage is that it gives the borrower a discount on private mortgage insurance. In mortgage lending, anytime a person borrows more than 80% of a home’s value, lenders require that the borrower pay a monthly insurance premium to an insurance company. This coverage protects the lender from financial loss should the loan go into default.
In the past, a common way around paying PMI was to originate two loans for borrowers needing a loan for more than 80% of the value. Thus the home buyer would have a first and a second mortgage lien. The amount of the insurance premium for the PMI coverage was built into the interest rate on the second mortgage. The benefit to the buyer was that he’d now be paying this insurance premium in the form of mortgage interest rather than mortgage insurance which isn’t tax deductible.
But with My Community Mortgage, the borrower needing 100% financing need only take out one loan. This one loan, with government discounted PMI attached to it, discounts the payment even further. Thus, the full mortgage payment including PMI with My Community almost always comes in lower than the full payment with a first and second lien on the Non Prime side. The closing costs are also less expensive because now the borrower need only originate one loan instead of two loans.
Now for those of you who know me, you know I’m very big on suitability of mortgage products. Meaning that not every loan is right for every person. Therefore, let me share with you a general outline of what types of persons usually benefit from My Community Mortgage.
1. First Time Home buyers
2. People with low to moderate qualifying income
3. People with no funds for a down payment or closing costs
4. People with little or no established credit history
5. People who have non-traditional income sources (boarder income)
Now, bear in mind, approval in My Community lending is still required. There are some guidelines a borrower still must meet. But these guidelines are far more forgiving than the traditional guidelines for A Paper, and the pricing is much less costly than Non Prime.
So in conclusion if you want to buy a home, and you’ve had some trouble or if you know someone who wants to buy a home, but is afraid they either won’t qualify or they’re afraid of the payments.please forward this message to them.
You could end up affecting someone’s life in more ways than you know.