Guide to Flexible Home Financing

So, you want to buy a home, and you are ready to get a mortgage but you haven’t saved that 10 or 20 percent down payment? Unbelievably, that isn’t a problem. Despite a soft housing market and equally soft economy, there are many flexible financing solutions for today’s homebuyer.

♦FHA Adjustable Rate Loans: Temporary Buy down

Wait, come back! When mentioning the adjustable rate and FHA loans, what is meant by this is a temporary buy-down. With these loans, you are expected to pay the required three and a half percent down payment, in addition to closing costs, just as you would with a traditional FHA loan. However, if you put as little as $1,000 toward a temporary buy down, you can get a starting rate two points below the market average. A temporary buy down is done in one of two ways, a 3-2-1 buy down and a 2-1 buy down.

♦The 3-2-1 Buy down

In this scenario, you come to closing with your down payment and closing costs. You will also come to the closing table with about $2,000 extra to buy down your rate. If market rates are currently sitting at six percent, your first year of house payments will be at an interest rate of four percent, the second year will be at five percent and finally reaching market rates during the third year of home ownership. The interest rates will never exceed the rate that the market gives you when you purchased the house. In this case, the rate never exceeds six percent. What this does for a homebuyer is significantly reduce payments in the first two years of home ownership, and helps them build equity faster, gradually inching them up to a higher payment, but never exceeding that rate they locked in on the date of purchase.

♦The 2-1 Buy down

Think of a 3-2-1 buy down and add a percentage to the first year. To use the previous example, if you locked in at a rate of six percent at closing, your first year would be at a 5 percent rate and the second year would be 6 percent. This accomplishes the same goal, with about half of the funds required at closing for a 3-2-1 buy down. So if a 3-2-1 buy down was going to cost $2,000, a 2-1 buy down would run around $1,000.

*Helpful hint: FHA allows sellers to contribute three percent of the sales price to the buyer, in this case you could use these concessions for a temporary buy down.

♦Financing and 203K Loans

In this example, you have found the perfect house, in the perfect area and on the perfect lot. The only problem is that it needs about $20,000 in rehabilitation work. Still, not a problem. HomePath financing for Fannie Mae homes and FHA 203K loans rolls the cost of rehabilitation and remodeling into your home loan, and allows you to make the repairs and renovations required without any additional money out of pocket. The genius of these programs is that, unlike a home equity loan, these come with low market rates already plugged into your mortgage payment. This means no double payment, and no hassle.

♦USDA Development Loans

Real estate experts and gurus have said  that 100% financing is outdated. When it comes to USDA loans this is untrue. The USDA program offers 100 percent financing to homebuyers seeking to buy or build a home in an area that is considered rural by the United States Department of Agriculture.

Of course, the caveat to these programs is the primary one of qualifying. Any loan with added features and benefits will come with additional qualifying guidelines. However, if you are a homebuyer with a credit score of at least 680 and some money in the bank, you should not have any problem obtaining flexible home financing for your next purchase.