Monday, March 16, 2009

HOME AND CONDO SHOPPERS CAN BUY WITH 5-PERCENT DOWN PAYMENT OR LESS

Most recession-battered first-time home and condominium shoppers believe they have to save up a big down payment to step across the threshold of the American Dream.

That’s a myth.

If you have a stable job and good credit, you now can get pre-approved for a mortgage, place a down payment of as little as 5 percent and obtain a commitment for conventional 30-year fixed mortgage financing on a primary residence, instead of the 10 percent to 20 percent required today by many lenders, reports Wintrust Mortgage, a leading Chicago-based mortgage company.

“When every other lender says ‘no’ to 95-percent condo financing, we say yes,” said Perry D. Farella, a North Side mortgage banker for Wintrust Mortgage.

According to Farella, Wintrust Mortgage has obtained a waiver exception with a major private mortgage insurance company to originate 95-percent loan-to-value conventional Fannie Mae and Freddie Mac loans on any condo conversion or new construction condominium in the Chicago-area.

The low-down payment loans are available even if the condominium developer has not turned over control of the homeowners association to the owners, but must be warrantable.

“This exception was granted to Wintrust due to the excellent performance of our past 95-percent condo-loan clients,” said Farella.

“The program is for Fannie Mae and Freddie Mac conforming loans of up to $417,000 involving borrowers with a credit score of 700 or better who occupy the property only as a primary residence,” he said.

Here is the example Farella gave for how you could buy a condo with a sale price of $263,158 by placing a 5-percent down payment of 13,158. The borrower with good credit would qualify for a 30-year fixed rate loan of $250,000 at an interest rate of 5 percent. The monthly principal and interest payment would be $1,342.05.

Typically borrowers who place less than a 20-percent down payment are required to pay private mortgage insurance (PMI). The monthly mortgage insurance is based on a PMI factor of 0.94, or $195.83 a month in this example. Real estate taxes of 1.5 percent of condo’s sale price also must be escrowed, adding $328.95 per month to the payment.

To hold monthly mortgage costs down, Farella suggests that during negotiations the condo buyer ask the developer or seller pay 3 percent of the condo price as a closing cost credit.

“This is legal on any Fannie Mae or Freddie Mac loan of 95-percent loan-to-value, and that can be used to pay the cost of the private mortgage insurance once, up front at the closing, so the buyer avoids paying the $195.83 for PMI each month,” Farella said.

“This is known as up-front MI (mortgage insurance), and is valid for the 95-percent condo mortgage insurance program,” he said.

There are no loan points or extra fees charged for the 95-percent condo loans, he said, And, annual percentage rate (APR) would be 5.081 percent interest in this example. For more information on 5-percent down payment mortgages, call 773-303-0038, or e-mail pfarella@wintrustmortgage.com

Lenders also say it is important in today’s market to obtain pre-approval for a mortgage And, remember, financing a home or condo purchase is directly tied to the borrower’s individual, verifiable and documented financing situation.

What if you don’t have that 700 credit score? These days, lenders say you would need a credit score of at least 680 or higher to obtain a mortgage with 10 percent down, and you also would be required to pay PMI.

If you only have a credit score of 580 and no cash, what do you do? Don’t dismay. If you can charm your parents or rich uncle into giving you a 3.5 percent down payment, you still could qualify for a Federal Housing Administration-guaranteed mortgage.

It is best if you apply at a direct endorsement FHA lender, according to the Department of Housing and Urban Development (HUD). Visit www.hud.gov or call 1-800-CALLFHA for a list HUD-approved mortgage lenders that use direct endorsement.