First Ohio Home Finance

Did you know that Ohio families need no-money-down loans?

The number one incoming search term for this website is 100LTV and 100% loans. People are really looking hard to buy a home with no down payment. No problem, right? There’s 100%, 80/20 split loans, FHA, and the list goes on.

Unfortunately, that’s wrong! Most of these loan products have dried up in the last 12 months – FHA with down payment assistance (DPA) being the only survivor.

Here’s how it works. Sally Buyer wants a home but has no savings. So she writes a contract on a home that includes a line about qualifying for an FHA mortgage. In that negotiation, Sally offers to pay 3% more than list price for the home if John Q. Seller will “donate” 3% of the purchase price of the home plus $400 to a certain “charity.” John Q. Seller agrees because Sally Buyer seems solid and this is a full-price contract – a sale! Sally Buyer also signs an agreement with the “charity” to accept a 3% “gift,” contingent on the sale closing and the seller donating.

These non-profit organizations have been under fire for years because DPA is a loophole that allows home purchases with “no skin in the game” while inflating home prices. But legal challenges from the assistance providers themselves have kept the life support on.

Under the Housing and Economic Recovery Act (HR 3221) recently passed into law, DPA programs will no longer be available as of October 2008. That’s right: no more AmeriDream, Nehemiah or other “charity” gifts to get you an FHA mortgage with no money down!

Using down payment assistance is entirely normal, and many of our clients have used it to good advantage. But it should be remembered that what can help a single family may be a recipe for disaster when it becomes common practice across the country. Mortgages with down payment assistance go into default and foreclosure at nearly three times the rate of those borrowers with some money out of pocket, according to FHA.

And while some groups are trying to save DPA, the solvency of the banking system and FHA is at risk now, so it’s understandable that they would try to stop the bleeding. Especially when you consider that we - the taxpayers - are ultimately holding the bag when it comes to bailing out banks or funding HUD and FHA through our tax dollars.

Nevertheless, this is going to be a blow to our mortgage company, as well as a blow to the entire market here in Ohio.  Maybe it’s smart given the rise of foreclosures.  But 0-down loans are 64% of our FHA purchases, or 13% of total business. So yeah, it hurts when 13% of your company revenue goes whoosh!

If you are looking to buy a home, now is your chance to find a no-money-down loan! You don’t have to be a first-time buyer.  Call before it’s too late!

If you’ve dodged the dust-up between John McCain and Paris Hilton, you probably heard this week that the Federal Open Market Committee left interest rates untouched last Tuesday. That means the Prime Rate remains at a low 5.0%. What does it mean for mortgage rates? What does it mean for you?

For those who’ve followed the gurus Greenspan and Bernanke, you’ll remember that when the Fed announces a decision on Discount and Fed Funds rates, the decision is less important than the accompanying policy statement. These statements are short reviews of the Bank’s view on the economy and inflation – and therefore give clues to future monetary policy decisions.

Those opaque statements are what move mortgage bond markets, and thus mortgage rates. You can read the whole thing in less than 30 seconds right here.

A policy decision for the status-quo does signal to investors that market forces are in balance – or at least rates cannot be safely lowered. Because the Fed talks of an economic slowdown with no end in sight, rates will be stable to lower until inflation picks up. To further illustrate this, consider that one year ago, Prime Rate was at 8.25%.

The immediate result of the current decision was for stock markets to rally and rates to rise.
If there is good news here, it’s that slow economic times mean mortgage rates will not be rising significantly. I’d say that perspective is here for another 6-12 months at least.

If there is bad news here, as the economy slows and foreclosure rates rise in Ohio, credit standards will continue to tighten and the cost of financing will creep up. Tight credit standards – like the end of down payment assistance and 100% financing programs – will be discussed in the next few posts about the new Housing and Economic Recovery Bill (HR 3221).