Financing for the first time buyer

Newly divorced, Mary Nash of Wake Forest did not think she would qualify for a first-time home buyer program because she had previously purchased a modular home with her ex-husband. Enter John Gates, the loan officer at American Home Mortgage on Falls of the Neuse Road in Raleigh.  Because she had never bought a home on her own before, Gates not only qualified Nash for a first-time home buyer program, but also arranged financing for the buyer of her former residence.

“John was amazing. The financing for my buyer fell through and he found a way to get her financed,” said Nash. “I wouldn’t have gotten my children moved before the holidays if he had not been so solution oriented.”Finding home-buying solutions for first-time home buyers, especially people with either poor credit, no way to make a down payment, or no funds to pay for closing costs is a familiar situation for mortgage lenders.

Gate’s solution for Nash was a federal Farmer’s Home Administration loan that enabled her to put $5,000 down on her new town home.Many banks and mortgage companies can arrange first-time home buyer programs by a combination of federal loans, loans from the NC Finance Agency (a self-supporting state agency), and specialized loans customized by their companies. The cities of Raleigh, Chapel Hill and Durham also have first-time home buyer programs for people with qualifying low-to-moderate incomes. These plans vary, but most provide loans for down payments or closing costs and are either geared toward individuals buying homes in specified areas, or designed to assist with the purchase of homes under a certain price limit.

“There are all kinds of ways to get people in with no money down,” said American Home Mortgage’s Gates. “If their credit’s good enough I do a Fannie Mae 100 percent deal. If the credit scores are lower, I try to do an FHA loan, and get assistance from a nonprofit organization like the N.C. Finance Agency for a down payment. FHA requires only a 2.5 percent down payment.” Gates, who has about 20 first-time home buyer plans at his finger tips, simply fills out a customer application and does a product search on his computer to find a deal that best suits each customer.

The N.C. Housing Agency also puts together many of the plans that mortgage companies and banks offer their customers. “One of the main things we can do is provide below market rates at or 1 point below conventional loans,” said N.C. Housing Agency spokesman Margaret LaTrone. “It’s a 0-point, 30-year fixed rate mortgage for people who are in the low-to-moderate income bracket which is very generous. For a four-person household in Raleigh, they can make no more than $81,500 a year and can purchase a new construction home up to $185,000 and an existing home up to $170,000.” The N.C. Housing Agency lists qualification guidelines and cooperating lenders on its web site at www.nchfa.com.

“The best one we have is through N.C. Finance Agency,” said David Watson, a loan officer at LSB Bank in Raleigh. “They offer 100 percent financing and a lower interest rate, about one-half point lower than a traditional 30-year fixed. We have about five first-time home buyer programs.” Watson said these programs are very helpful because most first-time home buyers have very little or no money for a down payment and that’s what these plans are designed to get around. Banks and mortgage companies began offering the first-time home buyer programs widely after Congress passed the Community Reinvestment Act in 1977. It was designed to get banks to reinvest in underserved communities which nonetheless contributed to the banking industry’s wealth. In an attempt to tweak the free market system, Congress chartered Freddie Mac and Fannie Mae in the 1970s.  These organizations invest in a wide-range of mortgages in order to insure that mortgages across the country are uniform and that they are stable and affordable. “At the end of the day, it helps more borrowers get mortgages,” said Brad German, a spokesman for Freddie Mac.

The cities of Raleigh, Chapel Hill and Durham also have first-time home buyer programs for people with qualifying low-to-moderate incomes. These plans vary, but most provide loans for down payments or closing costs and are either geared toward individuals buying homes in specified areas, or designed to assist with the purchase of homes under a certain price limit.

“The State Employees Credit Union has a plan that loans 100 percent of a mortgage, does not charge a loan origination fee (which is usually one percent of the loan), and even loans the money to cover closing costs for our 1.3 million qualifying members,” said Phil Grier, senior vice president of loan administration for the SECU. “There is a slightly higher interest rate for loans financed under this program,” he said.

“We’ve been doing this since the early 90s and it’s been a highly successful program for us, providing the opportunity for literally thousands of our members to own a home where otherwise they might not have been able to because they didn’t have the funds available.” Programs like these helped single moms like Tonya Trice who wanted a nice place to raise her two-year-old daughter.  Trice was able to avoid a down payment for her home and her monthly mortgage payment was about equivalent to what she’d been paying in rent.  Finding home-buying solutions for first-time home buyers, especially people with either poor credit, no way to make a down payment, or no funds to pay for closing costs is a familiar situation for mortgage lenders.

“It’s good because I’m only 21,” said Trice, who moved into her new home in November. “People just say they are proud of me. I didn’t want to live in an apartment anymore - I wanted my own home.”

DENISE SHERMAN is a Freelance Writer