For the last several years we've had VA financing for our Veterans and USDA for our rural friends, but no good 0% down loan for the rest. Last year brought some hope when IHCDA rolled out their Next Home Program. It offered down payment money to a wide range of buyers but the buyer had to be getting a FHA mortgage to qualify. Seeing FHA has crazy-high monthly mortgage insurance and that mortgage insurance now stays on the loan FOREVER (ugh), Next Home was a step in the right direction but it still fell short for many buyers.
Effective 9/3/13, however, things are changing. IHCDA will now allow buyers to use their Next Home down payment money along with a conventional loan. Let's talk about what this means to Realtors and buyers alike:
- Down payment amount - starting in November, the minimum conventional mortgage down payment will be moving from 3% to 5%. NOT WITH NEXT HOME THOUGH. This one program will be allowed to keep the 3% down payment option (big win).
- Down payment source - IHCDA will give the 3% needed for the down payment to the qualified buyer. It is technically a second mortgage but if they stay in the home at least two years, the mortgage is forgiven and released.
- Maximum Household Income - there are some requirements to qualify. You can't make more than a certain amount (maximum set per county). The chart is here: IHCDA Income Limits. Use the two columns on the left hand side for 1 to 2 person or 3+ person households. In St. Joseph County, a 1-2 person household can't currently make more than $59,400. If they have 3+ people in the home, it jumps to $68,310.
- Not First Time Buyers Only - you don't have to be a first time buyer to get this money. You can't own another home at the time of use though. If you own a home now, you have to sell it first. Closing can be on the same day as the purchase of the new home though.
- Liberal Credit Score Ranges - the credit score can be as low as 650. The mortgage insurance will cost more at that score and it may be harder to get approved, but it is allowed.
- Lower Monthly Mortgage Insurance - Conventional loans have lower mortgage insurance than FHA loans anyhow, but this program offers a further discount. That being said, the interest rate will be higher.
- MCC Allowed - if the buyer is a first time buyer, they can use this program and the Mortgage Credit Certificate program at the same time. This rocks big time. To learn more about MCC, watch this video: MCC Education Video.
Negatives of Conventional Next HomeSo what's not good about it? A couple of things:
- Interest rate - we don't know what the interest rate will be yet seeing they don't roll it out until next week, but we know that it will be higher than non-Next Home rate.
- Higher Conventional Standards - the buyer has to qualify for a conventional loan and conventional loans are harder to qualify for than FHA loans. For those who don't qualify though, they can still use Next Home money with FHA if desired.
- Limited Seller Concessions/Higher Fees - sellers can only contribute 3% toward closing costs and prepaid items with conventional loans. Next Home loans have higher closing costs, so this 3% won't be enough. The buyer will need to bring some money to the purchase for the difference. This money can come from a gift from a family member or a loan against an asset if desired (car, 401k, etc.) If they can't come up with the money needed, they can still use this with FHA which lets the seller give 6%.
- Limited Sources - Most lenders are not approved through IHCDA to do these loans so the buyer can only work with a limited pool. Luckily for me, I'm in that pool! If your client wants to work with their 'home bank' though, they'll likely find out they can't get this assistance.