Down Payment Assistance is BACK!!

Great News! The Indiana Housing and Community Development Authority (IHCDA) has rolled out a GREAT new program that offers down payment assistance to qualified homebuyers in the state of Indiana. Many, many Hoosier homebuyers will benefit significantly from this program.  To see if it might help you, check out the program overview below.

Next Home Program Overview

·        Owner-Occupied – you have to be buying a home you will be living in.  You do NOT need to be a first time home buyer to qualify.

·        Single Family Homes Only – this program can’t be used to buy a duplex, 4 unit home, etc.

·        FHA Financing Required – you have to use FHA financing with a 30 year fixed rate with this program.

·        IHCDA Selected Interest Rate – the interest rate will be set by IHCDA and may be slightly higher or lower than the general market rate at the time you buy. 

·        Minimum Credit Score – The homebuyer’s credit score must be 650 or higher to be eligible.

·        Minor Enrollment Fee – IHCDA charges a one-time 0.125% enrollment fee to participate in the program.  This works out to $125 per every $100,000 borrowed. 

·        Full Down Payment Provided – this program offers up to 4% of the price in down payment assistance.  Seeing FHA currently only requires a 3.5% down payment, this will cover the whole down payment needed (NICE!).

·        Technically, It’s A Second Mortgage – technically, this 4% is a second mortgage on the house, but if you live in the home 2 years, it is forgiven and released and you do not need to pay it back.  If you live there less than 2 years, though, you will have to repay the money.

·        Income Limits Apply – if you make too much money, you won’t qualify.  How much is ‘too much’ depends on the county you live in and the size of your household.  Current limits can be found here:  Next Home Income Limits.  Please know, this is a HOUSEHOLD income limit, so the income of anyone who lives in the household will count, even if they are not on the loan.

·        Maximum Loan Amount – if you are buying a home with a price above $271,050, it is ineligible for Next Home.

As you can see, the guidelines for this program are quite flexible and will work for many homebuyers who need or want a little help with the down payment for their home purchase.  To learn more about whether this option will work for you, give me a call or drop me an email (574-234-5201/ lori.hiscock@ruoff.com). 

Learning The Hard Way

My two sons rented an X-Box game from a local store today.  For some reason beyond comprehension, they decided to pull the X-Box gaming console out from the cubby where we keep it stored, even though they could load the game perfectly well from where it was.  I saw this and advised that they should tuck it back in, to which I got the standard teenager ‘yeah yeah yeah’ with no following action on their part.

Fast forward 30 minutes - The start goofing around, my oldest trips over the X-Box, the rented game gets hopelessly scratched, my boys are out $40 to replace it.

Morale Of The Story

Listen to your momma

when she tells you how to prevent scratching video games.

Now onto another story from today.  A wonderful gentleman is buying a home and I have been helping him explore mortgage options for the last week.  The last time he bought  a home was 10 years ago and the process was very different then than it is now (interpret that as ‘waaaaaaaaay easier’).  When I asked him for the paperwork that I needed for his loan approval today, he got offended by the invasiveness of it and decided to go find a lender who would “give some credit to the fact that he’s paid his bills on time for the last 40 years”.  

Now, I’m not psychic, but I can fast forward 30 days and see the ending of this story.  He will find a lender who is uncomfortable with insisting on the paperwork upfront, so he’ll start working with them while thinking that I was making this harder than it needed to be.  

Three weeks from now, when closing is within days for him, he’ll find out that the other bank needed everything I’d asked for upfront, only now - because the loan originator wasn’t firm enough to get it when he should have - this good gentleman will be scrambling and sweating, trying to get what is needed at the 11th hour and very likely not closing on the intended date.  Even if he can get it all pulled together in that final hour, the whole experience will be chaotic and stressful, ruining what should have really been a very exciting and enjoyable experience.

Morale Of The Story

Listen to your Ruoff home mortgage lender 

when she tells you how to navigate the home financing process.  

I don’t know everything in life, but 

I know mortgage lending very, very well.  

(And I know how not to scratch rented video games.  Just sayin’, sons.)

Getting Your Financial Ducks In A Row

Before you fall in love with a home, you need to make sure your finances are where they need to be to get your mortgage.  Let’s talk about the three key things that a lender is going to look at for your loan approval.

Credit Report – Your credit report is basically a written report that shows what bills you’ve had and how you’ve paid them over time.  Things that you’ve paid well will show up here as well as financial slip-ups like late payments, judgments, bankruptcies or foreclosures. 

The credit bureaus track your information and they will give your lender a credit score for you that reflects how responsible you’ve been with handling your bills.  The higher your credit score, the better. 

One of the first things you’ll want to do in the home buying process is look at your credit report and see just what is on it.  You can get a free credit report each year by going to www.annualcreditreport.com.  Your mortgage lender can also pull a copy and review it with you.  Working with your mortgage lender to review your report is often a better route then reviewing it alone because he or she can interpret what the report says and help you work out a plan to fix any bruises that might show up on it.

Income – The bank is going to want to see that your income is stable and ongoing.  Typically a bank will look backwards 2 years and forward 3 years.  Have you been working full time or in school full time for the last 2 years?  Are you working full time now and is your job likely to continue?  Is your income enough to cover your current bills and the new mortgage without stretching your finances too far? 

These are all things that the lender will ask.  Now, if the answer is ‘no’ to any of these questions, that doesn’t automatically mean that you can’t get a loan, but it does mean that you’ll want to have your lender look over your situation early on in the process to see if you are able to get a mortgage now or if you need to make a plan to get one sometime in the future instead.

When Money In The Bank Isn't Good Enough

“But I have the down payment.  The money is right there in my bank account.  Isn’t that good enough?”  I could hear the shock in the home buyer’s voice as he handed me his bank account printout.  He’d been saving money for a house for six months, diligently putting cash away in his safe at home every week until yesterday when he took $5,000 of his hard-earned savings to his bank and deposited it into his account.  Today he proudly brought his bank printout in to show me that he now had the money saved up, only to be met with a less-than-pleased reaction from me, his mortgage lender.

And what could I say to him?  Yes, you saved the money and yes, you have it in the bank, but no no no no no – I’m so sorry, but that’s not good enough.  Unfortunately, my buyer was about to learn a hard lesson about the importance of “Seasoning”. 

Isn’t All Down Payment Money The Same?

When it comes to a mortgage approval, all down payment money is NOT the same.  When you’re buying a home, your lender needs to not only know that you have the money to buy it, they also need to know where that money came from.  

This rule is in place to make sure that the money is truly yours and not something like a new loan you took out or an advance on your credit card.  For money to be considered acceptable, it typically needs to be the accumulated savings from your earnings, a gift from a relative, or proceeds from a secured loan, like a 401k loan or a car loan.   Money that is not from an acceptable source will be a problem, and your lender may have to treat that money like it doesn’t exist which means you can't use it to purchase your home.

How Will A Mortgage Lender Determine If Money Is Acceptable Or Not?

That’s where seasoning comes in.  Seasoning refers to how long the money has been in your bank account.  If you’ve had money in your bank account for at least two months, the bank views it as having been there long enough to be yours.  After two months in your account, the money is considered ‘seasoned’ and eligible for use in your home purchase.

If your money hasn’t been in your account for two full months but the bank can see that it has accumulated in your account through your payroll, that is acceptable too.  The problem comes up when the money just appears in your account in the last 60 days and it didn’t come from a source that is acceptable for mortgage approval.

So What Does A Buyer Do When This Happens?

The best way to deal with this type of problem is to never have it happen in the first place.  Had my buyer been saving his money in the bank all along instead of as cash at home, things would have been fine.  It was the recent deposit of it that created the problem.  Buyers and their lenders need to talk to each other early on about the source of the down payment so that the lender can make sure the buyer is saving properly.

If the buyer has been saving at home all along before meeting with the lender and now it’s too late to go back and change that, though, there are typically two ways to work around this.  The first route is to try to document the money.  If the buyer can show that he gets paid $600 each week and has taken back $200 of it in cash week-in and week-out for the last 6 months, the loan underwriter might be willing to view this as a savings pattern that matches the cash on hand.  Sometimes some of the cash comes from other sources, like garage sales or the sale of personal property.  Documenting as much of that as one can (ie copy of Craigslist post for sold items, bill of sale from buyer, etc.) combined with a letter explaining it can help sometimes.

A second route is to live off of the cash for the time being and let all payroll earnings go into the bank to accumulate that money in an acceptable manner.  This may delay the home purchase by a month or so, depending on how quickly the payroll income can accumulate, but it can be a solution in many situations.

The best way to fix a problem like this, though, is to just avoid it.  Meeting with your lender a couple of months before you intend to buy a house is an excellent step to help you avoid making unintended mistakes that could impact your ability to get a mortgage when you’re ready to buy your home. If you're looking to buy a home in Indiana or Michigan, I'd be happy to be that lender.  Just give me a call or drop me an email.

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.

Ohio Mortgage Broker Act License #MBMB.850220.000

The Florida Office of Financial Regulation License #MLD1182