There's a number of ways - at least 25 - to buy a home with little down Turning $5,000 into a house

May 15, 1994|By Adriane B. Miller | Adriane B. Miller,Special to The Sun

Any lender will tell you: There are no shortcuts to homeownership. If you want to buy a house, you'll have to spend some cash.

But banks, nonprofit housing groups and local, state and federal governments are so eager to help income-earning people become homeowners right now that they've developed scores of buying programs that give almost anyone with less than $5,000 in cash a chance to buy a house of his or her own.

Some lenders and housing groups gear their programs only to people with incomes at or below Baltimore's median income level of about $48,000. Other groups help buyers of all income levels.

Compromise may be necessary. You might have to accept gift money from a relative and have them remind you of it for the rest of your life; pay higher monthly mortgage payments or more in interest over the life of your loan; sweat a little over physical labor; swear to stay put for 10 or 15 years in the same house.

Here are 25 ways to buy a house with less than $5,000 in cash:

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1. State CDA loans:

Several times each year, the Maryland Department of Housing and Community Development issues millions of dollars to banks and mortgage companies that allow buyers to finance 100 percent of the purchase price of a house. The last Community Development Association loan funds, issued in April, were limited to houses valued at or below $110,000.

April's CDA loans were available at a fixed 6.75 percent interest to families who make less than about $48,000 a year. Lower interest rates were available for individuals who make less than $30,200.

The state requires buyers with a CDA loan to put down a percentage of their income as a cash contribution that goes toward closing costs. People with incomes at the median level of about $48,000 must produce 9 percent or about $4,320 in cash.

But that money doesn't have to be their own. A family member can give all or a part of it to the buyer as a gift. Once the minimum cash contribution has been paid, the buyer can negotiate with the seller to pay the rest of closing costs.

Lenders say CDA loans are hard to beat. "It's the best and most well-known loan product for people with little cash in hand," said Mark Warns, a loan officer with Maryland National Mortgage Corp. in Lutherville.

The rub: CDA loan funds are released only a few times each year and are snatched up almost immediately. The last bond fund of $61 million was gone in a week.

CDA will issue bonds three more times this year. Lenders are already taking advance loan applications.

Information: 800-638-7781.

2. Community Home Buyer's Program

Most lenders participate in this loan program, backed by Fannie Mae (the Federal National Mortgage Association). The loans are targeted at homebuyers whose income is not more than the median level for their area. Income limits vary by county. Buyers must produce at least a 5 percent cash down payment.

But under a new type of Community Home Buyer's loan called a "3-2 Buydown," homebuyers may need to produce just 3 percent of their own funds for the down payment. The additional 2 percent may come from seller contributions, lender contributions, gifts from relatives, or a loan or grant from a church, nonprofit group or government agency.

Community Home Buyer's loans differ from CDA loans in that lenders require proof that the buyer's 3 percent contribution is from their own funds and is not a gift or loan from friends or relatives.

3. FHA financing

Loans backed by Federal Housing Administration (FHA) funds usually require somewhat less income and less cash down than conventional loans.

"The standard FHA program requires under a 3 percent investment, then closing and prepaid" costs, said John Moran, chief of the Housing and Urban Development (HUD) mortgage credit office in Baltimore. "Prepaids" may include points, taxes and insurance.

"For a $50,000 house, estimating 6 to 7 percent in the city for

closing costs, the total investment could still be less than $5,000," Mr. Moran said.

The percentage down payment required goes up with the value of the house, he said. A $100,000 home might require 6 percent down. The FHA loan amount is limited to about $152,000.

Information: HUD's Baltimore office, 962-2924.

4. VA financing

American veterans with an honorable discharge may qualify for loans backed by the Department of Veterans Affairs. VA loans require no down payment at all. Cash needed at closing could just fees and prepaid expenses. The maximum loan value is $184,000.

Information: 685-5454.

5. FHA/VA rate reduction loan

Some lenders often offer preferred interest rates or point breaks to low- or moderate-income homebuyers. A point is prepaid interest charged by the lender at closing. One point equals about 1 percent of the loan amount.

First National Mortgage Corp.'s Rate Reduction Program, for instance, discounts points to the buyer by one-half percent and gives another half-percent break on the FHA market rate of interest. That can save a buyer several hundred dollars in cash at settlement time.

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