More mortgage money now available for those of modest means


August 01, 1994|By JANE BRYANT QUINN

NEW YORK -- If you haven't been able to raise the money for a home of your own, take another look at what mortgage lenders have to offer. Loans are increasingly granted to people with low down payments or modest means. Government-backed FHA loans are the major source. But private investment is steadily streaming into the field.

Some 900 lenders -- some of them local, some nationwide -- now participate in the affordable-housing programs backed by Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation). These government-chartered corporations raise private money to buy NTC mortgage loans. The more funds they set aside for low-down payment programs, the more the bankers will be able to lend.

Take Fannie Mae's Community Home Buyer's Program (CHBP), which got rolling in 1991. In most places, it serves people who have up to 115 percent of the area's median income. In Detroit, for example, the median income is $46,700 for a family of four, so they would be eligible with incomes up to $53,705. For the median in your area, and the Fannie Mae lending limit, call 1-800-7-FANNIE.

Where housing costs are high, the limits go up. In California and the Boston metro area, you qualify with up to 120 percent of the median income; in the New York metro area, it's 165 percent; in Hawaii, up to 170 percent.

There's no income limit if you buy in the designated central sections of 544 cities all over the United States.

In the first year, CHBP lenders made around 7,200 mortgage loans on single-family homes, condominiums and townhouses. By last year, that number had risen to 62,000. This year's lending will go higher yet.

By calling 1-800-7-FANNIE, you can also get a free list of CHBP lenders in your region, plus the name and phone number of a loan officer to ask for. Having the names can be important. Only one or two loan officers may even know about the program (which the bank may call by a different name).

Borrowers have to be creditworthy. You need a stable income and can't be behind on your bills or your rent. But the credit standards aren't as stiff as for the usual homebuyer.

You have to be planning to live in the house; real estate investors don't qualify. Among the terms available, either to buy or refinance:

* Down payments as low as 5 percent. Normally, you have to have saved the full amount yourself. But if you earn up to 100 percent of an area's median income, it's OK to have saved only 3 percent. The other 2 percent can be a gift from relatives, or a grant or loan from an agency that promotes homeownership. (Again, the income ceilings are raised in the high-cost areas listed above.) You'll also need closing costs, although they could be borrowed, too.

* A nontraditional credit history. Typically, borrowers have to show that they've had credit cards and other loans and made the payments faithfully. But not everyone has a wallet full of MasterCards. Under CHBP, you're considered reliable if you show that you always make rent, utilities, insurance and installment payments on time.

* Less income than normal mortgages require. You're allowed to use up to 33 percent of gross income for housing expenses (principal payments, mortgage interest, real estate taxes and homeowner's insurance). Housing costs plus your other monthly obligations (student loans, car loans, credit-card payments) can consume 38 percent to 40 percent of your income. The traditional mortgage guidelines limit these two ratios to 28 percent and 36 percent, respectively.

In a program for rural areas, Fannie Mae is backing the Farmers Home Administration's new Guaranteed Loan Program, for people with low to moderate incomes. No down payment is required at all.

About 300 lenders offer Freddie Mac's Affordable Gold loans, whose terms are in the same ballpark as Fannie Mae's. In one of Freddie Mac's special neighborhood projects, borrowers may contribute the lesser of $1,000 or 2 percent of the home's value; the rest of the 5 percent down payment can come from gifts or other loans. This deal is initially being offered in five to 10 cities through lenders linked to local community groups.

The government's FHA program looms over all. There's a complicated formula for figuring the FHA down payment. But basically, it's 3 percent on homes where the value plus closing costs comes to $50,000 or less. On more expensive homes, it's 3 percent of the first $25,000, 5 percent of the next $100,000 and 10 percent of higher amounts.

Jane Bryant Quinn is a syndicated columnist. Write to her at: Newsweek, 444 Madison Ave., 18th Floor, New York, N.Y. 10022.

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