Julie and David Betz were diligently saving up for their first home when James L. Stewart, of First Home Mortgage, pointed out a little-known Federal Housing Administration financing option.
It is a secondary loan that allows potential homebuyers to borrow money for a down payment against other material assets, frequently a car or jewelry.
"It's the only loan I'm aware of where the buyer can use [virtually] no money of his own to buy a house," Stewart said.
Betz acknowledges that he was skeptical at first. "If it hadn't been for working with Jim, we'd still be renting," Betz said. "Julie and I didn't want to get our hopes up too high, we didn't know if it would really work, but it did."
The loan looks, at first glance, a lot like robbing Peter to pay Paul.
Of course, like most things, the FHA secondary loan is hardly that simple.
"This secondary loan is for people who have good incomes, good credit, and can afford the mortgage payments, but who, because of the high cost of renting or double car payments, for example, can't save enough for the down payment on a home," Stewart said. "Now, they can borrow the money for a down payment if it is secured by other assets, such as a piano, jewelry or a car."
Or, for that matter, added Stewart, appropriate assets might consist of a collection of rare coins or even valuable baseball cards.
"The people who do this are typically a young couple somewhere in the 35-year-old range," he said. "They often have two good incomes, are renting or living with their parents, and have every other criteria necessary to be homeowners, except the cash.
"It allows people to get out of the cycle of renting and right to the tax benefits of homeownership."
In essence, the FHA secondary home loan allows homebuyers to borrow 100 percent of the costs to purchase a house.
But clearly, Stewart noted, this is not for those with credit problems or for marginal borrowers.
To date, First Home Mortgage, a 9-year-old company with five locations in the metropolitan Baltimore area, has probably completed a dozen such secondary loans.
The Betzes -- she is a schoolteacher; he is an officer with the Harford County Sheriff's Office -- were Stewart's first buyers to take advantage of the loan. "We had a connection with a real estate agent who mentioned that Jim was looking for someone to try it out," David Betz said.
