Christina Dunham's Random Real Estate Musings

California makes it easy for renters to move into homeownership. There are several first-time homebuyer programs available, including loans with below-market interest rates, government grants, down payment assistance and mortgage credit certificates.

A first-time homebuyer is defined as someone who has not owned and occupied their own home during the last 3 years. Annual household income limits apply and availability varies by county, so it’s best to discuss your needs with a trusted Mortgage Advisors in order to find the right fit.

First-time Homebuyer Programs available include:

• Nehemiah Down-Payment Assistance Program - provides gift funds for down-payment and closing costs to qualified homebuyers using an eligible loan program, such as FHA or a conventional loan that allows gifts from charitable organizations. Gift funds of up to 6% of the purchase price can be received, depending on the needs of the homebuyer.
• FirstHouse Program - designed to provide low and moderate income first-time homebuyers in California the opportunity to purchase a home even if they don't have funds for a traditional down payment or closing costs. The program is available in over 40 counties in California. Down payment and closing cost assistance is in the form of a grant, which does not need to be repaid by the borrower, or a low interest Second Loan, or a combination of both.
• California Homebuyer's Down-Payment Assistance Program (CHDAP) - provides a deferred-payment loan for up to 5% of the purchase price or appraised value, whichever is less, for use towards down-payment or closing costs. Specified “moderate income limits” apply. For example, $80,500 for a 2-person household in Alameda County, or $91,200 for a 2-person household in San Mateo County.
• American Dream Down Payment Initiative - provides financial assistance to low-income first-time homebuyers by providing a deferred-payment loan for down payment, closing cost and rehabilitation assistance on home purchases within the City and County of Sacramento. Assistance is up to 6% of the sales price, up to a maximum of $10,000.
• CalHome First-Time Homebuyer Mortgage Assistance – provides a low-interest deferred payment loan at 20% of the purchase price up to a maximum of $40,000 for first-time homebuyers in the City and County of Sacramento. The loan is due once the home is sold or transferred to a new owner, or when the home ceases to be owner-occupied. Maximum income limits apply.
• Target Area Homebuyer Program – designed to provide low-to-moderate income homebuyers with down payment and closing cost assistance on home purchases, allowing for up to 105% financing in target areas within Sacramento. This program is not limited to first-time homebuyers. Current homeowners can apply for the program towards a new home purchase, provided they will be living in the home during the term of the loan.
• Sacramento Mortgage Credit Certificate (MCC) Program – designed to provide homeownership assistance on home purchases within the cities of Sacramento, Elk Grove, Folsom, Isleton, Galt, Citrus Heights, Rancho Cordova and the County of Sacramento. The MCC reduces the amount of Federal Income Tax a homebuyer pays.

It is still possible for first-time homebuyers to secure 100% financing, with the help of the programs above. These programs are typically available for properties in the $350,000 to $500,000 price range.

If you would like more information about any of the first time homebuyer programs listed here, visit www.dunhamgroupmortgage.com/FHTBPrograms. You may also contact me at 866.7.DUNHAM or via email at contact@christinadunham.com.

Until next week, happy home loan shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding $9 billion in loans in 2006. She may be reached at contact@christinadunham.com.

Getting the Best Interest Rate on Your Home Loan?
A Qualifed Mortgage Advisor Can Help Boost Credit Scores

Consumers interested in purchasing or refinancing a home will pay an interest rate based on current market conditions and their ability to pay back the loan. The borrower’s income and debt ratios are taken into consideration by the lender, as well as the predictability factor provided by credit scoring. It’s important to have a mortgage professional in your corner that has a keen eye for solutions to improving credit scores in an effort to get the best interest rate possible.

Interest rates associated with various loan programs are broken down into schedules based on credit score ratings. While each lender has its own guidelines, it’s safe to assume that as the consumer’s credit score goes down, interest rates will go up.

A borrower with an outstanding credit rating will get what is called an A-paper loan. This type of borrower is rewarded with a lower interest rate because they have a proven track record of using credit sensibly and paying their bills on time.

Loans designed for consumers with less-than-perfect credit – sometimes referred to as “sub-prime” – can range anywhere from A-minus, B-paper, C-paper or D-paper loans.

If you have already taken out a mortgage loan with a higher interest rate because your credit score was a little under par, you will really appreciate the value in doing a little work to improve your credit score. Refinancing from a D-paper loan to a B-paper classification can save literally thousands of dollars in financing fees over time, even though the B-paper loan is still considered sub-prime.

A qualified mortgage advisor will guide you through the nuances of the process of improving your credit score to refinance and save money. First and foremost, he or she will want to review the terms of the existing mortgage loan to determine if you have a pre-payment penalty clause written into your contract. In general terms, that means that if you sell the home or try to refinance before the pre-payment penalty expires and you have not already paid off 20 percent of the original loan amount, you will most likely have to pay a 3 percent fee back to the lender to compensate for the high risk and high costs incurred to provide that financing.

Next, you should obtain free copies of your credit reports from www.annualcreditreport.com and start working on improving the credit score six months prior to the expiration date on your existing pre-payment penalty.

There are five factors that make up the credit score and your mortgage consultant can coach you through some basic strategies to improve your credit score. This means very conservative use of credit cards, paying off debt as much as possible and not applying for additional credit cards unless you will benefit from such action. You will want to verify that negative items you have paid off are being removed from your credit report, and that good credit history is being reported to all three bureaus. You’ll also want to dispute any errors that appear on your credit reports and seek to have those removed entirely.

Once your credit score improves, it’s time to refinance at a better interest rate. Your mortgage professional should look for a program that carries no more than a two-year prepayment penalty so you can continue to refinance as your credit score increases. You can repeat this process until you reach A-paper status and secure the best interest rate available.

This is a strategy that also works well for first time home buyers who do not have enough credit history under their belt to get an A-paper loan at the time of purchase. The important thing is to work with a mortgage advisor who can give you a roadmap to follow and a strategy for success in building personal wealth.

Until next week, happy home loan shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding $9 billion in loans in 2006. For a free credit consultation, contact her at contact@christinadunham.com.

There is a great debate within the inner-mortgage circles these days. Should we, as mortgage advisors, encourage clients to borrow as much money as possible? Or would consumers benefit more if we helped them to understand the advantages of 15-year amortization schedules and pre-paying principal? Let's examine the pros and cons of both strategies.

Leveraging Your Property. In order to understand why you'd want to borrow as much as possible for your home purchase, you must first grasp the concept that equity has a zero rate of return. Here's an example:

If Consumer "A" buys a home for $300,000, and puts 20% down, then they have $60,000 in equity. Over the next 5 years, the property appreciates $100,000 in value. Consumer "A" now has $160,000 in equity.

Consumer "B" buys a home for $300,000, and puts no money down. At the end of 5 years, that same home is now worth $400,000. Consumer "B" has $100,000 in equity, which is the same appreciation as Consumer "A", a net $100,000.

As you can see, your down payment has nothing to do with your rate of return. What becomes important is how you choose to manage the $60,000 you didn't use as a down payment. If you use it for frivolous activities, such as buying toys or going to Las Vegas, it would be more prudent for you to use that money as a down payment. Especially since this will enable you to obtain a lower interest rate.

However, if you were to put the $60,000 in an investment vehicle that can out-earn the cost of that debt, then this could be a formula for success. This is why some lending professionals suggest putting as little down as you possibly can, maximizing your tax write-off, and investing the rest.

This principle has been applied for many years in the life insurance game. As the old saying goes, "Buy term and invest the rest." The key component is taking the money you would have used as a down payment and creating an asset accumulation account. This account should earn a significant enough rate of return to enable you to pay your mortgage off entirely and achieve the ultimate goal of being debt-free.

Paying Your Home Down Rapidly. There are very few times over the course of my career that I have seen a client with zero debt and no financial difficulties. Choosing to pay off all of your debt can reduce stress and help you to gain freedom of cash flow for investment opportunities. A 15-year mortgage or a bi-weekly payment strategy provides structure. It can also put you on track to have your mortgage paid off within a set timeframe. Simply put, it contains built-in discipline.

It's important, however, to understand that regardless of how rapidly you pay your home off, you're not getting any greater rate of return on your investment than if you paid it off slowly.

Conclusion. So how does one determine which scenario is best? The choice depends entirely upon the individual. Savvy consumers who are disciplined, and are comfortable taking chances from an investment perspective, would do well with the first scenario. Over the course of time, it's been proven that your rate of return over the long-haul will be far greater than the rate you'd pay for a mortgage in today's rate environment. It's important to seek the advice of a skilled investment advisor to ensure success with this strategy.

The second scenario is best for those who have a difficult time managing their money or who'll sleep easier at night knowing they have a plan in place to pay their loan off more rapidly. Be sure that your budget can handle accelerated payments. When consumers "bite off more than they can chew" with a 15-year mortgage, they frequently end up having to refinance back into a 30-year schedule.

If you find this subject intriguing and would like to know more, check out Missed Fortune 101 by Douglas Andrew. It's an outstanding read that is very simplistic and goes into far greater detail than I can cover in this column. Douglas is a financial planner who advises safe-structured investments such as whole life policies and tax-free fixed income instruments.

Until next week, happy home loan shopping!