What type of home loan is best for someone with 680 Credit score, no money down?

Question

I'm looking to buy a home. My credit score is 680, but I have no money to put down. What is the best loan option for me? A friend is buying a home and he says his rate is 1% and his mortgage increases by 1% per year. Not his interest rate, but his mortgage payment. That doesn't sound right to me. Any advice?

Answer 1

Actually 100% pay option loans DO exist. There are 1 loan 100% with lender paid Mortgage Insurance and there are the now popular 80/20 with a negam/payoption 1st. You do need good credit to qualify but you can get a first loan at say 7% where you can pay as little as 4% interest only and then a 2nd mortgage behind that first. Now this means your balance could be higher than the home is worth but nowadays buyers are getting homes WAY below value.



I also do not want you to think 100% should be done as an 80/20. There are MANY lenders that offer 100% one loan with no PMI and it looks like it just became official that PMI is now tax deductible so you may want a 100% loan with PMI. There are many options with your score.



Now lets talk closing costs. If you have no money to put down, you have the thousands of dollars required to use towards closing costs? If not, do not worry. In this day and age, sellers are desperate to sell and are willing to pay buyers closing costs, all of them, if they get a good enough offer. Most lenders will limit you to about 3% of the purchase price but many mortgage brokers can get you up to 6% seller paid closing costs. I personally have closed a loan for a buyer that put down a $5,000 deposit at contract and walked away with that $5,000 at closing. We financed his entire purchase price plus all of his closing costs. Do not be fooled into thinking the seller is actually paying your closing costs and doing you a big favor, they usually make you raise your offer price to include the seller paid closing costs coming back to you. Just get on the phone with an honest mortgage broker and they should help you out. Don’t forget, it is NOT just about the rate! Check the term of the loan, is it fixed or adjustable, interest only or principal and interest. You can email or ask me any questions anytime.

Answer 2

There are several options for someone with a 680, but the vanilla 30 year fixed rate mortgage is often the best. A steady payment with no change.

What your friend has is called a pay option ARM. It's an adjustable rate mortgage that allow you the option to pay the entire payment, interest only, or below interest only. Paying below the interest will cause the principal of the loan to increase, which you will pay interest on. So while he's paying less for now, unless he knows what he's doing, he's going to end up with a loan larger than the value of the home and more costly than he can afford. These loans are not for conventional homeowners. They are meant for investors or people planning on selling the home soon.

There are the 80/20's that some of these people have been speaking about, but the 20's are Home equity loans, which I try to steer my clients away from. I can get you 100% financing without an 80/20 or a 90/10, but with PMI that is now tax deductible and will fall off in a short amount of time.

If you want to discuss mortgage options, send me an email, or check out our website and fill out an application.

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Aapexfund.com

Answer 3

a 680 credit score will qualify you for 100% financing with most companies. Check with your local bank or a mortgage broker. Most likely they will give you and "80/20" which means you'll have 2 loans, one at 80% of the purchase price, the other at 20% of the purchase price. Most often, the seller will concede a portion of the sales price towards closing costs to help with "no money down." However, you still need to come up with an earnest money deposit of $500-$1000 once a purchase agreement is reached.

You friend's loan is a "Pay Option ARM." The payment rate is 1%, though the interest rate is higher. That particular loan is not offered at 100%. You'd have to have at least 5% down to qualify for that loan.

Good Luck!

Answer 4

You need to fix your credit first. If not, no bank will give you a loan, and if they do, the interest rate will be brutal. Start by only spending on items that you actually need, like food, and don't rent movies or buy fast food or subscribe to extra channels or whatever you might be doing that you don't realize you're doing. Then if you have a checking account, do NOT overdraw it or play the "float" (when you write a check on purpose when you know the money's not there in hopes it won't be cashed the same day). Pay more than the minimum payments on your credit cards and pay them off as soon as you absolutely can. If you subscribe to the internet, remember you can use it free at a library! make a list of all the little things you can save money on, and it will really add up. Good luck.

Answer 5

I just bought a house. My middle credit score (the one mortgage companies use) was slightly higher than 680, and I got 100 percent financing (no money down) from a local bank at a decent interest rate.

2 things to consider:

You have to pay private mortgage insurance, so your monthly payments will be a little higher than if you put the money down, and you won't have any equity in your house in case you want to take out a home improvement loan.

Answer 6

I don't know where you could get a 1% mortgage, but that's very good if you can. Go and talk to a bank or mortgage company. There are many options and no one on here could give you a full range of options without knowing much more than you can give here. It's best if you have a down payment though. Happy home shopping!

Answer 7

Either he doesn't understand his mortgage (how long has he been in it?) or he's on something REALLY WEIRD. There are programs for buyers which start out at a low interest rate and then it goes up until it reaches the 'norm', usually over 5 years. But tehre can be penalties involved if you sell before then.

Your credit is fairly strong. Just go to a bank and get prequalified and see what rate you get and what you qualify for...and then go from there. .....

Answer 8

Your friend is in an "option ARM". His payment is based off of 1%, but his actual rate is probably around 7%. That 6% difference in interest is being added to his principal balance every month. On a 100K, that's about $500/month that his balance goes up. Do you want to put yourself in that position?

Answer 9

Most likely he has a Rural Development Loan and/or grant. First time home buyer program. Find a Buyer Agent and have them get you started.

Answer 10

If you are buying outside a big city try getting a rural development loan.