FHA programs offsetting '5% down' requirements
The Federal Housing Administration has revamped several of its loan programs, making it easier for buyers to purchase a home and current owners to refinance their mortgage.
Q. You recently wrote that several lenders are now requiring a minimum down payment of at least 5 percent or 10 percent to get a home mortgage, especially if the property is in an area where home prices are dropping. Our combined income is more than $60,000 per year and we want to buy our first home, but we don't have enough in savings for even a 5 percent down payment because there isn't much left of our paychecks after we pay for rent, food, utilities and the expenses for our three children (one of whom is about to enter college). Isn't there anyone who can help us get a loan to buy a house?
A. There are still some lenders that will provide a loan to creditworthy borrowers like you without demanding at least a 5 percent down payment, but their number is dwindling every week. And even if you find such a lender, the tougher borrowing restrictions that most banks have enacted in the wake of the mortgage crisis will probably require you to pay a large amount of upfront fees, a higher-than-average interest rate or settle for an adjustable-rate mortgage, whose payments could soon skyrocket in the future.
Choosing any of those "options" would be a high price to pay to get a mortgage with less than a 5 percent down payment, particularly if you're looking to buy in an area where property values might drop further. It would certainly be better to delay your home-buying plans rather than join the ranks of millions of American homeowners who are already stuck with high-cost loans in markets where prices are still falling.
However, if home values in the area are starting to get better, you should check out the possibility of getting a low-down-payment loan that is guaranteed by the Federal Housing Administration. The FHA offers low-rate, fixed-interest mortgages to borrowers who can make a mere 3 percent down payment, and recent changes to the rules make it even easier to qualify for a loan.
The FHA, which is operated by the U.S. Department of Housing and Urban Development, also has made borrower-friendly changes to its assortment of mortgage programs for current owners who simply want to remodel their homes or refinance their high-rate ARMs into a fixed-rate loan with dependable terms.
The FHA doesn't make loans directly to consumers, but instead provides government-backed insurance policies to banks that participate in its various programs. You can get more information about FHA loan plans that are available in your area by calling local lenders and mortgage brokers, or by visiting the agency's Internet site at www.hud.gov.
Q. I recently graduated from college and would like to start building a credit history so I can eventually qualify for a mortgage to purchase a home. A year ago, I bought a used car with a three-year loan and have made all of the loan payments promptly, but I just ordered a copy of my credit report and have discovered that the car dealership has not reported my steady payments to the credit bureaus. What can I do?
A. There are no federal or state laws that require lenders or other businesses to report a consumer's payment history to any of the nation's three big credit bureaus (TransUnion, Equifax and Experian). You can certainly request that the dealership report your steadfast payments, but it's under no legal obligation to do so.
If you ask the creditor to report the payments but it subsequently refuses, consider refinancing the balance left on your account with a different lender who will first assure you that your future payment activity will indeed be recorded with at least one of the national bureaus.
Refinancing the loan wouldn't help get you credit for the payments made in the past year, but it would at least help you to start slowly building your credit score as you continue making payments in the future.
Q. We purchased a town home last year and pay $185 per month to our development's homeowners association, which helps to cover the cost of keeping the lawns trimmed, the community pool clean, etc. Can we deduct these monthly HOA dues on our upcoming income-tax return?
A. I get this type of question often, especially when tax season rolls around.
As a general rule, the Internal Revenue Service will not let you deduct the monthly payments that you make to the homeowners association if the property serves as your personal residence. Owners of single-family homes can't deduct the cost of hiring a gardener or pool-cleaner, the IRS reasons, so townhouse and condo residents shouldn't be able to deduct them if the bills are instead paid through dues assessed by a local association.
If you rent the property to tenants, however, the monthly HOA dues you pay can usually be fully deducted as an "operating expense" to reduce the amount of taxes owed on your rental income. Consult a tax expert for more details.
© 2008, Cowles Syndicate Inc.