JACKSONVILLE, Fla. — There’s simply no sugarcoating the current market for those looking to buy a home.
“It definitely is riskier for people right now, and I know that a lot of buyers are getting frustrated,” senior mortgage loan officer Tanis Anderson told First Coast News.
That, she said, is especially true for buyers with limited funds for a down payment or who have less-than-stellar credit histories.
However, she stressed that programs and strategies are available. It’s just that buyers need to be as nimble as ever.
“It really comes down to mitigating risk, from a seller’s perspective,” Anderson said.
The game plans are many, and in some cases, hopeful homebuyers combine strategies.
“Offers that are winning, we’re seeing larger earnest funds and making them non-refundable," Anderson explained.
Earnest funds are essentially cash pledged up-front that goes toward the down payment. It might not take a huge sum to formulate a winning offer, but the risk in making them non-refundable is that if the buyer backs out of the deal, the prospective seller can keep the money and move on.
That means some would-be buyers with limited means have to pursue their search one house at a time.
“You really do have to set your sights on a particular home and know that you’re going to see it all the way through,” Anderson said, countering with “[Sellers] are more inclined to take an offer with a lesser down payment in a scenario like that.”
“I’m seeing people who have lower down payments doing a fully underwritten loan approval,” Anderson continued.
Other concessions, including buyer waivers of appraisal and inspection, she said are commonplace – if not for the faint of heart.
“If you’re waiving an appraisal contingency or an inspection contingency, and all of a sudden you still are doing the inspection just to know what potential issues are coming up in the home - and you’ve put $10,000 down - well, you can’t walk from the property at that point,” Anderson explained.
Anderson described a recent scenario she said is a sign of just how much some buyers are extending themselves.
“The buyer opted – and this was a very strong offer, 20% down – but they also offered to pay seller’s closing cost and realtor’s commissions,” Anderson recalled.
However, not everyone has the funds to be so bold. Fortunately, there are many programs available, with varying eligibilities. Anderson pointed out a few, starting with the Federal Housing Administration (FHA).
“That’s a loan program government-backed,” she explained. “And it is made for people who have had some credit challenges in the past.”
One benefit of FHA, she said, is that funds gifted to a buyer from another party don’t affect eligibility.
“One hundred percent of the three-and-a-half percent minimum down can come from a gift from a relative,” Anderson said.
However, there’s a downside, she added, that she sees rearing its head lately.
“FHA, for the most part, unfortunately, is going to be the first offer that gets thrown out because realtors do know that’s typically someone who has had some credit challenges in the past,” Anderson said.
Another potential avenue is a loan from the United States Department of Agriculture (USDA), which Anderson said allows up to 100% financing, subject to income restrictions. But with the added caveat that it’s generally only available in rural communities.
“It’s also area-specific, so not every single county offers USDA financing.”
For those who’ve served in the military, Veterans Affairs (VA) offers programs as well, but Anderson cautioned about an ironic feature that actually can work against an applicant.
“The VA does have a clause in the contract which allows a buyer to walk if the home doesn’t appraise," Anderson explained.
Creating the potential for wariness at least in situations involving new construction, even if the buyer has waived appraisal.
“The VA contract’s going to supersede that,” Anderson said. “Builders are nervous that the home is not going to appraise, and the buyer at that point can walk and get their earnest funds back.”
As if that weren’t enough, conditions have evolved to the point that programs benefiting buyers financially can be hurting them when it comes to time.
“This market, especially when you’re competing with cash, you need to be able to close in 21 to 25 days,” Anderson said.
She said with assistance programs closing can take as much as 60 days or longer. That can be a huge deterrent for sellers who need to time the sale transaction with a purchase elsewhere.
“They have to go somewhere,” Anderson said. “If something falls through for them, that completely messes up their new purchase.”
“Although programs are available out there, unfortunately, I’m just not seeing a lot of them getting accepted,” Anderson explained.
All that said, it’s not gloom-and-doom, just a situation in which many buyers have to combine the use of assistance programs with other strategies such as improving that credit score.
“There are some lenders out there that are absolutely amazing and will give you little bits of information,” realtor Robin Zuckerman with Coldwell Banker Vanguard hinted. “That may take 30 days to clear something off of your credit, which will bring your credit score up a good amount.”
That can help not only to secure a loan but more favorable financing terms.
“Keep in mind,” Zuckerman continued, “the worse your credit score – even if you qualify for a certain type of loan – you’re probably going to get a different interest rate, something a little bit higher.”
Indeed current market conditions might be a textbook case for buyers to seek assistance from industry professionals.
“Being creative with your strategies and working with your loan officer and your realtor is huge in getting offers accepted,” Anderson offered.
“Your agent is definitely your one-stop go-to source of all information,” Zuckerman agreed. “We know the market, we have resources. Use us for that – that’s why we’re here.”
Zuckerman explained it is imperative that buyers be realistic, as the market is still very much in the sellers' favor.
“We can’t work miracles but what we can do is we can give you the resources that you need to at least be able to try to set things up,” Zuckerman explained.
Anderson provided the following program information and links:
Florida Housing offers down payment and closing cost assistance in the form of a second mortgage loan to assist eligible homebuyers with their down payment and closing costs.
Down payment assistance is only available when used with Florida Housing's first mortgage loan. Down payment assistance is not available as "stand-alone" down payment assistance. Florida Housing offers the following Down Payment Assistance Programs to eligible buyers:
The Florida Assist (FL Assist) is another program that offers up to $7,500. It is a 0%, non-amortizing, deferred second mortgage.
The FL Assist is not forgivable. Repayment is deferred, except in the event of the sale, transfer, satisfaction of the first mortgage, refinancing of the property or until such a time the mortgagor ceases to occupy the property at which time, the Florida Assist will become due and payable, in full.
The Florida Homeownership Loan Program (FL HLP) Second Mortgage offers up to $10,000. It is a 3% fully-amortizing second mortgage over a 15-year term.
The FL HLP Second Mortgage carries a monthly payment. The remaining unpaid principal balance (UPB) is deferred, except in the event of the sale, transfer of a deed, satisfaction of the first mortgage, refinancing of the property or until such a time the mortgagor(s) ceases to occupy the property as the buyer's primary residence at which time, the FL HLP Second Mortgage will become due and payable, in full.
Since the FL HLP Second Mortgage carries a monthly payment, this payment may need to be considered in a borrower’s debt-to-income (DTI) ratio when credit underwriting.
Borrowers utilizing HFA Preferred and HFA Advantage PLUS second mortgage down payment and closing cost programs receive 3%, 4% or 5% of the total loan amount in a forgivable second mortgage.
This second mortgage is forgiven at 20% a year over its 5-year term when used with Florida Housing’s conventional HFA Preferred for TBA or HFA Advantage for TBA first mortgage products. The “PLUS” Second Mortgage is available only with these conventional first mortgage products.
Homebuyer program for Veterans and active-duty military personnel throughout the state may use the Salute Our Soldiers Military Loan Program which offers a below market rate 30-year fixed rate first mortgage loan and several options of down payment and closing cost assistance are available.