7 replies to this topic

[creditpow]

I've got a question regarding a zero down mortage. I've seen, heard discussions regarding so called 80/20 programs. From what I understand, these programs allow you to purchase a home with no down payment by getting two loans. The first loan, for 80% of the value of the home, is priced at a "low" interest rate (depending on your credit of course), and the second loan for 20% of the value of the home, is price at a higher interest rate than the first. The benefits, as I understand them, are...

1) Abilty to get into a home with no down payment
2) You do not have to pay for private mortgage insurance, as the second loan gives you the required 20% equity (of sorts) in your home

My question is this...

I understand that many times these second loans (the 20%) are done as home equity lines of credit. If this is the case, would this 20% loan show up on the CRs as a "revolving line of credit"? If so, my concern is that my credit utilization would go from around 30-40% to well over 90%. This would most likely tank my FICO scores.

Does anyone have more infomation on these 80/20 programs? Can the 20% loan be written as an installment loan, rather than revolving? If not, are there other programs available for 0 down financing? Any info is welcome - thank you!

[willtygart]

I am not sure why you would want a HELOC instead of a second mortgage. If you are doing repairs then this would make sense but if not then I advice against it. Remember, the 80/20 program will allow you to buy 100% of the PURCHASE PRICE of the home. This does not include closing costs. In many situations, if the house you want is 100k and your closing costs are 3k, you would ask the seller to change the price of the home to 103k and then have seller concessions for the closing costs. This is not always the case but for a lot of the lenders that do the 80/20 programs it does not include the closing costs and rather only covers the purchase of the home. :wink:
As far as how the HELOC is reported I am not exactly sure how it is viewed but I would imagine it would be revolving. The line of credit could be 50k yet the usage 25k.........so the 25k is what would affect your score IN MY OPINION. I am sure some credit goo roo's will see this pist and set me straight.

[creditpow]

Willtygart,

Thank you for addressing my question. I don't have any real desire for a a HELOC, I had just been told that this was how they did the 20 portion of an 80/20 loan. All I'm interested in is a no down payment loan, so from what you are saying, I need to be inquiring about a second mortgage (installment based) for the 20 portion? Do you know if any lenders offer conforming (I think that's the correct term anyway) single loans for 100% of the value of the home?

In my case, if I went HELOC for the 20, it would be around 40-50K and so if they only approved me for the 40-50 (as opposed to say 80-100), then I'd be 100% utilized on that loan. I'm thinking that would be a bad thing .

[willtygart]

There are several 100% programs both conforming and non conforming depending upon your score. There are also several really good 80/20 programs that have decent rates. Of course everything depends upon your credit score but there is a lot out there in the 100% range.

[creditpow]

Willtygart...

Ah yes, the credit score....

I've been working on cleaning things up for the past 3-4 months. I was in the 570-580 range. My last equifax FICO came in at 648. I've only spoken with one mortgage broker so far, and here is what they quoted me based on a mid score of 633 (quote was about two weeks ago)

80 - 30 year fixed no points = 6.125%
20 - 30 year amortized (due in 10 ...I think?) = 12.99%

It wasn't clear whether the second was fixed or ARM. (I forgot to ask)

Now, with my credit scores, I know I'm definetely not going to get the best rates the market is offering. However, the quote, especially on the 20, did seem a bit high. I'm obviously going to shop, shop, shop....but does anyone (willtygart) have any idea if this is in the ballpark of where lenders are at for 80/20 with the above listed mid score? Thanks again for all of the information, I really appreciate it.

[willtygart]

Actually that pretty much looks like the way it would be two weeks ago. Once you hit the 700 number you are golden but where you are you are in the "tweaner" stage. The rates you were wuoted had a blended rate of 7.48%. I don't like that for your credit score. FHA may be a good option for you as well as a flex 100 program. This would have to be underwritten but You may be able to get a 100% rate that is in the 5.5% range and then have Mortgage Insurance to pay. I would suggest having a broker run a DU (Fannie Mae Underwriting..online..very easy and fast) and see what that does for you. If it is not as sexy of a program then i would suggest having them run a Freddie Mac LP on it. If you need some help gimme a call..sometimes this is easier to explain on the phone. I do not do Loans in Oregon right now but I can help you out in figuring what you might want to do. The number is 866-436-1379 and I always say if I do pick it up that means I have time for you ..and if I don't, leave me yer info and I will get back to you.

[creditpow]

Thanks again Willtygart. I may just take you up on your offer....

[willtygart]

That offer goes for anyone, really. Shoot me an email or give me a call if you have questions that aren't answered on the boards or are pressed for time and dont have a week to converse back and forth on here.