Vail Daily column: Government loans can help homebuyers
March 7, 2014
If you are among the ranks of locals who would like to own a place, have a steady job and at least passable credit but are down-payment challenged, then there are three loan programs that might just work for you.
The first is a U.S. Department of Agriculture home loan. These loans can actually get you in a place with no down payment and minimal closing costs. In fact, in some cases you can walk in without laying down a penny, but for most people figure $1,000 to $2,500.
USDA loans are limited to rural areas (and Eagle County is a rural area). There are some restrictions. Most notably, very few local condo complexes are eligible, and no deed restricted housing is eligible. In addition there are income limits on the combined income of all occupants of the home, including those who are not on title or the mortgage. So if Granny is moving in the guest room, then her Social Security will count towards the income cap. For Eagle County, it is $93,450 for a household with one to four occupants and $123,200 for a household with five to eight people.
While the loan limit is $625,500, don't get too excited because if you make the maximum income, then it will be hard to qualify unless you have over four occupants and nobody has any other bills.
The loan amount can actually be 100 percent of the appraised value, so if you score a deal and the appraised value comes in higher than the purchase price, then you can borrow the difference to use toward closing costs, pre-paids and escrows for taxes and insurance.
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There are two levels of mortgage insurance on a USDA loan — one is an upfront payment of 2 percent of the loan amount (which can usually be offset by a lender credit if you agree to a slightly higher rate) and a monthly fee. On a $300,000 loan the monthly fee adds about $100 per month to the payment.
The second, for the less down-payment challenged, would be a FHA loan. These loans require about 3.5 percent down payment. One notable limitation on FHA that mirrors USDA is that there are only a couple of condo complexes in the county that are eligible, although townhomes and duplexes are eligible.
FHA has a one-time upfront mortgage insurance fee of 1.75 percent of the loan amount, but that can generally go away if you are willing to pay a little higher rate, or it can be added onto the loan amount. FHA has a higher monthly fee that would add $312.50 onto the monthly payment of a $300,000 loan amount.
Unlike the USDA loan, the loan limit will not exceed the sales price, regardless of the appraised value.
The third option is available to qualifying military veterans, and that is the VA loan guarantee program. VA loans can go to 100 percent of the purchase price. VA loans also face restrictions on condominiums, and few complexes in Eagle County are eligible. VA loans come with their own set of rules and fees and probably have the easiest income qualifications.
Neither FHA or VA have maximum income restrictions.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at http://www.mtnmortgageguy.com.