Do You Really Have to Put 20 Percent Down when Buying a Home?

Putting a 20 percent down payment on a home purchase is often required by lenders to be approved for a purchase. But is 20 percent always necessary?

Buying a home these days is becoming more and more difficult with stricter credit guidelines and with banks being more picky about who they are going to loan money to. But it’s also getting more difficult with the uncertain economy and fewer people being able to save up the recommended 20 percent for a down payment on a new home. This begs the question: Is it really necessary to have a 20 percent down payment for your home? Here are some alternatives to consider if you can’t come up with a 20 percent down payment.

1. FHA Loans

With an FHA loan, you can get a mortgage loan for as low as 3.5 percent. These types of mortgages are typically available for people who have a low income and also for first-time home buyers. But since the subprime mortgage crisis in recent years, FHA loans have exploded in popularity. Recently, the loan limits for an FHA loan also increased to a maximum of $730,000 which has made it an even more viable option than it was before.

2. VA Loans

With a VA loan, you typically don’t need to have a 20 percent down payment to get a mortgage. In fact, many VA mortgages require very little or no money down as long as you have either served in the armed forces, are serving now or if you are the spouse of someone who has served. Your credit may determine the amount of your down payment, but these loans are typically more flexible than conventional loans.

3. Conventional Mortgages

If you have a great credit score, there is a good chance that you can get a mortgage loan with less than a 20 percent down payment. For the most part, a credit score of 700 or above is required for flexibility with the down payment, but some mortgage underwriters may take into consideration your more recent credit history if you have been paying your bills on time and paying off debts in the last six to 12 months. If you can prove that you are on your way to being more financially responsible, some mortgage underwriters may give you a chance for a mortgage with less than 20 percent down.

There are many ways to get a mortgage without putting down a 20 percent payment upfront.

When you start shopping for a home, it’s important to explore all of your options. Of course, if you do decide to put less than 20 percent down on your home, you can expect higher costs, such as higher interest rates and higher premiums for mortgage insurance. But in some cases, these extra costs are worth it for some buyers who are excited about buying their first home.

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Three Things Homeowners Should Know about Completing Their Tax Returns

Tax time is approaching quickly. Do you know how to benefit the most from the deductions that are available to you as a homeowner?

Are you a procrastinator when it comes to getting your taxes done? Do you rush to the post office on the eve of April 15 to get your tax returns postmarked in time to avoid late penalties? If so, you are like many Americans. And if you own your own home, you probably have similar questions about the deductions you can take for your mortgage interest as well as other tax questions related to being a homeowner. If so, here are three things you should know if you still have to get your taxes done this year so you can make sure they get done correctly.

1. In order to claim your mortgage rate as a deduction, you have to itemize deductions on your tax returns. Nearly 40 percent of the homeowners in the United States miss out on taking advantage of the mortgage interest deduction because they do not itemize deductions on their taxes. While the standard deduction may be greater than the mortgage interest deduction, there are many times when homeowners simply take the standard deduction without crunching the numbers on an itemized deduction. The better tax software programs – and the better tax accountants if you are using one - will help you figure out which is greater so you can lower your tax bill or get a greater return, whichever applies to your financial situation.

2. If you are on the brink of a short sale, foreclosure or loan modification, this may be the last year that you can benefit on your taxes. Before 2007, the IRS would charge people taxes on any debt that was either cancelled or reduced. They refer to this as the Cancellation of Debt Income and the term says it all. The IRS typically considers any reduction or cancellation of debt as part of your income. But the Mortgage Debt Forgiveness Relief Act of 2007 suspended the attribution of income for cancelled mortgage debt for troubled homeowners through 2012.  If you are debating taking one of these actions for your home, you should start the process now or it may be too late to take advantage of this deduction on your returns (unless the 2007 Mortgage Debt Foregiveness Relief Act or its applicable provisions are extended).

3. Closing costs are also tax deductible. Many homeowners are so focused on deducting their property taxes and their mortgage interest that they forget that they can deduct their closing costs. If you have any origination fees that you paid to your lender last year at closing, you can probably deduct those fees on your tax returns. In many cases, you can even deduct those fees if the closing costs were paid by the seller.

These are just a few of the things to keep in mind when preparing your tax returns this year. Of course, it is always best to check with a qualified CPA or tax return specialist to make sure you get all of the deductions that you are eligible for. But these tips will get you started and give you an idea of what you can do this year to start preparing for next year’s returns.

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Comprehensive List of Mortgage Assistance Programs

It seems like every week the government is announcing a new program to help homeowners. To make sense of all of these programs, we've pulled them together and listed them below. If you are having trouble with your mortgage, or can't refinance your house, hopefully one of the programs on the list will provide you with some assistance.

It seems like every week the government is announcing a new program to help homeowners. To make sense of all of these programs, we've pulled them together and listed them below. If you are having trouble with your mortgage, or can't refinance your house, hopefully one of the programs on the list will provide you with some assistance.

Home Affordable Modification Program (HAMP)

HAMP is designed for homeowners who are still employed but are struggling to make their monthly mortgage payments. The program can lower your monthly mortgage payments to 31 percent of your verified monthly gross pre-tax income. This can often save a homeowner hundreds of dollars per month. You are eligible if:

  • You occupy the house as your primary residence.
  • You obtained your mortgage on or before January 1, 2009.
  • You have a mortgage payment that is more than 31 percent of your monthly gross (pre-tax) income.
  • You owe up to $729,750 on your home.
  • You have a financial hardship and are either delinquent or in danger of falling behind.
  • You have sufficient, documented income to support the modified payment.
  • You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.

The program is offered through your mortgage servicer, so you'll need to contact them. If they do not provide the program, or don't feel you qualify, ask them what other options they have for you.

Pricipal Reduction Alternative ( PRA)

If you owe significantly more on your home than what it is now worth, PRA is designed to help you by encouraging mortgage servicers and investors to reduce the princpal you owe on the house.

You may be eligible if:

  • Your mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac.
  • You owe more than your home is worth.
  • You occupy the house as your primary residence.
  • You obtained your mortgage on or before January 1, 2009. 
  • Your mortgage payment is more than 31 percent of your gross (pre-tax) monthly income. 
  • You owe up to $729,750 on your 1st mortgage.
  • You have a financial hardship and are either delinquent or in danger of falling behind.
  • You have sufficient, documented income to support the modified payment.
  • You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.

Note that the eligibility above is just a guideline. You will need to contact your individual servicer for more information. A list of participating servicers can be found here.

Second Lien Modification Program (2MP)

This program is designed for homeowners who had a first mortgage modified by HAMP and have a second mortgage. This second mortgage may also be eligible to be modified. The program works in tandem with HAMP to help homeowners who purchased a home using a first and second mortgage.

You may be eligible for 2MP if you meet all of the following criteria:

  • Your first mortgage was modified under HAMP.
  • You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
  • You have not missed three consecutive monthly payments on your HAMP modification.

Servicers participating in 2MP are:

  1. Bank of America, NA
  2. BayviewLoan Servicing, LLC
  3. CitiMortgage, Inc.
  4. Community Credit Union of Florida
  5. GMAC Mortgage, LLC
  6. Green Tree Servicing LLC
  7. iServeResidential Lending, LLC
  8. iServeServicing, Inc.
  9. J.P.MorganChase Bank, NA
  10. NationstarMortgage LLC
  11. OneWestBank
  12. PennyMacLoan Services, LLC
  13. PNC Bank, National Association
  14. PNC Mortgage
  15. Residential Credit Solutions
  16. ServisOne Inc., dbaBSI Financial Services, Inc.
  17. Wells Fargo Bank, NA

Program ends December 31, 2012

FHA, VA, USDA Home Affordable Modification Program (FHA-VA-USDA-HAMP)

This program helps homeowners whose mortgages are insured by the FHA or the VA take advantage of the HAMP program. To find out more, contact the respective government agency.

Home Affordable Refinance Program (HARP)

If you are not behind on your mortgage but your house is underwater and you can't refinance, this program may be for you. HARP is designed to help you refinance your mortgage into a lower rate.

You may be eligible for HARP if you meet all of the following criteria:

  • The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
  • The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
  • The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
  • The current loan-to-value (LTV) ratio must be greater than 80%.
  • The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.

Contact your mortgage servicer to see if they participate and if you qualify. You can also contact Fannie Mae or Freddie Mac to see if you qualify.

FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance)

For those homeowners not behind on their mortgage but who owe more than their homes are worth, FHA Refinance is another program. FHA Short Refinance is designed to also help homeowners refinance into a lower rate, more stable mortgage. If the lender agrees to refinance your mortgage, they will be required to reduce the amount you owe on your mortgage to no more than 97.75 percent of your home's current value.

You may be eligible for FHA Short Refinance if you meet the following criteria:

  • Your mortgage is not owned or guaranteed by Fannie Mae, Freddie Mac, FHA, VA or USDA.
  • You owe more than your home is worth.
  • You are current on your mortgage payments.
  • You occupy the house as your primary residence.
  • You are eligible for the new loan under standard FHA underwriting requirements.
  • Your total debt does not exceed 55 percent of your monthly gross income.
  • You must not have been convicted within the last 10 years of felony larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction.

To find out if you can use this program, contact your mortgage servicer and find out if the participate in the program.

The Responsible Homeowner Reward Program

This private program is designed to reward homeowners who stay, or become current on their mortgage. In place of reducing the principal on a mortgage, servicers that participate in this program will provide cash bonuses if a homeowner meets certain agreed-to milestones. While each mortgage company determines the terms and conditions of their programs, below is the general outline:

  • The homeowner is awarded an initial RH Reward amount.
  • The homeowner makes full and timely mortgage payments, keeping their RH Reward status active.
  • For a period of time following registration, an additional amount of money will be added to the initial RH Reward amount for each month the homeowner maintains active status.
  • Once the mortgage balance is paid in full – either by selling the home, refinancing, or by paying off the mortgage – the homeowner is paid the entire RH Reward.
  • Going forward, if the homeowner becomes delinquent more than once in any 12 month period, they risk forfeiting their entire RH Reward.

From a servicer perspective, the goal is to reward good behavior (paying off a mortgage), and discouraging bad (strategic default). To do this, the servicers reduce the amount of the loan but instead of taking it off the mortgage, pay it out as an incentive.

To find out if you can take advantage of this program, contact your lender.

Learn More.

$25 Billion Landmark Mortgage Settlement

This agreement between the Federal Government, 49 of the States' Attorney Generals, and five of the biggest mortgage lenders (Bank of America, Ally Bank, JP Morgan Chase, Citicorp, and Wells Fargo), provided a mechanism for these banks to provide foreclosure relief. The settlement is intended to benefit homeowners who are underwater with their mortgages or having difficulty making payments. While the terms are still being worked out, three classes of homeowners stand to benefit in the future. They are:

  • Homeowners needing loan modifications now, including first and second lien principal reduction.  The servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide.State attorneys general anticipate the settlement’s requirement for principal reduction will show other lenders that principal reduction is one effective tool in combating foreclosure and that it will not lead to widespread defaults by borrowers who really can afford to pay.
  • Borrowers who are current, but underwater.  Borrowers will be able to refinance at today’s historically low interest rates.  Servicers will have to provide up to $3 billion in refinancing relief nationwide.
  • Borrowers who lost their homes to foreclosure with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the OCC review process.  $1.5 billion will be distributed nationwide to some 750,000 borrowers.

Unfortunately, it's still not clear who will benefit from this settlment as the details are still being determined. We'll post more information as it becomes available. Visit the settlement webpage.

If you know of any other helpful programs for homeowners, please tell us and we'll be sure to add them to the list.