Question: What do you know about these new mortgage plans that a lot of lenders recently have introduced that require a down payment of only 3 percent? With prices in our area rising fast, one of those loans might be the only way that my new wife and I could afford to buy a home.
Answer: The latest 3 percent down mortgage plans have been trotted out by two quasi-federal agencies, Freddie Mac and Fannie Mae. Neither one makes loans directly to buyers or home refinancers, but instead purchase loans from approved private-sector lenders so those independent banks can get the cash needed to issue new loans in the future.
Fannie and Freddie’s new programs join the government-operated Federal Housing Administration plan that can require as little as 3 percent down, and the Veterans Administration program that requires virtually nothing down.
Here’s the rub: Freddie and Fannie’s new plans are generally geared more toward borrowers who have slightly better credit scores than those who typically use the FHA or even the VA. That means banks who take part in Freddie or Fannie’s programs may offer lower interest rates or charge lower upfront fees.
The two plans also differ from each other. Fannie’s is only open to buyers who haven’t owned a home in three years or to current owners who want to refinance. It will allow borrowers to take out $2,000 to cover the loan’s closing costs, but won’t allow a home refinancer to take any cash out of the equity they may have in their property.
Freddie’s program is open to virtually any buyer who meets its lending standards. But it, too, prohibits current homeowners who refinance from drawing any cash out of the deal.
Both require borrowers who use their 3 percent down program to purchase private mortgage insurance, commonly called PMI, which will reimburse the lender for some or all of its losses if the loan goes into default and the bank must foreclose.
Details of both plans can be found online at www.fanniemae.com and www.freddiemac.com.
Unfortunately, neither company has compiled a list of lenders who are offering the new-fangled loans. That means you’ll have to call some local banks or mortgage brokers to find one.
Real estate trivia: The National Association of Realtors reports that about 14 percent of all buyers purchase a “multi-generational” property -- one that will house at least one grown child, a parent or grandparent, or a combination of all three.
Q: You recently wrote that a Chapter 7 bankruptcy stays on a consumer’s credit record for 10 years from the date that it is filed, and that a Chapter 11 bankruptcy stays there for seven years from the filing date. My brother says that your advice was incorrect because those time limits don’t go into effect until the bankruptcy is actually discharged by a judge, rather than when the documents are originally filed. Who’s right, you or my bro?
A: I’m right. Credit bureaus track public records to discover new bankruptcy filings, and then add them to the consumer’s credit file within weeks. Because many bankruptcies can take several months or even years to resolve, it’s only fair that the bureaus’ expiration clocks start ticking when the initial bankruptcy documents are first filed rather than when a final judgment is entered.
Q: A neighbor down the street holds a yard sale almost every weekend, and it has turned our entire neighborhood into a zoo. Traffic on the weekend soars, there’s no place to park my car, and all sorts of weird strangers are constantly coming and going. I have asked the neighbor to stop or at least cut back on the sales, but he refuses and the police say there’s nothing they can do. Got any ideas?
A: Start by calling your district attorney or your area’s business licensing department to see if there’s a limit on the number of yard sales a homeowner can have each year. Many cities and counties across the U.S. limit homeowners to one, two or three such events annually. If such a limit exists in your neighborhood, send a copy of the ordinance to your neighbor via certified mail and request that he begin to follow the law.
Notify the district attorney if the sales persist. A letter from the DA likely would reduce the number of sales, if not bring them to a screeching halt.
I had a similar problem several years ago in a community that didn’t limit the number of yard sales an owner could have. My thoughtless neighbor’s ongoing events made every Saturday a living nightmare.
The police department said that the man wasn’t breaking the law, so I called the business licensing department instead. It sent out an investigator who determined that the weekly sales were an “ongoing business enterprise,” which meant that he had to obtain a license, get a permit to charge local and state sales taxes, and then forward the revenue to the proper authorities.
Faced with such paperwork hassles, he cut his sales back to a more manageable once a month.
David M. Myers’ column is distributed by Cowles Syndicate, Inc.