After a few years of a shaky economy and declining real estate market, the home buying process has finally started to pick up once again. Home buyers are enjoying lower-than-average interest rates and looking for their dream homes. In spite of lower interest rates, many potential home buyers are still finding it difficult to come up with required down payments. Imagine if you could buy a home with just a 5% down payment! This may be possible with the “Right Step” Mortgage program and a mortgage broker.
What is Right Step?
Right Step is a mortgage program offered by TD Bank. The program is aimed at helping eligible home buyers on the East Coast, specifically states from Maine through Florida. One main reason why the program targets this demographic area is because, according to the U.S. Department of Housing and Urban Development (HUD), this area comprises 80% of the median area income. Right Step is an affordable alternative to Federal Housing Administration (FHA) loans, which have typically been the favorite of potential home buyers in the past. Right Step offers several perks designed to help save home buyers money and make the lending process quicker and easier. Right Step is particularly a great option for first time home buyers.
Why is Right Step an Attractive Option for First Time Home Buyers?
“As promising as it was when the housing market began to pick up and banks began to borrow money once again, first time home buyers were still in a vulnerable position.” says Joceyln White, a mortgage advisor in Vancouver.
While many of them were able to afford the monthly mortgage payments, many were unable to come up with the required down payment, which in some cases went as high as 20%. Many of these home buyers turned to the FHA for help with their mortgage needs.
The Right Step program offers eligible home buyers the opportunity to get a mortgage with only a 5% down payment. This is a great opportunity for first time home buyers who often don’t have a lot of extra cash on hand and have a difficult time saving that much. The Right Step program has several features that are proving very attractive to home buyers, particularly first time home buyers.
- Low and flexible down payments
- Lower underwriting and closing costs
- Simplified appraisal process
- Substantial savings on mortgage insurance
Why Might Home Buyers Choose Right Step Over FHA?
For many years, the housing market was dominated by the FHA, mostly because of their low interest rates. FHA has been the largest provider of low-interest and low-cost mortgages. They were also well known for having eligibility requirements that were more lenient than conventional banks and mortgage companies. Credit scores, for instance, didn’t play as large a part in the approval process as they did with conventional banks. The FHA also offered lower closing costs. All in all, the FHA was a very popular place to get a mortgage loan, particularly for first time home buyers.
However, offering these popular options to home buyers began to take its toll on the FHA. The result of helping so many home buyers and providing them with loans that other banks may have considered risky was a depletion of their funding. To make up for this, the FHA has had to make some changes in their lending policies, with the main change being an increase in costs and premiums.
In addition to raising premiums by 10 basis points on most of the new mortgages it insures, the FHA will also require home buyers to pay insurance premiums for as long as they have the loan, unless they put down at least a 10% down payment. In the past, borrowers have only had to pay the insurance until their balance was below 78% of the original balance. While this might not seem like a lot when the premiums are added to the monthly payments,it can add up to a substantial amount over the life of the loan. A 30-year fixed-rate mortgage for $200,000 can have the borrower paying well over $50,000 when they’ve tacked on the additional amount for the insurance over the 30-year span.
Another change the FHA has implemented is regarding credit scores. The new policy states that if the borrower has a credit score lower than 620 and a debt-to-income ratio higher than 43%, the mortgage has to be underwritten manually. They’ve also implemented some stricter changes on reverse mortgages.
The increase in both upfront costs and premiums has made FHA more difficult to obtain than in the past, while also making the Right Step mortgagee both more appealing and beneficial. In addition to requiring lower down payments and offering better closing options, the Right Step offers a few other perks favorable to home buyers.
Vancouver mortgage broker Jocelyn White adds “While a borrower might be required to have a 5% down payment, they can now get as much as 2% of the house price as a gift from a relative or friend. Thus, they would only be required to put down a 3% down payment.”
Right Step is definitely worth looking into by anyone looking to obtain a mortgage. It is particularly beneficial to first time home buyers because saving a down payment in today’s economy is still especially tough. Consider a home that’s being sold for $200,000. Just the difference between a 5% and 10% down payment is $10,000 as opposed to $20,000. For a first time home buyer or young couple, this can be the difference of buying their home now or having to wait several years.
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