How to buy a home for 1 penny… YES it’s possible

Have you heard that lenders are now requiring 5% to 20% down? Generally, this is true, but we have found a way for you to, literally, buy a home for one penny. On the HUD-1 form, the "cash required to close" will show that you just have to bring 1 penny to closing!

Here's how to buy a home for 1 penny out of your pocket:

Have us help you find a property where the seller will give you a seller credit to pay your closing costs. We are really good at negotiating these kinds of credits from sellers. You can use our site www.TheBestHomeSearchEver.com site to search for properties.
Use a home buying assistance program like AmeriDream or The Nehemiah Program (also here) to get a 3% credit towards the down payment from the seller. (Call us to understand exactly how these programs work. In short, the seller is paying the down payment, but it is routed through these programs so the lender can approve it.)
There is NO minimum credit score for FHA (you need a 12 month clean credit score history - FHA will make some exceptions for a significant family event, etc)
There is NO minimum bank balance requirements
There is NO income cap for you as the borrower
There are NO geographic restrictions to where this can be done
The maximum loan amount in the Metro DC/VA/MD area is $729,500 - although the price can be higher if you decide to put some of your own money down
Non-occupant co-borrowers can be used to help you qualify for the loan
If you choose to pay the down payment (i.e., seller does not pay), a family member CAN gift it to you
Seller concessions can be up to 9%, which is - up to 3% closing cost (paid by the seller through the homeowner assistance programs) and 6% in direct seller credits
Some restrictions: The home buying grant programs are only for primary homeowners (not investors).
See below for more details on the criteria for buying an FHA property

Want more details, or to have us help you buy a home for a penny? Just contact us at right! We'll also be happy to meet you for coffee.

Key factors about getting an FHA loan:

No maximum income limitations (Like FNMA MyCommunity)
Up to 97.75% maximum loan-to-value with discounted mortgage insurance for purchase transactions and rate/term refinances
Up to 95% maximum loan-to-value with discounted mortgage insurance for cash-out refinance transactions!
1.5% (point) "funding fee" on ALL loans charged by HUD/FHA - can be financed
FULL DOC ONLY
Maximum Debt To Income Ratio = 50% under certain circumstances, preferably 43%
NO "DECLINING MARKETS" ISSUES (any property qualifies)
NO Asset Reserves Required
Downpayment can come in the form of a GIFT from family
Up to 6% Seller Concession ALLOWED
Owner Occupied (primary residence) ONLY
Single Family, Townhouse & Warrantable Condos - OK
No Co-ops

There are not any "interest only" FHA programs - all are interst + principal

FHA HIGHLIGHTS/CHEAT SHEET

The main advantage to an FHA home loan is that the credit and down payment criteria for a first time borrower is not as strict as Conventional Loans sold to Fannie Mae or Freddie Mac.

FHA does not have declining market guidelines (currently) so this can be a better alternative to a My Community Mortgage (MCM) loan in terms of rate, monthly mortgage insurance payment and required down payment (where designated declining). In most cases where Fannie Mae requires 5% down for a MCM the FHA MIP Funding fee is more than offset.

Major drawback to FHA vs MCM? No interest only option. However, factoring in required fee and rate adjustment more often than not your client will be better served via FHA.

Eligible Properties

Detached or semi detached townhouses, row houses or condos (condos and PUDs must be FHA approved)
Appraisal: important to have appraisal done immediately if goal is to warrant the project. Spot checks are available but need information from appraisal to complete.
Owner Occupied Only
No commercial or mixed use properties

Loan Programs

Fixed: have 1yr, 3yr and 5yr ARMs but Fixed Rate priced better and easier qualification. What does this mean? Fixed Rate you qualify on the mortgage payment based upon note rate. ARMs generally need to qualify at higher rate. It is looking like Loan Limit Increase will apply to Fixed Rates and not necessarily ARMs.

Buydowns: 2-1 allowed on Fixed only, qualify at note rate

Refinance: current loan does not need to be FHA. Streamline refi is allowed for FHA to FHA loans without an appraisal. ***Very important when advising past clients who bought their home with you***

Loan Amounts/MIP

Max base loan in DC Metro is $362,790
FHA Upfront MIP of 1.5% can be financed (in addition to max base loan amount)
FHA MIP/Factor is .5% on all loans regardless of LTV (to drop MIP loan must be in force a min of 5yrs and less than 78% LTV)

Qualifying, etc

Standard ratios are 29/41 for manual underwrite (automated for strong file can go up to 50%)
No Min Credit Score – credit profile as a whole is reviewed
Seller concessions: 6% regardless of down payment
BK discharged 2 years
Foreclosure 3 years past
Work Visas OK
Judgments must be paid off

Down Payment

Minimum down payment/cash in deal is 3%
Assistance can be provided (temporarily) from non profit agencies in the form of gift funds (Partners in Charity, Nehemiah, Ameridream)
-> Seller will give money to charity and in return the charity will give it to buyer
-> Home must be enrolled in the program
-> Charities were shut down by HUD, temporary court order allowed them to stay open for first one to two quarters of 2008
***Gift funds can be from employer (if gift and not advance), relative or charity and count toward 3% needed in deal

Other

Vacancy factor on any rental properties your clients have is 15% regardless of whether or not tax returns are utilized. Strong past rental history will still be pro-rated to account for risk.
Citizenship: Non-perm residents must have a SS$ and EAD-Employment Authorization
Appraisals: completed on regular Fannie Mae criteria (not as stringent as VA)
Child support income can be grossed up
If using 401k or IRA funds toward closing cost/down payment, proof of liquidation is required
Maximum loan amount will vary by location (once established I will add locality checks to FHA Centurion Calculator)
Borrower needs to have 3% into transaction including closing costs. Max LTV/CLTV is 97.5% (Don’t fret, gift funds from family member allowed.
Max Seller credit regardless of LTV/CLTV is 6%
In general, no cash reserves required. Perhaps for questionable files gifts for reserves can be employed

FHA Resource Center: http://answers.hud.gov or 800.225.5342