“No savings, no problem” isn’t something you’ll hear from most mortgage lenders. But there are ways for moderate-income people around St. Louis to buy a house without a big down payment or heavy closing costs, even with some old scars on a credit report.
That doesn’t mean it’s a good idea. People who are just scraping by may be better off renting while they get control of their finances.
The Neighborhood Assistance Corporation of America, Beyond Housing and government agencies in Missouri and Illinois all have ways for people without substantial savings to buy houses.
NACA is offering market-rate, 30-year mortgages with no down payment or closing costs in St. Louis. The organization promises not to look at the buyer’s credit score. Instead, it will look at the steadiness of the person’s income, and their record of paying bills over the past year or two.
That means an older foreclosure or a bankruptcy, which might close the door at other lenders, won’t close it at NACA. Its rate on 30-year mortgages last week was 3.65 percent — about what a person with good credit and a down payment could land at other local lenders. It doesn’t require “private mortgage insurance,” which drives up the monthly payment on other loans with a low or no down payment.
What’s the catch? There’s a limit on the home purchase price — $215,000 in eastern Missouri and $200,000 in the Metro East. Also, NACA makes applicants sit through counseling and training sessions.
NACA wants a record of steady income for the past 12 to 24 months. That means no more than one month of unemployment. They’ll also look at your record of paying your bills on time over that period, with an emphasis on paying the rent.
All of a person’s monthly debt payments — for the house, car and other debt — can’t exceed 40 percent of income, and the new house payment can’t top 31 percent. Those are fairly standard requirements in the mortgage business.
NACA has $7 billion left on a lending fund provided by Citi and Bank of America, which will hold the loans. NACA executive director Bruce Marks says the goal is to seed moderate-income neighborhoods with owner-occupants. “We’re trying to stabilize neighborhoods,” he said.
NACA has scheduled a workshop on its program for 10:30 a.m. Saturday, Oct. 24, at the Metropolitan Christian Worship Center, 3452 Potomac Street, St. Louis. For more information about the organization, go to naca.com.
NACA made a splash in St. Louis in 2009, in the depth of the foreclosure crisis, when 40,000 troubled people showed up to a NACA event seeking help in modifying home mortgages. The organization drew criticism for a poor follow-up that left some clients hanging without a resolution.
Comments on consumer websites give the no-cost mortgage program mixed reviews, with some praising it for providing a cheap mortgage quickly, and others complaining of delays or rejections.
The Missouri Housing Development Commission, a state agency, has a “first place” loan that, in effect, gives people 3.5 percent of the loan amount for use as a down payment or closing costs. As a down payment, that 3.5 percent is about enough to qualify for an FHA-backed mortgage.
That’s the upside. The downside: The 30-year loan has an interest rate of 4.25 percent, which is a hair above what people with good credit and a big down payment can get. There is no break offered on credit score and income requirements.
The program is for first-time homebuyers, defined as people who haven’t owned a home in three years. That requirement is waived for veterans.
There are income limits. For example, borrowers in three-person families can make no more than $80,845 in most areas and $98,420 in certain “target areas,” which tend to be low-income neighborhoods.
A separate program offering 3.5 percent loans works best with Veterans Administration mortgages.
The loans are made through private lenders on the MHDC’s list. For more information, go to mhdc.com.
The Illinois Housing Development Authority is offering $7,500 in down payment assistance to first-time homebuyers and veterans in a program similar to Missouri’s. But in the Metro East, it’s available only for homes in St. Clair County.
Beyond Housing, a nonprofit, offers counseling that can qualify first-time buyers for closing cost assistance in St. Louis County, Jefferson County and most of St. Charles County. The buyer must have income at or below 80 percent of the local median — or about $49,000 for a family of three.
The help comes in the form of a loan used for a down payment or closing costs. In some places, the loan is forgiven if the homeowner stays for five years. In others, the loan doesn’t have to be repaid as long as the owner lives in the house. The limit is $3,000 in Louis County, $3,500 in the city of Florissant and $5,000 in Jefferson County and much of St. Charles County.
There is more information at beyondhousing.org.
The U.S. Department of Agriculture’s Rural Development loan program is available in some fringes of the St. Louis area for low- and moderate-income buyers. Some people will qualify for a 3.25 percent, 33-year loan directly from the USDA, and others for a federally backed loan through local banks. More information can be found at rd.usda.gov/mo.
All these programs raise a question: Should people with little savings be buying houses at all? After all, if you can’t save for a down payment, will you be able to pay for a new roof if the house needs it a couple of years after moving in?
Chris Krehmeyer, president at Beyond Housing, thinks home ownership is still a good way for moderate-income people to build wealth. The mortgage is slowly paid down while the home value, hopefully, goes up.
The experience of the last eight years injects some doubt into that assumption. Prices can go down as well as up.
The key, says Krehmeyer, is to screen new homebuyers to make sure they’re ready, and to teach them how to buy and keep a home.
“We do tell people that we don’t think they’re ready, and they don’t want to hear that,” he says.