Thanks to the collapse of the housing and mortgage markets, the laws surrounding mortgages has changed drastically. This was done in order to prevent more bursting bubbles in the future. While it may seem there are no options to be had, the reality is that there are still a few you can benefit from.
The FHA loan is only available from banks who have been approved by the Federal Housing Administration to give them. And the transfer of money occurs not from the FHA to you, but via a guarantee to the lender. FHA loans were very beneficial in the past for homeowners wanting a mortgage but who found themselves in a low income bracket.
As stated before, you cannot get an FHA loan given directly to you. An approval process must take place once you've confirmed that a lender has been authorized to provide FHA loans. Once approved, you may only need to put down just over 3 percent, and may receive up to 6% towards yoru closing costs. But rules will vary by lender.
The Home Affordable Refinance Program is run by FHFA (the Federal Housing Finance Agency) and has only been existence since 2009. The main purpose of the HARP program is to assist homeowners who find their homes in danger of foreclosure. It is an option that only works for homeowners whose payments are current, but who cannot refinance due to decreasing home prices.
The HARP Program considers the loan to value ratio (LTV) of a homeowner. This ratio is the amount of the current loan outstanding on the home and the home's value. Due to plummeting home prices, many families have put thousands of dollars on their homes but were still left owing more than it was worth because the price had gone tumbled. HARP rules dictate that those having a loan to value ratio of 125% may be eligible for a refinance. That means that if a home is worth $100,000, the homeowner could refinance even if they owed as much as $125,000 on their home.
Some loan types that many people have been able to get in the past have since disappeared and in some cases are now illegal. As recently as six years ago, qualified buyers could get the no money down loan, a product which was rolled into an 80/20 combo loan – this means that the buyer could begin with an initial mortgage for eighty percent of the loan value and then get a second mortgage for the remaining twenty percent.
The issue with the no money down loan is that because a buyer doesn't put any money down, their home must go up in value immediately and quickly. Or else, they'll end up owing more on their home than it's worth or being 'underwater'.
To illustrate, if a loan is taken out for the entire value of a home initially worth $100,000 and its value grew to $110,000 a year later, then this would be a good thing because there would be immediate equity in the home. However, if that same home was only worth $85,000 instead of $110,000 one year later, then the homeowner could have been keeping up with their mortgage payments and find themselves underwater.
Homeowners in this situation were left feeling as though they were throwing money away since they're making payments but not paying down their mortgage. This is one reaon why the housing market collapsed and it is for that reason that no money down loans are no longer a legal way to give a loan.