Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 14, 1991 TAG: 9104120269
SECTION: AMERICAN HOME WEEK PAGE: 6 EDITION: METRO
SOURCE: GENNY ELIAS
DATELINE: LENGTH: Long
"We can usually work out something. So much of it is dependent on the buyer's needs," Bensinger said.
The three traditional ways of financing a home - conventional loans through a bank, or funding by the Federal Housing Authority and Veterans Administration - no longer hold true for buying a home, said H. Michael Hincker, vice president and branch manager of Dominion Bankshares Mortgage.
"Today, you have a myriad of suboptions under those three," Hincker said.
There is also the Virginia Housing and Development Authority through which these three can be channeled for a different set of rates and underwriting rules, said Hincker, who has 19 years in the real estate mortgage business. The VHDA is funded through tax-exempt bonds act, which was enacted by Congress.
The VHDA always offers below-market rate loans for first-time home buyers, Hincker said. The VHDA defines a first-time homeowner as someone who has not owned a home in the last three years.
In addition, loans are now available either with fixed or adjustable mortgage rates.
"Conventional ARMS were a new creation around the late '70s or early '80s," said Hincker. ARMS are best for specific buyers, either those who cannot qualify for a home any other way or for those who are looking or those who are looking for a lower interest rate for a shorter period of time and may be waiting for the rates to fall or may be moving in a couple of years.
"Now 2 1/2 points will get you a 6 3/4 percent rate. You can qualify for a lot more house. This is for a buyer who knows he's only going to be there a couple of years and who doesn't mind the uncertainty of the rates going up," Hincker explained.
"Right now, 90 to 95 percent of our business is fixed-rate loans because of the low interest rates," Hincker said.
In addition to these options, buyers can also get a four-year or seven-year balloon loan.
The advantage of this type of loan, Hincker said, is that buyers "have a lower rate than a fixed-rate product for the amoritization period. Then at the end of that period, which may be four or seven years, the balance is due and payable. The buyer then can sell the home, pay off the balance or finance it again through another means."
This loan is attractive to a buyer who knows he or she won't be in a home for 30 years, Hincker said. For example, he added, for a 30-year, fixed-rate mortgage, a buyer can get three points for a 9 percent interest rate; for the seven-year ARM balloon product, you can get 2 1/2 points with an 8.5 percent interest rate.
"Not a great difference," Hincker said, "but why pay the 1/2 percent difference if you don't have to?"
Balloon mortgages are best for people who move a lot in their business, Hincker said, and know they will be in an area for only a short time.
Roanoke is not as transient market as other areas, Hincker said. "People are relocating here for a lifestyle and they generally stay.
The best way to decide which financing option is for you is to contact a REALTOR, Bensinger said.
Hincker offered these suggestions:
The FHA loan is designed for borrowers with minimum downpayments and more relaxed criteria than conventional loans. Although these loans are not as attractive as they once were, they are still a good way to get into a home with a small downpayment and are one of the few loans that still have some assumablility to them.
In general, with an FHA loan on a house under $50,000, buyers can assume 98.75 percent of the sale price plus closing costs, he said. On houses above $50,000, buyers can finance 97.75 percent of the sales price plus closing costs. FHA figures its loans on two criteria, and the lesser amount of the two is what it bases it loans on, Hincker explained. The change is basically to increase the cash requirement from the buyer, he added.
FHA loans also have maximums on how much of a house can be financed. In Roanoke city, Roanoke County, Salem and Botetourt County, the maximum loan for a house cannot exceed $93,100, Hincker said. For most other local areas, except Montgomery County, that figure is $68,300. In Montgomery, that figure is $74,550.
With a VA loan, qualified veterans can have 100 percent of their homes' sale price financed with a loan, he said. The maximum VA loan amount under VA is $188,000.
With a conventional loan, up to 90 percent of a home's sale price can be assumed on a loan, he said. The maximum amount for a single-family house mortgage is $191,250, he said.
Yet, there are mortgages that can go above that amount, he said. Dominion has made loans for homes on Smith Mountain Lake that are in a broad range. "But it's not unusual to see them in the couple hundred-thousand-dollar range," Hincker added.
Despite the failure of the savings and loan industry, there is still money for residential property, Hincker stressed.
"Mortgage lenders are in the business of making loans," Hincker said. "All the savings and loan failure has done is open an avenue of opportunity for lenders who are still active. There is no major tightening on residential mortgage requirements. We are still actively pursuing the residential markets."
For those who may not have the large down payments requested or may be interested in other routes of financing, there are always creative-financing options.
One of the largest of these is owner financing, said REALTOR Jim Woltz.
Woltz, who deals with mostly rural and estate sales, said that conventional loans have very strict guidelines that many rural properties usually cannot meet. For instance, he said, some loans require that the property be on a state road or that it not have a spring water system. Home inspections, he added, are not always kind to 100-year-old houses.
For these properties, owner financing is a must. Woltz said he advises his sellers to ask for higher downpayment.
"I suggest a 25 percent downpayment because with a lower downpayment there is more risk if the buyer decides he's not going to buy it. Then the seller has to go through foreclosure and regain possession by the provisions allowed," explained Woltz.
He added that with 25 percent down, the seller can pay the brokerage and still have 12 percent to 15 percent cash money to use to supplement a new purchase.
There are a great number of other options within owner financing as well, Woltz said. Buyers can pay the downpayment and have the loan balloon in five years and then try for a conventional loan. Another financing option is to use other assets as collateral, thus minimizing the downpayment.
Under owner financing, the agreements can vary as much as the needs of each side, Woltz and Bensinger agreed.
In one case, Bensinger said she had a buyer who didn't want to make payments until after the first of the year and a seller who didn't want to receive payments until after the first of the year for tax purposes. "It turned out to be a perfect marriage," she said. One final financing option is the Rockefeller Plan. Never heard of it?
"That's where the buyer pays cash for the deal," she said with a laugh. "We don't get that very often."
by CNB