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Cutting-Edge Mortgage Loan Programs

Home and condo values have escalated in recent years and potential home buyers are looking for alternative programs to the traditional 30 year fixed to increase their mortgage loan - home loan – zero downpurchasing power. The Progressive Payment Saver, 80-20 30 Year Fixed Interest-Only, and the 30 Year Fixed
2-1 Rate Buydown Loan Programs are designed to help first time home buyers  qualify for more home and keep monthly mortgage payments low.

Progressive Payment Saver 30 Year Fixed Mortgage Program

This program is a 0% down 30 year fixed loan which increases your home purchasing power. The rate is discounted for the first two years and then it will remain fixed at the final adjusted rate for last 28 years.


Assumptions: $300,000 loan amount, 6.50% rate for traditional 30 Year Fixed mortgage (6.53% APR), 4.75% interest rate for Progressive Payment Saver program (4.92% APR), 4,000 year real estate taxes, and 28% tax bracket.

 

Traditional
30 Year Fixed

Progressive Payment Saver 30 Year Fixed

1st mortgage loan amount $300,000 $300,000
1st mortgage amount $300,000 $300,000
1st mortgage principal and interest $1,896 $1,565
PMI-Private Mortgage Insurance $195 $195
Real estate taxes $333 $333
Total Payment $2,424 $2,093
Tax savings $603 $481
After-tax payment $1,821 $1,612

mortgage loan – home loan – zero downAs you can see, the total after-tax payment is $209 lower for Progressive Payment Saver program and, in this case, you could purchase $40,000 more house for the same payment. The payments on this will go up in 2nd and 3rd years but will remain fixed for remaining life of loan. See chart below:

Rate  Interest Payment Year(s)
4.75% $1,565 1
5.75% $1,751 2
6.75% $1,946 3-30

If you stay in the home 5 years, your average interest rate will be 6.15% which is below the current market rate for 30 year fixed.  This loan is a stable 30 year fixed rate program which allows you to qualify for the most home now and keep your payment very low in the first couple of years.      

80-20 30 Yr Fixed Interest Only Program

The 1st mortgage will be 80% of the purchase price and the interest rate will be fixed for 30 years. Borrowers will be required to make interest only payments but they can choose to pay more than the interest if they desire without any penalty. The second mortgage will be a home equity line and require interest only payment like the 1st mortgage and you do have the option of a fixed rate 2nd mortgage. The payment is so much lower than a traditional principal and interest type loan and you would qualify with the interest only payment. Let's take a look at an example of this program versus the  traditional 30 Year Fixed program:

Assumptions for 80-20 loan: $200,000 purchase single family home, 6.25% rate for traditional 30 Year Fixed mortgage (6.29% APR), 6.75% interest rate for interest only mortgage (6.90% APR), $3,000 year real estate taxes, 2nd loan is home equity with 8.25% rate, and 28% tax bracket.

 

Traditional
30 Year Fixed

80-20
30 Yr Fixed Interest Only

1st mortgage loan amount $200,000 $160,000
2nd mortgage loan amount $0 $40,000
1st mortgage principal and/or interest payment $1,231 $900
Home equity line payment-interest only $0 $275
PMI-Private Mortgage Insurance $160 $0
Real estate taxes $250 $250
Total Payment $1,641 $1,425
Tax savings $369 $329
After-tax payment $1,272 $1,096

As you can see, the total payment is $216 lower than the traditional 30 Year Fixed mortgage and tax savings is about the same*. Also, you would qualify for approximately $30,000 more home or $230,000 purchase price with this program. Also, if you don't pay a dime toward the principal balance of the loan, you will still gain the appreciation in the property which could be greater with a higher priced home. Remember, you reduce the principal very little in the first few years of a traditional 30 Year Fixed principal and interest mortgage loan.       

mortgage loan – home loan – zero downThere are 80-15-5 and 80-10-10 programs available for both fixed rate and arm loans which are 5% and 10% down payment options respectively but the mortgage payment will not be much lower for these programs. For example, your monthly payment will be approximately $138 lower for $200,000 purchase utilizing 80-10-10 30 year fixed interest only program with 6.75% interest rate (6.90% APR). This begs the question: Couldn't you use the $20,000 for home improvements, furniture, or savings?  

80-20 30 Year Fixed 2-1 Buydown Loan Program

This program is a zero down loan which you will have a 1st mortgage for 80% of the purchase price and a home equity line or 2nd mortgage for 20% of the purchase price. The 1st mortgage principal and interest payment is based on an initial rate which is well below the current 30 year fixed rate. The mortgage payments are pre-determined with the initial payment being calculated at a rate which is 2% below the final rate and you will qualify at the low initial rate. The interest rate will increase 1% per year for the next 2 years and will remain at that final rate for the duration of the 30 year term. This loan offers more stability than its arm counterpart. The 2nd loan is a home equity line with interest-only payment option.

Let's take a look at a 2-1 Buydown example:

Assumptions: 0% down payment, $200,000 condo purchase, 4.75% (4.88% APR) rate on 2-1 Buydown Program, 6.25% (6.29% APR) rate on traditional 30 Year Fixed Program, $3,000 real estate taxes, $200 condo association dues, 2nd loan is $30,000 home equity line at 8.75% rate, and 28% tax bracket.

  Traditional 30 Year Fixed 80-20
2-1 Buydown
30 Year Fixed
Principal and Interest Payment $1,231 $835
Home Equity Line Payment $0 $219
Private Mortage Insurance-PMI $130 $0
Real Estate Taxes $250 $250
Association Dues $200 $200
Total Payment $1,811 $1,504
Tax Savings $398 $308
After-Tax Payment $1,413 $1,196

As you can see, the total payment is much lower for buydown program and, in this case, you could purchase $40,000 more house for same payment. The payments on the 30 year fixed buydown loan portion will go up in the 2nd and 3rd years but will remain fixed for remaining life of loan. See chart below:

Rate Principal and Interest Payment Year(s)
4.75% $835 1
5.75% $934 2
6.75% $1,038 3-30

If you stay in the home 3 years, your average interest rate will be 5.75% which is below the current market rate for 30 year fixed. If you stay in home for 5 years, the average rate is 6.14% which is below the current market rate. Personally, I have utilized this program on 2 homes and I ended up moving in 2-3 years on both properties so it worked out great financially. This program offers the best of both worlds-low payments and a stable fixed rate loan.  

Please contact Gerald Tribuzio, WestAmerica Mortgage Company, at 847-516-5743 or email jtrib@firsthomebuyers.net for more details on these cutting edge mortgage loan programs.

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*Please consult your accountant for tax advice