My first home: with the help of these first-time home buying programs, you too can have the American dream

Black Enterprise, Jan, 2005 by K.C. Camille

Raun and Christina Swafford of Clarksville, Tennessee, were thrilled when they found out they were expecting their first child. Now that their family would be expanding, the couple felt it was time to take inventory and make some changes in their lives. They started by thinking about moving. "We realized we needed more space for the baby," says Christina. "Also, we were considering having my morn come and move in with us, and we thought owning our own land would be a wonderful thing." With that, the Swaffords packed up their townhouse and went looking for a home of their own. They purchased a three-bedroom house last April for $86,900.

With interest rates still near historic lows and the growing popularity of low down payments and "no money down" mortgage programs, more families and individuals are taking the plunge into first-time homeownership. "Buying is a viable option because it provides a tax write-off, it allows owners to build equity, and it is a sign of a stable [financial] future," says Pierre Dunagan, president of The Dunagan Group, which offers mortgages and other financial services. Dunagan says many people are still delaying building wealth through homeownership because they think they must already have the money in the bank to do it. "People assume they'll need 15% to 20% down to get their first home, which is simply not the case these days."

Fannie Mae, while not a lending institution itself, is a government-sponsored enterprise that buys loans from lenders to make mortgage financing available to more borrowers. A number of financing programs that don't require the standard 20% down payment--or any down payment at all--are available through approved Fannie Mae lenders and mortgage companies. One of them is the Flexible 100 program, which is especially popular with first-time home buyers. Borrowers need only contribute $500 toward the down payment and/or closing costs. The Flexible 97 program, which allows borrowers to put up just 3% of the cost of the home, is also available through Fannie Mae. Banks have created similar programs to help new home buyers. To obtain a list of approved Fannie Mae lenders, log on to www.fanniemaefoundation.org or call 800-7-FANNIE.

SPECIAL PROGRAMS MAKE IT EASIER

Many of the new loan products for first-time home buyers have been created specifically to make homeownership easier, says Fannie Mae spokesperson Sandy Cutts. "In addition to our Flex programs, we have the Expanded Approval/Timely Payment Rewards program for people with less than perfect credit. With this program, the homeowner makes on-time payments for two years, then after that time, their interest rate automatically lowers," she explains.

Cutts also says Fannie Mae has rolled out a new pilot product called the Payment Power program, which allows borrowers to defer two monthly payments a year--but no more than 10 over the life of the loan--in exchange for slightly higher interest rates. The loan reamortizes, meaning that the skipped payments are recalculated into the remaining payments. This program may be especially beneficial for people who hold seasonal jobs, such as teachers and construction workers who may not have an income during certain times of the year.

Dunagan says there are also 100% financing programs available for first-time home buyers but, in some cases, they have higher interest rates and higher private mortgage insurance costs. He says deciding whether having a higher interest rate is better than long-term renting is an important decision prospective home buyers will have to make. Christina Cowens thought the former was a better option when she decided to buy her first home in 2002. After moving from New York City to Minneapolis to take an administrative position that would advance her career in education, she thought, "[Why am I] helping strangers invest and live well off of my rent money and I'm not receiving any financial return or benefit for myself?"

Cowens found a dedicated real estate broker to structure a 100% financing deal through Countrywide Bank's 80/20 program, in which a home buyer can get 100% financing by taking out two mortgage loans. The first loan will equal 80% of the mortgage up to $400,000 and the second will cover the remaining 20%, up to $100,000. The combined loans cannot exceed $500,000. In order to qualify for this program, the buyer's credit score must be higher than 580. The appraisal fee is the only out-of-pocket expense Countrywide requires of the home buyer.

In Cowens's case, the seller of the house she wanted requested an earnest fee--a deposit that indicates the buyer's seriousness about purchasing the property--so she put up $3,000 of her own money to cover it. The seller did, however, pay the closing costs in the deal. Cowens bought her home with an adjustable-rate mortgage of 7.8%. At the time of this writing, she was considering refinancing her loan at a fixed-interest rate of 4.5% through Countrywide.

After researching the housing market in Long Island, New York, four years ago, Karen and Raphael Gordon knew what they wanted in their starter home. "We had been renting for a while, were preparing to start a family, and wanted to invest in real estate," says Karen. "We figured we'd be here about seven years and hoped that, by that time, the house would appreciate in value."