Priced out of housing market? Zero-down loans, downpayment grants available

By JEFF LAZERSON | jlazerson@mortgagegrader.com | MortgageGrader.com | August 28, 2023

Article originally posted in Orange County Register on August 24, 2023.

Every now and again I’m in search of the best mortgages to get would-be buyers into Southern California’s tight housing market. Recently, I found the motherlode.

Wescom Credit Union has the deal of the decade. Maybe the century.

You can borrow as much as $750,000 without a down payment. That’s incredible!

You can be a first-time buyer (primary residence only) or a veteran homeowner looking to make your next move, for example. Occupying co-owners are good to go. No income caps, which is also huge.

Many housing agencies and mortgage lenders have so-called affordable housing mortgages that almost always come with income caps. And they are limited to first-time buyers (which means no homeownership in the last three years).

Non-occupant co-borrowers are not allowed to apply for this Wescom program. You’re in if you are buying a single-family, condo or planned unit development (townhouse). It’s a no-go if you are considering multiple units, manufactured homes or even a mobile home.

If you happen to be looking to get out of Dodge (Southern California) you can use this bonanza of a mortgage deal anywhere in California.

But there are a few catches, according to Kasey Derington, a mortgage loan officer at Wescom.

First, you have to be a Wescom member, which means you are a resident of Southern California or a student studying in Southern California or you belong to a local place of worship. Membership costs as little as $1 to join the credit union.

You’ll find this program only through Wescom. Mortgage brokers and mortgage bankers cannot offer this deal.

Homebuyers also must contribute a minimum of $1,000 or 1% of the sales price, whichever is greater, according to Wescom.

For example, on a $750,000, zero-down mortgage, you’ll need $7,500 in cash. Chances are, between settlement costs and escrow impounds (property taxes, mortgage insurance and fire insurance), you’ll be spending at least $7,500.

Let’s use the example of a zero-down, $650,000 loan with a 720 FICO score (all borrowers must be a minimum 720). You can grab a 30-year mortgage which adjusts every six months after being completely fixed for the first seven years. It has a 7% start rate without points.

The principal and interest payments would be $4,325. Assuming a 1.25% property tax rate, your monthly property taxes are $677. The monthly mortgage insurance is $325, according to Derington. Let’s say your homeowner’s insurance is $162. Excluding any HOA fee, your total payment is $5,489.

For loan amounts greater than $650,000 and up to $750,000, borrowers will need a minimum 740 FICO.

If you don’t have a 720 middle FICO score (as required by Wescom), another interesting find is Rocket Mortgage’s One+, which allows the lowest middle FICO score down to 620.

Rocket grants 2% of the purchase price toward your minimum 3% down payment. Your down payment contribution is 1% of the sales price.

You do not have to be a first-time buyer. The big catch? This program caps the loan amount at $350,000.

One+ has the following income caps at 80% of the area median income: San Diego County is $93,440, in Los Angeles County and Orange County, it’s $84,160 and $75,600 in Riverside and San Bernardino counties.

Admittedly, it’s going to be tough to thread this needle in San Diego, Los Angeles and Orange counties. Perhaps the Inland Empire is a better fit.

“We don’t have to count overtime or bonuses to avoid putting the buyer over the income limit,” said Jeremy Bednarz-Gray, division vice president of sales at Rocket Mortgage. “There are 992 active listings at $368,000 or less in Riverside County.”

I went to the Rocket pricing engine. I came up with a $360,000 sales price for a Riverside County property with a $349,200 loan amount. Assuming a 689 FICO score, a 30-year fixed rate shows 7.25% with $929 in origination points. The total loan payment (including lender-paid mortgage insurance) is $2,847. Assuming a $6,000 monthly income, the borrower should qualify.

Full disclosure: My mortgage brokerage, Mortgage Grader, is a Rocket customer.

According to ApartmentList.com, the median rent for a two-bedroom in Riverside County is $1,912. The website’s data suggests rents have dropped 4.9% over the previous 12 months (July 2022 through July 2023).

Are you better off buying a starter home at $360,000 to just get in the homeownership game? Or are you better off renting? Can you find a place good enough to meet your space needs and proximity to work, school and local amenities?

Southern California News Group columnist Jon Lansner has written a multitude of articles about people leaving California for other parts. Let’s face it: California is not ideal for lower-income folks attempting to get on the road to homeownership. The general cost of living in the Golden State is extraordinary. The bottom line is going to other parts, inside or outside of California, is another option you might want to consider.

Another honorable mention for you to explore for affordable type mortgage programs, down payment assistance and the like is downpaymentresource.com. Other options include going directly to CalHFA, Golden State Finance Authority and Affordable Housing Clearinghouse, Pathways to Homeownership and Neighborworks.

“We focus on government, nonprofit and municipal programs,” said Sean Moss, EVP of Product and Operations at Down Payment Resource. “You should check to be sure grant funds are (readily) available.”

Freddie Mac rate news: The 30-year fixed rate averaged 7.23%, 14 basis points higher than last week. The 15-year fixed rate averaged 6.55%, 9 basis points higher than last week.

The Mortgage Bankers Association reported a 4.2% mortgage application decrease compared to last week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $726,200 loan, last year’s payment was $798 less than this week’s payment of $4,944.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1 point: A 30-year FHA at 6.375%, a 15-year conventional at 6.375%, a 30-year conventional at 6.875%, a 15-year conventional high balance at 6.875% ($726,201 to $1,089,300), a 30-year high balance conventional at 7.125% and a jumbo 30-year fixed at 7.125%.

Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $726,200 in LA and Orange counties.

Eye catcher loan program of the week: A 30-year fixed rate at 6.5% with 2 points cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.