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Programs Aid Buyer With Little Down

TIMES STAFF WRITER

First-time buyers are asking about low-down-payment loan programs, while existing homeowners are asking about the savings they can realize by prepaying their mortgages.

Like so many would-be buyers in the high-priced Southland market, Louis Flores of Los Angeles writes in to say that he’s having trouble saving up enough cash to make a large down payment on a home.

“I’ve got good credit and a pretty good income, so making (mortgage) payments wouldn’t be a big problem,” he writes.

“The problem is, I’ve only got about $15,000 to use as a down payment, and that’s not very big by today’s standards. Are there any government programs for people with small down payments?”

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Yes, both the federal and state governments operate a variety of home-loan programs for people with small down payments.

The best-known government-backed loan program is operated by the Federal Housing Administration, a branch of the U.S. Department of Housing and Urban Development. You can borrow up to $124,950 under the FHA program with a down payment as small as 5%.

If you’re a qualified veteran of the armed forces, you might want to check out the possibility of getting a loan guaranteed by the Veterans Administration.

You can borrow up to $184,000 under the VA loan program and no down payment is required, although you must prove that you’ll be able to pay the money back.

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Most California veterans can borrow up to $125,000 at a below-market rate through the “Cal-Vet” loan program operated by the California Department of Veterans Affairs.

Rates on Cal-Vet loans are about two points below those charged on VA loans, although a minimum 5% down payment is required.

Finally, don’t forget about the Federal National Mortgage Assn.'s year-old “3/2" loan program.

Although it’s not really a government-backed loan program, any credit-worthy borrower can get a 3/2 loan for up to $202,300 if he makes a down payment of at least 3% and a relative, employer, church or other nonprofit group puts up an additional 2%.

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Most lenders, mortgage brokers and realtors can give you details about these various programs.

You can also get more information by calling HUD, the U.S. Department of Veterans Affairs or the California Department of Veterans Affairs. You’ll find the branch nearest you in the white pages of your local phone book.

Just about everyone dreams of the day when they’ll make their final mortgage payment and own their home “free and clear.”

Yet many don’t realize they can trim years off their loan and save thousands of dollars in finance charges by simply adding a little bit extra each month directly toward the outstanding balance of their mortgage.

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Consider the case of A. S. Pearson, who reads this column in the Virginia Pilot of Norfolk, Va. The column appears via the Los Angeles Times-Washington Post News Service.

Pearson took out a 20-year, 10% fixed-rate loan two years ago. He owes $70,000 and monthly payments for principal and interest are $676.

Now, Pearson has a chance to refinance the loan over a new 20-year term at 8%. Mandatory payments would be $586 a month, but Pearson would like to continue paying $676 to pay the loan off early and save on overall finance charges.

Pearson has two questions: If he refinances with a new 20-year mortgage, how many years could he trim from his loan term by paying an extra $90 a month? And how much would that extra $90-a-month payment save him in long-term finance charges?

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The answers: Plenty, and plenty.

Based on computer analysis, Pearson would pay $77,996 in future interest charges if he doesn’t refinance but simply continues making $676 monthly payments on his 10% mortgage for the remaining 18 years of his current 20-year loan.

If he refinanced the $70,000 at 8% and opted for a standard 20-year pay-back schedule, his monthly payments for principal and interest would be $586 and he’d pay a total of $70,385 in interest charges over the next two decades.

But if he refinanced and added a mere $90 a month to his $586 mortgage bill, he’d pay $49,232 in overall finance charges and he’d own his home outright in about 14 1/2 years.

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That’s a future interest saving of $28,764 over his current pay-back schedule, and a $21,153 saving over simply refinancing and making the $586 monthly payments required to pay the loan back over 20 years.

Equally important, that extra $90-a-month payment would allow Pearson to pay the loan off 3 1/2 years faster than his current repayment schedule would allow and 5 1/2 years sooner than if he opted for a new 20-year term at 8%.

Of course, Pearson would probably have to pay $2,000 or $3,000 in up-front costs for points, an appraisal and the like if he refinanced today. Those out-of-pocket expenses would reduce his long-term savings.

And if he’s an unusually sharp and disciplined investor, Pearson might be able to realize a better return on his money by putting that extra $90 a month into stocks, bonds or some other type of investment.

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But if paying his loan off several years early and guaranteeing himself long-term savings of more than $20,000 in finance charges sounds better, Pearson’s plan is certainly worth serious consideration.

Speaking of paying off loans, Webster’s New World Dictionary says that the word “mortgage” actually comes from a French term, morgage or mort gage --literally, a “dead pledge.”

But although a “dead pledge” sounds like a loan that you’ll carry to the grave, the term isn’t quite so morbid.

When you finally pay off your loan and the bank gives you back the mortgage note you originally signed, it shows that you made good on your pledge to pay the money back.

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In other words, the mortgage reflects the “death of debt” and you’re no longer required to make monthly payments.


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