Special Low-Down Report : 25 Ways To Turn $10,000 Into a House

One of the most daunting obstacles facing Southland home buyers has been the hefty down payment. But that’s changing. The traditional 20% down formula is giving way to plethora of private and government programs that ease the down payment shock.

Five percent, 3% and even nothing-down loans are becoming the alternative for many buyers as private industry and government team up to help more people into homeownership. As a result, with a little luck, some patience and one of the programs described below, it’s now possible to get into a first home for $10,000 down.

And the $10,000 might be easier to raise than you thought. See the accompanying story on page K5 for some tips on how to do that.

Among the low-down programs are old-time favorites such as FHA and VA, as well as a raft of new programs, such as the city of Santa Ana mortgage for high school grads who earn a four-year college degree and return home to buy a house. And both the state of California and a big stock brokerage are offering separate programs that link a parents’ assets to a nothing-down program for their children.

Other programs are targeted at veterans, public employees or buyers who are willing to purchase homes in distressed neighborhoods.

City of Los Angeles homeownership specialist Linda Buckspan points out that borrowers must fit the “narrow window” that each of these programs offers. “Not every program is for everyone, but together there is an opportunity for a lot of people,” she said.

The lowest down payments often require excellent credit; and with all of the loans, borrowers must meet the qualifying criteria, which often includes employment history, income and credit history.

Prospective borrowers should also be patient. The low-down programs are often a complex combination of federal, state and local funding, which can complicate the underwriting process, require more scrutiny of borrowers’ credit histories and slow the approval process. But hang in there, it can be done. Here are 25 ways to turn $10,000 into a house:

1--FHA: The Low-Down Leader

The U.S. Department of Housing and Urban Development offers a variety of mortgage insurance programs through the FHA, which requires about 3% to 4% cash down.

There are no income requirements to qualify for a FHA mortgage. Other advantages are that FHA loans do not contain prepayment penalties, and in some cases they are assumable by qualified purchasers.

FHA loan limits vary depending on the county where the property is located. Recently, the FHA loan limit was increased to $151,725 for single-family homes, but only in high-cost areas such as Los Angeles.

FHA does not lend money; it insures mortgages. FHA loans are made by a bank, savings and loan, mortgage company or other FHA-approved lender. In addition, FHA does not set the rates and points. The lender determines these, so it is best to shop around by calling several FHA-approved lenders.

Call the Los Angeles HUD office at (213) 251-7122 for more information.

2--Vets Apply

More than 2.9 million California veterans and service personnel are eligible to participate in the Veterans Administration Home Loan Guarantee Program, which in most cases requires no down payment. VA loans can be used to buy a home, build a home, improve a home or to refinance an existing loan.

After issuing a certificate of eligibility to the vet, the VA guarantees the loan to the lender up to $184,000.

VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to complete a Certificate of Eligibility (Form 26-1880). Call (800) 827-1000 for more information.

3--More Help for California Vets

Veterans also can find financing through the state Cal-Vet home loan program, which offers low- or no-down payment mortgages, a low interest rate and no loan origination fees.

The maximum loan amount for single-family homes in Los Angeles County is $198,700; $220,400 in Orange County and $203,800 in most other Southland counties. For more information, contact Cal-Vet at (800) 952-5626.

4--No Down for Government Workers

The CalPERS Member Home Loan program is offered by the California Public Employees Retirement System (PERS), which invests pension funds for state and local government employees. PERS offers a standard 5% down program and a no-down option for members who currently work for the government and meet other qualifying criteria.

To get 100% financing, members must take out a personal loan for 5% of the purchase price or the appraised value, whatever is less. This is a personal loan, secured by the member’s retirement contributions, and must be paid back. These funds are used to reduce the down payment to zero.

For more information, call Lomas Mortgage, which services the loans, and can be reached at (800) 874-PERS.

5--3% Down for First-Time (and Other) Home Buyers

The state-sanctioned California Housing Loan Insurance Fund is offering 97% loans, which are originated by private lenders.

The loan program is a partnership between the California Housing Loan Insurance Fund, Commonwealth Mortgage Assurance Corp., Federal National Mortgage Assn. and several California mortgage bankers.

Borrowers do not have to be first-time home buyers; however, they cannot own any other real estate when they apply for the loan. The maximum loan amount is $203,150. For a list of participating lenders, call (800) 789-2432 and ask for information on the 97% loan.

6--L.A. County Pays Costs

The County of Los Angeles Homeowner’s Assistance Program offers low-down loans to home buyers who purchase houses in 62 targeted neighborhoods that the county wants to stabilize and increase homeownership rates. Therefore, some of the communities are high-crime areas.

The typical down payment is 5%, but the county pays 1.5 points to the borrower to cover loan costs such as points and fees. (A “point” is 1% of the loan amount.) The current interest rate is 7.67% for a 30-year fixed loan and there are other qualifying criteria. For more information, call (213) 260-2204.

7--Orange County Offsets Fees

Through its Fee Assistance Program, Orange County will pay up to 1.5% of loan fees for borrowers who tap a joint Los Angeles and Orange County homeowner fund, which offers low down payment loans. Borrowers can earn no more than $47,040 and the price of the home can not exceed $242,190 for a new home and $225,900 for a resale. Also, the home buyer must agree to live in the home for two years, and the house must be located in Orange County cities that are participating in the program.

For more information, call (714) 834-5693.

8--Attn: Santa Ana High School Grads

The city of Santa Ana offers special programs for graduating high school students who go on to graduate from college and return to Santa Ana to buy a home. Eligible students must first apply after graduating from high school.

In the form of a loan, the city will provide up to 15% of the loan value but no more than $30,000 for the down payment. Payments on the city loan are deferred for five years. After that, the amount is amortized over the next 15 years.

If the owner stays in the home for 10 full years, half of the loan is forgiven.

The purpose of the program is to encourage Santa Ana residents to return to the community after college. It is hoped that their presence will stabilize the homeownership rate and that the graduates will serve as role models for younger residents.

For more information, call (714) 667-2224.

9--Private Low-Down Loans Without PMI

A growing number of private lenders are loosening up their requirements for low-down loans. For example, Home Savings offers its new Easy Start 95% loan that doesn’t require private mortgage insurance (PMI) and permits borrowers to tap a generous relative or parent who is willing to gift the 5% down payment.

Both move-up buyers and first-time buyers can take advantage of this adjustable-rate loan. As much as $300,000 can be borrowed for as long as 40 years. Also, Home Savings permits the seller to pay 100% of the closing costs. For more information, call (800) 652-8833.

Sanwa Bank California is offering a low-down payment loan as low as 5% with 3% cash and a 2% gift. The loan can be made without PMI. Plus, points and closing costs are reduced. For more information, call (800) 237-2692.

Several other large financial institutions are offering similar loans.

10--L.A.’s Silent Seconds

The city of Los Angeles’ Silent Second Program, which offers a 5% down loan, also provides secondary mortgage assistance to home buyers whose income is under $54,240.

Borrowers can receive up to $30,000 for a second-trust deed paid for by the city, which helps people afford a home that they might otherwise not qualify for.

For example, home buyers who put down 5%, or $6,500, on a $130,000 house could qualify for as much as $30,000 from a city-sponsored second-trust deed fund. Authorized private lenders determine how much the second-trust deed will be.

The silent second need not be repaid until the title changes.

This program is available only for newly constructed homes in South-Central and East Los Angeles that are designated by the city under this program. Down payments can consist of 3% of the borrower’s own money along with 2% from a family member. Generally, people must earn at least $30,000 annually to qualify for this program.

Call (800) 994-4444 or (213) 847-7631 for more information.

11--City Helps With Existing Homes

Los Angeles residents who meet specific income and home-price guidelines can obtain a low 7.34% 30-year fixed interest rate mortgage with a minimum 5% down to buy a home anywhere in Los Angeles. The program is called the Existing Home Purchase Program. Generally, people must earn at least $30,000 annually to qualify for this program. Call (800) 994-4444 or (213) 847-7631 for more information.

12--New In-Fill Projects Offer Low-Down Possibilities

The city of Los Angeles’ Small Sites Program offers 3% down payment loans on specific city-sponsored developments in the South Central area of Los Angeles. Currently there are 10 homes available.

For more information, call (800) 994-4444 or (310) 548-2904.

13--Home Works

In cooperation with the city of Los Angeles, the secondary-market lender Freddie Mac recently announced its Home Works program, which, with the city, provides 95% financing for eligible first-time home buyers. Three percent of the down payment must come from the borrowers’ own funds with the remainder from city grants, gifts from relatives and/or loans from a nonprofit, government agency or employer. Borrowers are also required to take home-buying education courses.

The loans are available through private lenders. For more information, contact one of the three participating lenders: Countrywide Funding, (310) 440-3160, Family Savings Bank, (818) 794-1151 or First Interstate Bank, (818) 500-3708.

14--Starting With BEGIN

BEGIN is a small program that provides down payment funds for low-income buyers who want to purchase new homes in designated areas.

Buyers may be loaned up to $20,000 in the form of a second deed of trust, which must be paid back when the home is sold. Assisted households must have an income that does not exceed 80% of the area’s median income.

A total of $1 million will be available in Los Angeles to assist 50 first-time home buyers in two projects. The first is a development of 114 detached single-family homes in South-Central L.A. BEGIN will assist 14 families in this project.

The second project is a small-sites program initiated after the 1992 civil unrest. This program provides funding for small developers to construct single-family homes for large families on vacant land in neighborhoods needing revitalization. Plans are to assist 36 families with this in-fill program.

For more information, call the California Department of Housing and Community Development at (916) 322-0356.

15--Parent Power

Merrill Lynch’s Parent Power Program helps home buyers who have sufficient income to qualify for a Merrill Lynch mortgage but who lack a cash down payment.

However, their parents must also be willing to help.

If the buyer’s mother or father has a stock brokerage account with Merrill Lynch, they can use it as collateral (in place of the down payment) without actually taking the money out of the account.

Meanwhile, funds in the account still gain interest and dividends, said Bobbie Collins, a spokeswoman for Merrill Lynch, New York City.

For example, a person needing a $20,000 down payment for a $100,000 home could obtain a mortgage loan for the full $100,000 while using the Parent Power Program in place of the standard 20% down payment. The program is available with 15- and 30-year fixed-rate mortgages.

For more information on the program, contact a local Merrill Lynch consultant or call (800) 854-7154, Ext. 8667.

16--Parents’ Equity

By the end of the summer, California Housing Finance Agency (CHFA) through North American Mortgage Co. in Santa Rosa is also expected to offer an Equity Link loan. The mortgage lets the home buyer get into a home for nothing down, but the parents of the borrower must pledge 10% of the purchase price in the form of a second-trust deed on their house or in the form of eligible investment securities. The pledge is removed after seven years.

For more information, call North American at (800) 700-6262.

17--The 3% Move-In Package

Builders are also touting new low-down programs. For example, Los Angeles-based Kaufman & Broad Home Corp. is offering a 3% move-in package that promises to get buyers into one of the builder’s homes for only 3%, which covers down payment, closing costs and all fees. The program is available in most of K&B;’s subdivisions and selected lots in these communities.

For more information, call the builder at (800) 344-6637.

18--State Earthquake Relief

The California Housing Finance Agency’s Renter to Home Buyer Program is offering one of the lowest interest rates around--5.95% for a 30-year fixed-rate loan--for renters whose apartments suffered damage from the Northridge earthquake. The required down payment is only 3%. Eligible renters must show proof that their apartments were damaged or destroyed by the earthquake, aftershocks or fires from the quake. For more information, call CHFA at (916) 322-0249.

19--Fannie Mae Promises Help

Fannie Mae’s Community Home Buyers Program allows first-time buyers with little cash to obtain 95% financing. Also, participants may put down as little as 3% of their own money, with the remainder permitted in the form of a gift from family members, a government program or nonprofit agency.

Mortgage insurance is required on all loans above 80% loan-to-value ratio when borrowers do not use their own funds for at least 5% down.

Sponsored by the Federal National Mortgage Assn., commonly referred to as Fannie Mae, the Community Home Buyers program is administered through participating lenders.

The income limit in California is currently 120% of the median income for the area.

Borrowers must attend a seminar on home ownership and the home-buying process. For a list of participating lenders, call Fannie Mae at (800) 732-6643.

20--More Fannie Aid in Inner City

From Fannie Mae, home buyers in central cities can also take advantage of the FannieNeighbors Program. This mortgage plan was created to increase homeownership and promote revitalization in central cities as well as low- and moderate-income minority areas.

Using FannieNeighbors, borrowers need less income to qualify for a mortgage and less cash for closing than with standard mortgages. The program includes mortgages to buy or refinance a home.

FannieNeighbors has no income limit for residents who are purchasing a home within designated central cities (if not the largest city in a metropolitan area, cities must have populations of 250,000 or more.)

Borrowers must attend a seminar on home ownership and the home-buying process.

For a list of participating lenders, call Fannie Mae at (800) 732-6643.

21--HUD Repo Means Low Down

Cash-strapped home buyers who are looking for a bargain can sometimes find HUD foreclosure properties for as little as $100 down.

The Department of Housing and Urban Development acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both home owner-occupants and investors.

Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from 5% to 20%. But when the property is FHA-insured, HUD sources say a condo can be purchased for as little as $100 upfront.

Each offer must be accompanied by an “earnest money” deposit equal to 5% of the bid price, not to exceed $2,000, but not less than $500.

Buyers should be aware that foreclosure properties are sold “as is,” meaning limited repairs have been made but no structural or mechanical warranties are implied.

Anyone interested in buying a HUD home can obtain current property sales listings through a licensed broker. HUD will pay the broker’s commission, if requested.

For more information, call HUD’s Los Angeles office at (213) 252-7901.

22--VA Foreclosures Are Well-Kept Secret

Homes can be purchased directly from the Veterans Administration, often well below market value and with a down payment amount as low as 2%.

“The VA doesn’t make direct loans; it guarantees loans,” said Richard Grimes, of the property management section of the VA’s Loan Guarantee Division In Oakland.

“If a vet defaults--and we don’t talk about that much because we are the VA--in most cases where there’s a foreclosure, the VA will end up owning the property,” he said.

Down payments vary, ranging from 2% to 3% for owner-occupants. Investors may be required to pay up to 10% down. Conventional financing is acceptable. The VA also offers the public (not just veterans in this case) seller-financing with a fixed 30-year loan at 8.5% interest, Grimes said.

Anyone interested in purchasing a VA foreclosure may call (800) 827-1000 to request a current listing. About 100 new properties are listed every two weeks.

Potential buyers then should contact a real estate broker of their choice. The broker will prepare and submit a bid to the VA.

23--A Gem for ‘Diamonds-in-the-Rough’

Home buyers who want the money to buy a fixer-upper along with a home-improvement loan can turn to HUD’s Rehabilitation Loan Program, Section 203 (k).

The program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.

A 203 (k) loan is usually done as a combination loan to purchase a fixer-upper property “as is” and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.

Investors must put 15% down, while owner-occupants are required to come up with only 3% to 5%. HUD requires that a minimum of $5,000 be spent on improvements.

Two appraisals are required. Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.

Only select lenders are participating. For a list, call HUD’s Los Angeles office at (213) 252-7901.

24--Help for Victims of Earthquakes, Other Disasters

People whose residences were destroyed or severely damaged in a disaster can receive 100% financing assistance through HUD’s (203h) mortgage insurance program. Borrowers must be able to prove their previous residence was in the disaster area and that reconstruction or replacement is necessary.

No down payment is required, although some expenses must be paid by the borrower in cash. The maximum mortgage amount is $203,150.

Both owners and renters of affected residences can participate in the program. However, only single-family detached homes are covered. Condominiums, duplexes and multifamily homes are not eligible.

The residence purchased need not be located in the same area as where the disaster occurred. Applications are due within one year of the President’s declaration of disaster.

For more information, call HUD’s Los Angeles office at (213) 252-7901.

25--Long Beach Offers Help

The City of Long Beach offers help on down payments through a city-sanctioned nonprofit group called the Long Beach Housing Development Company.

Available citywide, the program pays 40% of the down payment for households that earn 100% of the area median income--about $58,000 for a family of four.

A grant deed is recorded but the “conditional grant” is forgiven if the homeowner stays in the home at least 10 years. Call (310) 570-6926 for more information.

Ann Sumwalt assisted in the preparation of this story.