Creative Financing Serve A Wider Array Of Customers

Margaret Reinert remembers a time when mortgage loan officers would cringe whenever they heard the words "creative financing."



Back then, that phrase usually meant that loan officers would have to find a mortgage product that would work for someone sporting a terrible credit history, past employment problems or tidal waves of debt. Most other borrowers would opt for the traditional 30-year or 15-year fixed-rate mortgage loans.



Today, though, that's no longer the case. Today's savvy homebuyers know that mortgage loan officers offer a variety of programs, from those targeted to people who don't have enough money for a large downpayment, to those geared specifically for teachers, firefighters and other public servants.



"Loan officers never wanted to deal with creative financing. Now we advertise for it," said Reinert, a mortgage loan officer with the Valparaiso office of Chase Manhattan. "There are so many more products out there, so many niche products. The only problem is that many people don't know these products exist, so they don't know to ask for them."



Local mortgage lenders offer a host of loan programs designed to fit most borrowers, even those who can't provide the paperwork usually required of borrowers, those with bankruptcies on their record and those with mountains of credit-card debt. Here is a sample of some of the products borrowers can explore.





No- and Low-Downpayment Programs



The number of no-downpayment loan programs is rapidly increasing. This is no surprise, given that Pres. George Bush is actively pushing such loans as a way to increase the homeownership rate in the United States, especially among certain groups of residents who have traditionally lagged behind when it comes to owning a home.



Nearly every lender or mortgage bank in Porter and Lake counties and Chicago's South Suburbs offers a version of a low- or no-downpayment loan program.



"There will always be a market for no-down programs," Reinert said. "For some people, coming up with the downpayment money is the biggest hurdle to owning a home. They can make the monthly mortgage payments, but they can't come up with enough money for a downpayment. These programs are really helping these people."



To qualify for traditional mortgage loans, borrowers generally have to come up with at least 5 percent of the home's sales price as a downpayment. But today's mortgage lenders offer programs that allow borrowers to put down just 3 percent of a home's sales price. Others offer programs that allow borrowers the opportunity to skip the downpayment completely.



Russ Miller, a mortgage loan officer with the Chesterton office of Fifth Third Bank, offers what his company calls the Good Neighbor program. This loan gives borrowers the chance to buy a home without any downpayment. Even better, borrowers who qualify for the program don't have to pay private mortgage insurance. Borrowers usually must pay about $80 a month for private mortgage insurance, an insurance that protects the lender, not the borrower, if they don't come up with a downpayment of at least 20 percent.



Of course, there is a price for such programs. Borrowers using the Good Neighbor program must pay an interest rate either one or two points above prime. But even with this penalty, the program offers borrowers a prime opportunity to borrowers with cash-flow problems.



"So many times, the stumbling block that people face is the downpayment," Miller said. "This gives these people an opportunity."



Programs Targeted Toward Occupations



Do you work as a teacher? How about a firefighter or police officer? Then you're in luck, at least when it comes time to buy a home.



Officials with the Indiana Housing Finance Authority, along with those at the Fannie Mae Indiana Partnership Office, are offering a new loan program designed to help teachers, firefighters, police officers and state and municipal workers become first-time homebuyers. The program, known as First Home Community, provides borrowers meeting the program's employment requirements flexible credit guidelines, meaning that borrowers with less-than-perfect credit can get more easily approved for a mortgage loan. Borrowers taking advantage of the program must make a downpayment contribution of only 1 percent or $500, whichever is less.



"Many of our hard-working young firefighters will appreciate the opportunity to be able to become homeowners with this program," said Tom Hanify, president of the Professional Firefighters Union of Indiana. "And communities will benefit from the increased stability and security."



Those who qualify for First Home Community include full-time sworn law enforcement officers and firefighters; elementary and secondary school teachers and administrators; and employees of the State of Indiana or Indiana municipalities.



The program is offered through Indiana Housing Finance Authority participating lenders across the state. For more information on the program, call the authority at 800-NOW-IHFA.



Programs For The Credit-Impaired



Have you missed a few car payments in your time? How about utility bills? Maybe you've even declared bankruptcy? Well, even you can qualify for a mortgage loan. You'll just have to pay more.



Certain mortgage lenders cater to borrowers with credit problems, troubling employment histories or loads of debt. These lenders work in the sub-prime field.



Sub-prime loans usually come with higher interest rates. These rates help protect lenders from the higher number of borrowers who default or fall behind on their mortgage payments.



So even if your past credit history is a shambles, ask around and the odds are good you'll find someone willing to give you a mortgage loan. Just don't be surprised when you're paying double-digit interest rates.



A Balloon Ride



Most borrowers today opt for traditional mortgage loans. But some still choose Adjustable Rate Mortgages, better known as ARMs. These products feature a fixed interest rate for a set number of years, often three or five. After this period ends, the interest rate adjusts to whatever rates are at that point. This means that ARMs can be a bit of a gamble; Interest rates may be higher, after all, five years from now than they are now.



People choose ARMs, though, because they start out with interest rates that are lower than those for standard 30-year or 15-year fixed-rate mortgages.



Another type of ARM is the balloon mortgage. Balloon mortgages are similar to ARMs in that consumers get a lower-than-standard interest rate for a fixed amount of years, usually five or seven. But unlike ARMS, when that period ends, the balance of the loan is due.



Few borrowers, of course, can pay that balance in cash. Most will instead make the choice to refinance the balance of the mortgage loan, in essence taking out a new fixed-rate mortgage loan to pay off the rest of their home's cost.



20- or 25-Year Mortgages



When selecting a conventional mortgage, homebuyers generally choose either a 30-year or 15-year fixed-rate loan. Each of these options comes with their own strengths or weaknesses.



A 30-year loan features a lower monthly mortgage payment. But homebuyers also end up paying far more dollars in interest. With a 15-year loan, borrowers pay less in interest during the life of the loan, but they also face higher monthly payments.



What many buyers don't realize, though, is that there are other conventional loans out there, namely the 20-year and 25-year fixed-rate mortgage loans.



The benefits of such products are obvious: They feature lower interest rates than do 30-year loans while also offering consumers lower monthly payments than they'd face with a 15-year loan. Think of them as a sort of compromise.