Being a first-time homebuyer or just a home buyer in the current market is tasking. There are many obstacles to overcome in a seller’s market. Qualifying for a mortgage is the first step but with that, you will also need cash out of pocket. For those who can obtain a mortgage but do not have money for out-of-pocket closing expenses, a micromortgage might be the answer.
A micromortgage is a home loan that is for less than $100,000 and is 100% financed. The micromortgage pilot program’s goal is to make homeownership more attainable and to begin to close the racial gap in homeownership.
“Renting similar homes is literally hundreds of dollars more per month” than buying, says Gabe del Rio, president and CEO of the Homeownership Council of America.
“We see it happening to young folks and communities of color,” says del Rio. “This is an opportunity to build wealth—you can’t buy $100,000 in stocks for $3,000 down. But you can buy a home worth that for a few thousand dollars out of pocket.”
The current mortgage rates are at record lows but you will have to be locked in at a higher rate than a conventional loan. For example, the rate in January 2020 for a standard mortgage was 2.79% while the mircomortgage rate was 3.99%. This is still an advantage for those who cannot pay insurance, down payment, or closing fees upfront.
To obtain a micromortgage, a potential home buyer must complete a home-buyer education course prior to closing. The course will provide information on working with a Realtor, mortgage lender and more. The cost for the class is around $100 and will be the buyer’s expense. Once the course is completed, a completion certificate will be awarded. “It really arms the consumer, so they’re in control,” del Rio says.
Currently, the pilot program is only offered in certain areas of Kentucky and Indiana but the Homeownership Council of America is working on getting the program all over the country. “The plan is to evaluate this pilot over the next year, but we are making a pathway for other interested lenders to enter the micromortgage marketplace,” del Rio says.
USDA loans offer 100% financing but are only given to home buyers who are purchasing in a rural area. Mircromortgages are offered in all areas including urban. If you are thinking of purchasing a home and your credit score is below 640 or have no credit history, then this is the perfect program for you.
