Mortgage Insider

June 2024

0% Down Programs 

In an effort to bolster the purchase market, we are now offering a variety of 0% down loan programs; here are some of the highlights:

  • A 3-5% 2nd loan can be combined with either a conventional or FHA 95-97% 1st loan, resulting in 100% financing (0 down payment)
  • The interest rate on the 2nd is zero and depending upon the program is either forgiven after 3-5 years of on-time payments OR is repaid when home is refinanced or sold
  • Borrower does not have to be 1st-time homebuyer
  • There are NO income restrictions with a couple of these programs

These programs are getting a lot of traction; however, they will eventually run out of funds.  If you have children or know someone that would like to get into the housing market, but is struggling with coming up with a down payment, this may be an ideal opportunity.

How does a Young Professional Buy a Home in 2024?

If you are like me and have kids in college/ young professional years, I’m guessing your kids have posed the question “How will I ever be able to buy a home in a high-priced area like California?”  

Qualifying for a home loan boils down to 4 factors, namely:

  1. Credit:  This is a pretty easy obstacle to overcome as a minimum of 620 score is all that is needed for “A” paper loan.  For young borrowers, it is important to keep in mind that they should have at least 3-4 pieces of credit rating each month to build up their credit scores, as well as meet minimum credit thresholds for some lenders. 
  2. Down Payment:  See above for all of the new low/ no down payment programs
  3. Debt-to-Income (DTI) Ratio:  This is usually a very straightforward calculation, whereby conventional loans will go as high as 50% DTI, and FHA/ VA loans, up to 57% DTI.  By providing us with some basic income documentation, we can calculate how much max home sizing you will qualify for.  
  4. Cash Reserves:  This is another very easy obstacle to overcome as FHA loans require zero cash reserves after close and conventional loans, a mere 2 months of the new house payment.  You can even use retirement funds for the reserve requirement.

At the end of the day, the best thing a young borrower can do is to minimize/eliminate debt, slowly save (by being consistent, you will reap the power of exponential growth, earning “interest on interest”), and keep a good credit rating.

A Young Professional’s Real Estate Odyssey: …Jumpstarting a Real Estate Empire

I recently had the pleasure of working with a young professional that was referred to me.  For identity protection, I will refer to her as Molly.  Molly had just graduated college 2 years prior and was making $80,000/ annually.   She had just paid off all her debt and was starting to save.  She thought that there was no way she could afford to buy a property in CA anytime in the near future.  She also expressed that if she was ever able to afford something that she wasn’t afraid to “roll up her sleeves and put sweat equity” into the property.

With the recent huge announcement by Fannie/ Freddie, whereby if you buy a 2-4 unit property and occupy one of the units, you can now get in with only a 5% down payment (previously it was 20% down minimum), I suggested looking at 2-4 unit properties.   She ended up finding a cute, but bit rundown, 4-plex in a nice location in northern SD County.  She settled on $800,000 sales price.  

How could she possibly afford this?   

Molly was able to use rental income offset (at a 75% factor) of the 3 units she wasn’t living in to qualify for a much higher mortgage amount.


Here is how the numbers penciled out:

5% Down payment = $40,000 (we can show you some creative ways to make this happen as well)

1st Loan Amount:  $760,000 @ 6.5%       $4804/month

Mortgage Insurance                                       336
Real Estate Taxes                                            833
Homeowners’ Insurance                               200
Total house payment                                      $6173/month

Rental Income Offset                                     ($3375)
     75% of $4500/ (rents for 3 units not being occupied by her)

Net Rental Payment                                       $2798 month / $6667 monthly income
                                                                                        = 42% DTI

Molly could have even afforded closer to $850,000 sales price with these offsetting rents; compare this to what she can afford if she was buying a single-family residence with no rental income offset: a mere $400,000!

Talk about making a huge initial splash into the real estate world!   While this was able to get her into the property, she knows she needs to maintain the property and manage a few renters.   For Molly, who is a super go-getter, this will not be a problem.  She has plans to renovate each unit as each renter eventually moves out.  After doing this, she is confident she will be able to raise rents in line with local averages.

Taking it one step further, Molly and I spoke of the tremendous tax benefits of owning real estate:

  • For primary residences, as a single person, she can take up to $250,000 tax-free gain if she lives in the property 2 consecutive years out of the next 5 years ($500,000 tax-free gain for married couples)
  • As this property also has investment property component, if her gain was over $250,000, she could also 1031 exchange into another property and defer any additional taxes (over $250k tax-free gain).

Molly’s plan is to live here and fix up this property over the next 2-3 years, then sell it and repeat this process, moving up in property value.   While we all know moving is a pain, if you can endure it, this is a great way to becoming a real estate tycoon; I have seen it firsthand by more than a few clients!        

Rates are improving and the real estate market is starting to move. Contact us today and let us help you strategize how to put you in the best position for your next real estate purchase and then maximize that deal!