The Colorado Housing and Finance Authority on Thursday announced a new mortgage product designed to help homebuyers with excellent credit scores avoid having to make a 20 percent down payment in order to escape costly mortgage insurance fees.
The program, called CHFA Advantage, will reward first time homebuyers with credit scores of 700 and above for their strong track record of financial responsibility.
“Historically, CHFA’s borrowers with a credit score of 700 or more typically have a foreclosure rate of less than one-half of one percent,” said Cris White, CHFA’s executive director and CEO. “These borrowers have demonstrated that they do what it takes to pay their bills in-full and on-time. It is critical that we help more Coloradans with strong credit achieve homeownership affordably. The risk to CHFA is minimal, and the reward to the homebuyers and our economy is significant.”
Mortgage insurance is typically required for homebuyers who are unable to make a 20 percent down payment towards the purchase of their home, regardless of their credit score.
The mortgage insurance protects the lender should the borrower default on their loan.
On average, mortgage insurance costs borrowers between $100 and $200 each month. It is paid as part of their mortgage payment until they accrue 20 percent equity in their home.
With CHFA Advantage, borrowers can avoid the mortgage insurance costs, while only being required to make a three percent down payment.
For example, with CHFA Advantage, the down payment on a $150,000 home would be $4,500. In the same scenario without CHFA Advantage, borrowers would have to pay $30,000 down in order to avoid mortgage insurance.
“As rents rise, more people will be looking to buy a home,” Whit said. “We know they can afford the mortgage, because often their rent payment is equal to or even slightly higher than what their mortgage payment would be.
“However, it can be especially difficult for the average family or a single-person to save enough money for a 20 percent down payment. Because of this, even buyers with strong credit are penalized by having to spend money on mortgage insurance. This is money they could be saving, or investing back into our economy.”
CHFA estimates that CHFA Advantage will help 800 Colorado households in 2012 and 2013. For every 100 households served, $20.5 million in direct economic impact will be created and 104 jobs will be supported.
To be eligible for CHFA Advantage, borrowers must:
- Be a first time homebuyer, eligible veteran, or non-first time homebuyer purchasing in a targeted area.
- Have a minimum 700 credit score.
- Meet qualifying income and home purchase price limits.
- Contribute at least three percent of the loan amount towards their down payment.
- Complete a CHFA-approved homebuyer education class.
CHFA’s income and purchase price limits vary by county. The income limits in Denver County are $79,300 for a one or two-person household, and $91,100 for a family of three or more. To view a complete list of the income and purchase price limits or for more information about CHFA Advantage, visit Colorado Housing Finance Authority or call CHFA’s Denver office at 1.800.877.2432 or its Western Slope office at 1.800.877.8450.
Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.
If I did not already know that down payment percentage is a far better indicator of future default than credit score, I would probably think this was a good idea.
JohnD, you are spot on. A homeowner with a FICO score of 400, and an LTV of 75% is much less likely to default than a homeowner with a 780 FICO score and 97% LTV.
Also,I find it interesting CHFA claims a 1/2 of 1% default rate with FICO scores over 700. The 2009-2012 FHA loan book has a average FICO score of 700 and an expected loss rate of 8.5%. They do say the worst-performing 25 percent of these loans are thirty-year fixed-rate loans with FICO credit scores less than 660, but I don’t think the 700 FICO score FHA “loan book” is preforming nearly as well as the CAFA book.
Source-
http://www.aei.org/article/economics/financial-services/housing-finance/fha-watch-january-2012/
I don’t have any data or know all the programs, but it has been by observation as someone that follows foreclosures sales, that CHFA usually takes a second position DOT to a HUD loan, as opposed to guaranteeing the 1st DOT (which they also do less frequently). And that CHFA never initiates foreclosures when they are in second position since there is no equity, thus the most common scenario is that CHFA gets wiped out completely when someone does default on a CHFA second. So it is probable that CHFA default and loss rates are much higher than 1%, but it is also possible that their foreclosure rate really is less than 1/2 of 1% as Chris White says, but only because they are not counting all defaults in that ‘foreclosure rate’ figure. If their loss rate really was less than 1/2 of 1% then they would be the most successful lender in the Country, and they would not need government subsidies.