Buy a Home With a Low Downpayment

How one homeowner bought a

home with a $1,026 Down

Payment

How one homeowner bought a home with a $1,026 Down Payment
 
After renting for quite a few years, Shirley Schweizer of Thornton, Colo., wanted to buy a home close to her work and for little money out of pocket. She had lost a house five years earlier because of bankruptcy, but time had changed her bad spending and saving habits.

This 48-year-old payroll employee wanted a fresh start. She didn’t have a lot of money for a down payment. However, she took some real estate classes and realized she didn’t need a whole lot of money to get her dream house – and she was right. Schweizer purchased a home with only $1,026 down and $3,252 for closing costs.

Read on to get the details of how Schweizer was able to buy a home for very little down

How She Bought a Home With a Poor Financial History

Schweizer went through some financial difficulties with her previous home and wasn’t sure if she’d be able to qualify for another mortgage.

She built her former home in 2003, but lost it because she didn’t manage her finances properly.

“I got a little greedy. I was only working part-time or three-fourths time, but was spending like I was working full-time. I was living off my credit cards,” she said. “If had to do it over, I would still be in that house. But it was all my fault. I have no one to blame but myself. I went running to bankruptcy, and I walked away from my house.”

Given her financial history, she looked to Chris Thomas, owner of America’s Mortgage LLC in Wheat Ridge, to help her through the process of buying another home.

She actually attended one of his free classes on “How Not to Get Ripped Off When Buying a House,” through the Colorado Free University, which offers adult education classes in the Denver metro area.

“I learned that I was way beyond the three-year wait after a bankruptcy to get a mortgage. Five years had passed,” she says.

A few months later, she called Thomas to run her numbers. She didn’t think she would be approved for a mortgage, but she wanted to see what else she could do to get her credit up or how to save more money.

“I was shocked when he told me I was approved for a loan up to $215,000. But I didn’t want to spend that much,” she said.

Finding the Right Home, at the Right Price

Schweizer started looking at homes to buy in September 2013 with a price limit of $160,000. However, the homes she saw either needed a lot of work or were located in an unsafe and downtrodden area. As a result, she upped her price range to $175,000.

“What was shocking to me is that if you found something you wanted to buy, you usually had to up the asking price and decide right away if you wanted it. Competition was tough at that time. There wasn’t enough houses for those that wanted to buy at that time,” she said.

By March 2014, she finally found the right home.

Her realtor showed her showed her a $184,900 home, which was almost $10,000 over her price cap. But it offered everything she wanted. The kitchen and bathroom were updated. She loved it immediately and gave a $1,500 earnest check to prove to the sellers that she was serious and it worked. She got the house.

“I had made offers on two or three other [homes], but I liked this one. It was very close to work and just a bit over my price range. I had to move fast,” she says.

The three-bedroom, one-bathroom ranch house offered Schweizer plenty of room with a living room and family room along with a large kitchen, new carpet, central air and a two-car tandem attached garage. The 1,250 square feet and a large fenced-in yard were perfect for just her and her three senior dogs.

The Two Loans That Helped Schweizer Get Her House

Schweizer paid a total of $4,278 to buy her house. Some of it came from savings and $3,500 was borrowed from her 401(k). She put $1,026 towards the down payment and $3,252 towards closing costs.

Thomas arranged for her to get two separate loans from the Colorado Housing and Financing Authority (CHFA), which offers special incentives with its loans.

“Since CHFA is selling both loans, all of the money (earnest money, seller concessions, first loan amount, second loan amount, and any additional funds the buyer pays towards closing costs) is thrown in the pot, and the title company disburses the funds to whoever is supposed to get them,” Thomas says.

Schweizer qualified for the CHFA’s FHA loan at a 4.75 percent interest rate, 3.5 percent down payment and a 30-year term for the larger portion of the home’s cost. Thomas arranged for Schweizer to take out $178,428 in the FHA loan, which was the most she could borrow given her $1,000 down payment. Otherwise, an FHA loan usually requires a 3.5 percent down payment. That would have been over $6,471. Schweizer didn’t have that kind of money to offer for a down payment.

To make up the difference to get Schweizer to that magical $184,900, Thomas also helped her get a second mortgage through the CHFA. It was a loan for $5,446 at 4.75 percent, fixed rate for 30 years.

The FHA loan requires an upfront mortgage insurance, which added up to $3,122. That was rolled into the loan for Schweizer. She also must pay $199 a month for mortgage insurance premiums (MIP), which is required by the FHA for not having 20 percent down. In total, Schweizer pays $1,375 a month for her mortgage.

“I wanted my bill to be less than $1,400 a month, and Chris was able to do that for me,” she says.

Some of her financial burden is relieved during tax time. The CHFA gave her some tax incentives including a mortgage credit certificate, which is an IRS tax credit for 20 percent of the mortgage interest she pays each year.

“For the borrower, the advantages of the certificate are two-fold – they get the tax credit for the next 30 years or until they sell the house, and the lender can count the tax credit as income when qualifying the borrower, allowing them to qualify for a higher amount,” Thomas says.

Schweizer figures that during at least the first 15 years of the loan – since those are the years she will be paying mostly interest on her loans – she will get the equivalent back of $200 a month with the tax credit.

All in all, Schweizer is thrilled she was able to qualify for a mortgage and purchase her dream home for little money down.

“I didn’t have a large amount for a down payment. This was one of the only way I could get it. I love my new home. It’s perfect for me,” she says.

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