Only a $100 down? Seems too good to be true, but it’s the real deal. Right now, HUD is committed to making homeownership affordable for everyone. So you may be wondering? “Do I just need the $100 to get a home?”, “Are there any other qualifications that I must meet?”, “What documents will I need to have to qualify for a loan?” The answers to these questions and others can be found below. And remember, even if you don’t qualify today, we can get you on the right track towards repairing your credit and moving closer towards being a part of the homeownership wave!
The 8 Steps to the Loan Approval Process
- Prequalification – A lender will need to pull your credit and analyze your income and debts. You will need to sign a credit report authorization for the lender to be able to do this.
- Documentation – A lender will need: paystubs, W2s, bank statements, and possibly bankruptcy, divorce, child support, tax, and monetary gift paperwork.
- Disclosures – A lender will need you to sign a loan application as well as some FHA documents before your file can be reviewed by an underwriter.
- Underwriting – Your information is reviewed. The underwriter decides if you are approved or denied. If approved, it is common for the underwriter to request a few additional documents.
- Processing – A processor will request additional items from you that the underwriter may have asked for. They will also verify that you are currently employed at the same job that you outlined in your loan application. Once they have all of this information, they will submit it to the underwriter.
- Final Underwriting – The underwriter will review all final documents and give their “stamp of approval”.
- Audit – Most lenders have a review team that ensures that everything has been collected, covered, and completed. Once the audit is completed, they issue a “final clear to close”.
- Closing – The lender’s closing department creates all of the documents that you will have to sign at closing and they email them to the title company. Once the title company has the closing package, you will be able to close in 5 days.
The $100 FHA Down Payment – HUD Homes
The $100 Down Payment vs. The Normal 3.5% Down Payment
Example 1: $50,000 Sales Price – $100 vs. $1750
Example 2: $75,000 Sales Price – $100 vs. $2625
Example 3: $100,000 Sales Price – $100 vs. $3500
Convention Financing: 5% – 20% Down Payment (depending on your credit)
CASH TO CLOSE: 6 More Items That May Require Money From The Buyer
- Taxes & Insurance (aka Prepaids/Escrows)
- Closing Costs (HUD will contribute up to 3% towards ALL closing costs.)
- Updated or Repaired-Value Appraisal
- Inspections (Well, Septic, Termite, Roof, Mechanical, Structural)
- Home Inspection (this is OPTIONAL)
A Word of Caution: USDA, VA, and Conventional Financing
Under these types of loans, any repair or defect outlined in the appraisal will require remediation before closing which HUD does not allow under any circumstance. In these cases, the buyer will need to convert to another type of financing or cancel the contract.
Missing light fixtures, missing toilets, missing appliances, missing doors, stained/missing flooring, damaged doors, holes in walls . . . NO PROBLEM WITH FHA LOANS!
Flexible lenders will allow a 600 FICO score to be eligible for the $100 Down Payment. Other lenders may require 620 or higher. You should ask your lender what their minimum requirements are before you being the loan application process.
“What If I Have No Credit?”
It’s okay as long as you have verifiable rent for the past 12, consecutive months. If you are in an apartment, the lender will contact the apartment complex directly to verify your payment history. If it’s a private residence, you will need to provide cancelled checks or money orders for the past 12 months.
“My Credit Isn’t Perfect. Is There A Chance I May Still Qualify?”
It depends. Below you will find some common derogatory items that can be worked with and others that must be resolved, per typical lending guidelines. Lender’s terms and conditions may vary.
- Chapter 7 Bankruptcy – must have been a minimum of 2 years ago from discharge date.
- Foreclosure – must have been a minimum of 3 years ago from title change.
- Repossession – must have been a minimum of 2 years ago AND it may have to be settled.
- Credit Card Late Payments – typically should be 12 months since a late payment has been made.
- Medical Collections – not typically a problem, but no guarantees. This will have to be evaluated on a case-by-case basis.
- Other Collections – these will depend on how much is owed and how old the collection is. These will have to be evaluated on a case-by-case basis.
$100,000 HUD Home, $100 Down Payment, $0 Needed To Close – A True Story!
Sales Price: $100,000
Closing Costs: $4,800
Down Pmt: $100
Total Expenses: $7,400
3% Contribution from HUD: $3,000
Earnest Deposit: $1,000
Lender Credit: $3,400
Total Credits: $7,400
Cash to Close Needed: $0
(Lender Credit – Interest rate would be increased approximately 1.5%. As an example, a lender credit on a $50k loan would increase the monthly payment by $40; or in this case, it increased it by $91/month.)