A new breed of 15-year mortgage designed to be more affordable for low and middle-income home buyers across the country was unveiled at a mortgage conference in Raleigh on Monday.
The Wealth Building Home Loan is initially being made available as part of a pilot program launched by Neighborhood Assistance Corporation of Ameria, a nonprofit advocacy group, in conjunction with Charlotte-based Bank of America. The loans are expected to be available within 60 days; applications can be submitted now at 40 NACA offices nationwide, including in Raleigh and Charlotte.
The innovative loan was designed by the American Enterprise Institute for Public Policy Research, a pro-business think tank based in Washington, D.C. Edward Pinto, co-director of AEI’s International Center for Housing Risk, said he is talking to other financial institutions about launching pilot programs of their own.
“It’s really a freedom mortgage – freedom from debt,” Bruce Marks, NACA’s CEO, said at a press briefing Monday at the annual American Mortgage Conference sponsored by the N.C. Bankers Association. The conference runs through Wednesday at the Marriott Crabtree Valley.
A key feature of the 15-year mortgage offered by NACA and Bank of America is that, although no down payment is required, home buyers can “buy down” the interest rate by providing cash up-front. For every 1 percent of the loan amount provided up-front by the buyer – or, for that matter, the seller – the interest rate is permanently lowered for the life of the loan by one-half of a percentage point for the life.
There’s also no closing costs or loan fees for the borrower, and there’s no minimum credit score required. There is no income limit, but the maximum mortgage amount for a single-family home is $200,000.
AEI estimates that the mortgage can reduce foreclosures by 70 percent compared to a 30-year loan – which would appeal to both borrowers and financial institutions. The bulk of that reduction would be the result of buyers building up equity much faster with a 15-year loan, which means that they’re less likely to be “under water” on their mortgage – that is, owe more than the house is actually worth.
Also contributing to lower foreclosure rates, said Pinto, would be applying “common-sense underwriting” to determine whether a borrower can handle the mortgage. That takes into account factors such as the household budget and
“We think this can be a game-changer,” Pinto said.
Anthony and Theresa Smith of Charlotte have been approved for the first Wealth Home Building Loan. He’s a state corrections officer; she’s a customer service representative for FedEx.
“We’re living the American dream,” said Anthony.
After putting down $1,477 themselves to buy down their interest rate, and with the seller kicking in another $7,694, their interest rate on the still-under-construction three-bedroom house they are buying was lowered to 0.125 percent, or one-eighth of a percent.
Their monthly payment will be $857.20.