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Posted at 11:23 AM ET, 03/06/2013

What options do first-time home buyers have for a down payment?

We received so many questions for our online chat on Tuesday that we couldn’t get to them all. If you missed it, you can read a transcript here.

We asked Craig Strent, CEO and co-founder of Rockville-based Apex Home Loans, one of greater Washington’s largest independent mortgage banking firms, to tackle a few of the mortgage-related questions. Here are his responses:

Q: First-time home buyer. My debt/income ratio is fairly good; however, due to some misfortunes (medical/auto/personal) I don't have the liquid assets to cover the down payment as I borrowed against my 401k when there were no other options. I've been told I can't take out a loan to cover this and I feel uncomfortable asking my parents for the “gift.” Do I have any other options, or am I stuck renting until I'm dead?

Unless you qualify for a VA loan, which would allow for a zero down payment, your options will be limited until you can save at least 3.5 percent down for an FHA loan. Some local jurisdictions do however have programs of their own, subject to qualification, that will allow you to either borrow or obtain a grant for the down payment or put as little as $500 down. In Virginia, check out vhda.com.  In DC, check out http://www.gwul.org/programs/housing/hpap, and in Montgomery County, check out http://www.hocmc.org/

Q: As you know, housing prices in Washington, DC are quite high. To afford homes, many people I know are obtaining FHA loans where the amount down is quite low, but they must pay a monthly insurance. I've heard from some you can refinance to eliminate the insurance, but I've also heard you cannot do that before 10 years of payment on the mortgage. What's the story?

There are no pre-payment penalties on FHA loans, and you can refinance your loan whenever it makes sense. You do not need to wait 10 years.  To the extent that you have 20 percent equity in your home, meaning your total new loan amount will not exceed 80 percent of the lender’s appraised value, you can refinance into a conventional loan, and you will not be required to pay the FHA’s mortgage insurance any longer. If a refinance from a rate standpoint did not make sense, you can stay in your FHA loan, and the mortgage insurance will drop off automatically once you achieve a certain amount of equity (traditionally 22 percent) through the standard amortization of your loan. New rules are set to take effect later this year that will not carry the automatic mortgage insurance drop-off that current FHA loans have.

By  |  11:23 AM ET, 03/06/2013

 
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