New ‘silent second’ could be your best shot at homeownership

By Jeff Lazerson


What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.

Rate news summary

From Freddie Mac’s weekly survey: The 30-year fixed rate dropped to 3.82 percent, the lowest rate since last November. That’s four basis points better than last week’s 3.86 percent. The 15-year fixed also improved, landing at 3.12 percent, four basis points better than last week’s 3.16 percent.

The Mortgage Bankers Association reported a 2.3 percent decrease in loan application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $424,100 loan, last year’s rate of 3.46 percent and payment of $1,895 was $85 less than this week’s payment of $1,981.

What I see: Locally, well qualified borrowers can get the following fixed-rate mortgages at zero points: A 15-year at 2.875 percent, a 30-year at 3.625 percent, a 15-year agency high-balance ($424,100 to $636,150) at 3.125 percent, a 30-year agency high-balance at 3.875 percent, a 15-year jumbo (over $636,150) at 4.0 percent and a 30-year jumbo at 4.125 percent.

What I think: The FHA deal of the decade for one or two-unit properties has launched for Orange County and all California home shoppers. And it has no restrictions regarding property location, income or previous ownership.

Under this new product, a non-profit, housing finance agency from Utah is providing second-mortgage loans to cover the 3.5 percent down payment on a Federal Housing Administration mortgage.

And if your income is less than 115 percent of the AMI or area median income ($101,200 in Orange County), there are no payments on the second, and the loan turns into a grant if you make all your first-mortgage payments on time. In other words, the second lien goes away after three years. If you’re income is above the limit, you repay the loan in monthly mortgage payments.

The loans are provided by the Chenoa Fund run by the CBC Mortgage Agency through, a non-profit housing finance agency operated by the Cedar Band of Paiutes in Utah, according to the agency’s website.

If you require a non-occupant co-signer to make the income and debt ratios work or if you are receiving rental income (when buying two units and renting out the second unit), these income sources are not counted against your AMI cap.

If your household income exceeds the county AMI cap, then the 3.5 percent soft second down payment provides you a 10-year repayment amortization plan at zero interest rate or a 30-year plan at a 5 percent interest rate.

Such a deal!

A middle credit score as low as 620 is good enough.

No homeownership counseling classes are required.

Not one penny of borrower investment is required. FHA allows up to a 6 percent home seller and other interested party (Realtor) contribution toward settlement costs, escrow impounds for taxes and insurance and prepaid interest.

So, what’s the catch?

Rates on this program are higher than regular FHA pricing. For example, you can get the FHA conforming loan ($424,150 or less) at 4.625 percent on a 30-year fixed with one point paid up front, compared with a 3.25 percent rate with zero points for a a standard FHA 30-year fixed.

Not to worry. With six months of on-time payments, FHA allows you to do a streamline refinance on all FHA loans. As long as you are reducing your monthly mortgage payments by 5 percent or more, there is almost no qualifying and no appraisal required.

How about an income tax credit cherry on top to save even more money on your zero down delight?

Named Mortgage Credit Certificate, this particular optional add-on is generally limited to first-time buyers or federally designated targeted areas. You pay an additional $750 upfront and you can get a direct dollar-for-dollar tax credit of up to 20 percent of the mortgage interest.

For more information, go to

Historically, most Americans have gained their family wealth by way of homeownership.

That is, building equity by paying down the mortgage (instead of renting and having nothing to show for) as well as property appreciation. If you haven’t been able to become a homeowner because you didn’t have the down payment, this is a golden opportunity.

If you have questions or comments, please contact Jeff Lazerson by clicking here.


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Jeff Lazerson - Mortgage Columnist since 2011