Interest rates on NJ down payment assistance

8 years ago

Hello, I live in NJ and my husband and I are looking to purchase our first home. The mortgage broker we have been speaking with recommended a coventional loan with 5% down and we pay a fee to eliminate PMI and the interest rate is 4.75%. He said this is probably the lowest we could get or we could buy down the rate. My husband and I have credit scores over 760 so our credit is very good. What he recommended could work for us but would probably use up all our savings. I asked him about the NJHMFA down payment assistance program which can grant us $10k toward closing, and if we could qualify. He said he doesn’t recommend this because the interest rate on this loan is typically 6.125% .. I have tried looking up average interest rates for this program and all the articles I am seeing say the rates are low for this program. I am just wondering if anyone has experience with this and if this is true? Thank you!

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User

8 years ago

last modified: 8 years ago

If all you can afford is 5% down, you are way underfunded to even think about homeownership. You need to begin a much more aggressive plan to save at least 25%.

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Comments (6)

User
8 years ago
Have you selected a lender to do that program? It appears that you have to have a certain type of loan first to have that programs down payment assistance from a quick glance at the website. https://www.nj.gov/dca/hmfa/homeownership/buyers/dpa/

You need to ask about the fee to eliminate the PMI. It comes with a higher interest rate.
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ncrealestateguy
8 years ago
Correct, you are being charged a fee to get rid of that PMI. Probably in the form of a higher interest rate.

Typically, if a certain program is giving away down payment assistance, then the lender will make thst up in the corresponding interest rate. SO, it probably will be more expensive than a conventional loan.

I would recommend comparing apples to apples with at least one more lender.
Denita
8 years ago
last modified: 8 years ago
^ncrealestateguy is right. Agree with him to check another lender.

IME those first time home buyer programs have either higher interest rates or much higher closing fees or a combination of both. There are also stringent income caps on the programs I have seen in my area (I'm a Realtor) and you can't exceed the income by even $1 per year. There are asset caps. Many sellers won't accept an offer if you use the program because there is always more demand than the available funds so a large percentage of these contracts fail to close. There are zip code restrictions. Some of the programs are not bad, but most of the programs I've seen have exorbitant fees wiping out any benefit to the buyers for using them.

In some markets you can still get the sellers to pay some of your closing costs but it has to be negotiated in the contract up front. This way you get a benefit without all the detriment of using a badly designed first time home buyers program. That will help with your closing expenses. Find an excellent Realtor to help you.
bry911
8 years ago
last modified: 8 years ago
The New Jersey down payment assistance is paid by a grant from the Federal government and an ad valorem tax increase. It is a loan from the state that is forgiven after 5 years of property tax payments. Remember that New Jersey has the country's highest property tax rate at an effective rate of 2.4%.

It might have a higher rate overall, but I suspect much of the increase is due to the down payment percentage changing your loan product.
Denita
8 years ago
last modified: 8 years ago
Read the NJHMFA down payment assistance program website. There are HH income caps.