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As housing affordability continues to decline, mortgage lenders have gotten increasingly creative in helping borrowers qualify.
The latest innovative product is “Movement Boost,” a zero-down FHA loan offered by South Carolina-based Movement Mortgage.
Instead of requiring a minimum 3.5% down payment, home buyers can take out a repayable second mortgage that covers those funds and closing costs, if necessary.
This means that a home buyer does not require any cash to close in some cases, which often proves to be a roadblock.
Read on to learn more about the new loan program.
How does Movement Boost work?
MovementBoost takes the standard FHA loan and supercharges it by removing the 3.5% down payment requirement.
Instead, borrowers end up with a first and second mortgage, the latter covering the down payment and up to 1.5% in closing costs if needed.
The first mortgage is set at 96.5% of the purchase price, with the remaining 3.5% funded through a repayable second lien.
This second lien has a 2% higher mortgage rate than the first mortgage. And the tenure of the loan is 10 years.
For example, if you bought a home for $300,000, you would take out a first mortgage for $289,500.
You’ll typically need $10,500 to make the minimum down payment of 3.5%.
But with MovementBoost, that $10,500 can be financed through a second mortgage. Additionally, you can negotiate on another 1.5% ($4,500) for closing costs.
Let’s assume the interest rate on the first mortgage is set at 6.5%. This would bring the second mortgage rate to 8.5%.
This would result in a monthly payment of $130.18 if the loan amount were $10,500. or $185.98 if you took out the larger $15,000 loan to cover closing costs.
While you’ll have to make two monthly mortgage payments, the tradeoff is $10,500 to $15,000 more in your pocket.
Movement Promotion Guidelines
- Home purchase loans for first time and repeat buyers
- Must be primary residence
- Single-family homes, 2-unit properties, condos and manufactured homes are allowed
- Minimum 620 FICO score (640 for manufactured homes)
- Max DTI Ratio 50%
- Finance up to 1.5% in down payment and closing cost
- Available in all states except New York
As mentioned, Movement Boost is an option for a home buyer looking to take out an FHA loan who wants/wants help with the down payment and possibly even closing costs.
This means you need to be a home buyer, although both first-timers and repeat buyers are eligible.
Additionally, a minimum FICO of 620 is required and the maximum DTI ratio is 50%.
In terms of allowable property types, single-family homes, condos, two-unit properties and manufactured homes are permitted.
If it’s a manufactured home, you need a minimum FICO score of 640.
In all cases, the property must be your primary residence, which you intend to live in full-time throughout the year.
Those who wish to come up with a higher down payment can also apply for gift funds from an acceptable source.
The new product is available nationwide in all states except New York.
Who is Movement Boost made for?
Simply put, MovementBoost is geared towards the home buyer who is short of down payment. Or one who doesn’t want to lock up all their cash in one asset.
It combines a low down payment FHA loan with down payment assistance to provide zero down home loan financing.
The program is part of the Mortgage Movement’s Grab the Key initiative, which focuses on helping more underserved communities become homeowners.
By financing the down payment instead of paying at closing, borrowers can put their money elsewhere. Or continue to build your reserves while owning the property.
The caveat is that the borrower must qualify for two mortgages instead of one. However, the loan amount on the second mortgage will be comparatively less.
And as seen in our example, can only set the borrower back $100-$200 per month. It also features a shorter payback period, which allows the homeowner to build equity faster.
As always, be sure to compare all available loan options with several banks, brokers, lenders and local credit unions.
Also ask yourself if you are ready for homeownership if you lack the required minimum down payment.
It is generally advisable to keep several months of reserve aside so that you can continue to make payments should you face any difficulty.
Of course, financing the down payment instead of paying it up front allows you to set aside those funds.
Finally, be sure to compare the pros and cons of FHA loans versus conventional loans to see which is best for your situation.
One downside to FHA loans is that mortgage insurance remains in force for the life of the loan.
Movement Mortgage was a top-30 mortgage lender in 2022, with approximately $23 billion in funding during the year.
Read more: Rocket Mortgage launches 1% down home loans
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