This option is good if you have a new home business, or if you need time to improve your credit rating before you can officially get financing. It is basically just a lease/option program that is sponsored by an organization instead of an individual. The NHA offers to buy the home of your choice and lease it back to your for the period of one year. During this time, you can establish your credit history, increase your annual income, or improve your credit rating by paying off credit cards and making on-time payments.
To qualify for this program you have to be able to pay a commitment fee equal to 3% of the purchase price of the home, and be able to pay a monthly rent equal to 1% of the home’s purchase price.
The benefits of this program are that 50% of the rent that you pay each month is applied to the purchase price of the home after the one year lease period, you don’t have to pay homeowner’s insurance or property taxes, and you don’t have to buy at the end of the one year lease.
Example:
Home Value $200,000
Commitment Fee $ 6,000
Monthly Rent $ 2,000
Downpayment Earned After One-Year $ 12,000
Interest Only Mortgage
Another popular mortgage option is the interest only mortgage. This option allows people to buy a more expensive house for less money per month. The premise of this option is that the borrower will only pay the interest for the first 5, 10, or even 15 years, after which time the payment will increase dramatically to cover the principal amount that is left. It is assumed that the borrower in these cases will either refinance or sell the home before the end of the interest only payment period.
The advantages of this option are that borrowers can qualify to finance a more expensive home, they have smaller per month payments, it is easier to qualify for, and it allows the borrower to shop around for a better mortgage option and it gives the borrower time to either establish their business’ finances, or to strengthen their credit standing. The final benefit of this option is that the borrower can make additional payments to reduce the principal without penalties. This gives people without a consistent monthly income the chance to buy a home without worrying about making a huge mortgage payment each month. The smaller payment is easier to handle during months that have low cash flow, and during months of higher cash flow the principal can be paid down earning the borrower equity in their home.
The disadvantages of this program include: a sharp increase in payment amounts after the end of the interest only period, and the homeowner doesn’t earn any equity in their home by making the monthly payments unless they add to the amount that is expected.