As housing affordability wanes, mortgage lenders are getting more creative to help borrowers qualify.
The latest innovative product is the “Movement Booster,” a no-fuss FHA loan offered by South Carolina-based Motion Mortgage.
Instead of requiring a minimum payment of 3.5%, homebuyers can take out a payable second mortgage that covers that money and closing costs if needed.
This means that the homebuyer doesn’t need 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 Motion Enhancement work?
Movement Boost 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 of which covers the down payment and up to 1.5% in closing costs if needed.
The first mortgage was set at 96.5% of the purchase price, with the remaining 3.5% financed by a repayable second mortgage.
This second mortgage features a 2% higher mortgage rate than the first mortgage. The term of the loan is 10 years.
For example, if you buy a $300,000 home, you would have a first mortgage for $289,500.
You’ll typically need $10,500 to make a minimum down payment of 3.5%.
But with Support for the Movement, that $10,500 can be financed with a second mortgage. Plus, you get another 1.5% ($4,500) in closing costs.
Let’s say the interest rate on your first mortgage is 6.5%. This would make the second mortgage rate 8.5%.
This will result in a monthly payment of $130.18 if the loan amount is $10,500. Or $185.98 if you took out a larger $15,000 loan to also cover your closing costs.
While you have to make two monthly mortgage payments, the trade-off would be $10,500 to $15,000 more in your pocket.
Motion Enhancement Guidelines
- Home loan for first time and repeat buyers
- It must be the primary residence
- Single-family homes, two-unit properties, condos, and manufactured homes are allowed
- Minimum 620 FICO score (640 for manufactured homes)
- Maximum DTI 50%
- A down payment of up to 1.5% in closing costs can be financed
- Available in all states except New York
As noted, Movement Boost is an option for a homebuyer looking to get an FHA loan who wants/needs help with a down payment and possibly closing costs as well.
This means you need to be a home buyer, although both novice buyers and repeat buyers qualify.
In addition, a minimum FICO score of 620 is required and a maximum DTI score of 50% is required.
In terms of permitted property types, single-family homes, condos, two-unit properties, and manufactured homes are allowed.
If it’s a manufactured home, you need a FICO score of at least 640.
In all cases, the property must be your primary residence, which is where you intend to live full time throughout the year.
Those who want to come with a larger down payment can also apply gift money from an acceptable source.
The new product is available nationwide in all states except New York.
Who is Motion Enhancement designed for?
Simply put, Movement Boost is geared toward homebuyers who lack a down payment. Or the person who does not want all their money locked up in the property.
It combines a low down payment FHA loan with down payment assistance to provide zero value home loan financing.
The program is part of the Movement Mortgage’s Grab The Key initiative, which focuses on helping more disadvantaged communities benefit from homeownership.
By financing the down payment instead of making it at closing, borrowers can spread their money elsewhere. Or continue to build up their reserves while owning a property.
The caveat is that the borrower must qualify for two mortgages instead of one. However, the loan amount on a second mortgage will be relatively small.
And as we saw in our example, a borrower might only return $100 to $200 per month. It also features a shorter payback period, allowing the homeowner to build up capital faster.
As always, be sure to compare all available loan options with several local banks, brokers, lenders, and credit unions.
Also ask yourself if you are ready to own a home if you lack the required minimum down payment.
It is generally advised to set aside several months of reserves so that you can continue to make payments if you run into some kind of difficulty.
Of course, financing your down payment rather than paying it up front may allow you to set that money aside.
Finally, be sure to compare the pros and cons of an FHA loan versus a conventional loan to see which one is best for your situation.
One downside of an FHA loan is that the mortgage insurance remains in effect for the life of the loan.
Mortgage Motion was a top 30 mortgage lender in 2022, financing about $23 billion during the year.
Read more: Rocket Mortgage launches 1% down payment home loan