Bank of America Affordable Loan Solution Pros and Cons
Borrowers apply for an Affordable Loan Solution mortgage through Bank of America which then sells the loan to Self-Help, which services the loan. From the borrower's standpoint this means you obtain your loan from Bank of America and then make your monthly mortgage payments to Self-Help which also provides counseling for distressed borrowers after your loan closes, if needed.
Key advantages of the program include a low required down payment and no private mortgage insurance (PMI) requirement. Potential Affordable Loan Solution Program considerations include a higher interest rate, more conservative borrower qualification requirements, loan limits and borrower income limits.
Borrowers should understand both the positives and negatives of a Bank of America Affordable Loan Solution mortgage to determine if it is the right program for them. We review the full list of the pros and cons for an Affordable Loan Solution mortgage below.
Bank of America Affordable Loan Solution Pros
Low Down Payment
The Bank of America Affordable Loan Solution Program enables you to buy a home with a down payment as low as 3% of the property purchase price. Additionally, the Affordable Loan Solution Program can be combined with a gift, down payment grant or closing cost assistance program to allow you to buy a home with minimal personal financial contribution. Saving enough money for a down payment is one of the biggest obstacles to home ownership for many people. By providing the opportunity to buy a home with a small down payment and limited borrower financial contribution, the Affordable Loan Solution Program makes home ownership more achievable for low-to-moderate income borrowers.
No PMI (Private Mortgage Insurance)
One of the most significant benefits of the Bank of America Affordable Loan Solution Program is that it does not require borrowers to pay up-front or ongoing private mortgage insurance (PMI). Several low or no down payment mortgage programs, such as the FHA and VA programs, require borrowers to pay an up-front mortgage insurance fee. Other programs such as the HomeReady, Home Possible and FHA mortgage programs require borrowers to pay an ongoing monthly mortgage insurance fee. By eliminating PMI, the Affordable Loan Solution Program lowers your mortgage closing costs and potentially reduces your total monthly housing expense (mortgage payment plus property tax, homeowners insurance, mortgage insurance and HOA fees, if applicable) as compare to other low or no down payment programs, depending on your interest rate.
Available to Both First-Time and Repeat Home Buyers
The Bank of America Affordable Loan Solution Program is available to both first-time and repeat home buyers. Some low or no down payment mortgage programs are only available to first-time home buyers but this restriction does not apply to the Affordable Loan Solution Program. Please note that first-time buyers are required to take a Bank of America-approved home buyer counseling class.
Bank of America Affordable Loan Solution Cons
Higher Interest Rate than Other Low Down Payment Programs
The interest rate for an Affordable Loan Solution mortgage is usually .250% - .500% higher than the interest rate on an FHA or VA loan. Additionally, borrowers with lower credit scores and higher debt-to-income ratios pay even higher interest rates with the program. Borrowers should compare the interest rate and fees for the Affordable Loan Solution Program with other low or no down payment programs to determine the mortgage with the lowest interest rate, fees and total monthly housing expense.
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Conservative Borrower Mortgage Qualification Requirements
The Affordable Loan Solution Program uses relatively conservative borrower qualification requirements as compared to other low or no down payment mortgage programs. For example, the program requires a minimum borrower credit score of 660 as compared to 580 for the FHA Mortgage Program and 620 for the HomeReady Program. Despite the higher credit score requirement, for borrowers with no credit score or limited credit history the Affordable Loan Solution Program may also consider your payment history (e.g., rent, gym, utility bill) and other non-traditional forms of credit to evaluate your credit-worthiness. Additionally, the Affordable Loan Solution Program uses a borrower debt-to-income ratio of approximately 43%, which is lower than standard mortgage programs as well as the HomeReady and FHA mortgage programs which permit a borrower debt-to-income ratio of 50% or higher under certain circumstances. A lower debt-to-income ratio reduces what size mortgage you can afford which may limit how much home you can buy using the program.
Borrower Income Limit
The Bank of America Affordable Loan Solution Program applies a maximum gross income limit to how much money borrowers can make. A borrower's monthly gross income cannot exceed the median income (AMI) for the area in which the property is located. Borrowers can use Freddie Mac's Affordable Income and Property Eligibility Tool to determine the area media income (AMI) based on property location. The borrower income limit reduces the number of people who can use the program.
Loan Limits
The Affordable Loan Solution Program limits the size of loan you can obtain through the program. The program uses the conforming loan limit, which is $726,200 in most U.S. counties. In Alaska and Hawaii the conforming loan limit is $1,089,300. People who live in more expensive areas of the country may find that the Affordable Loan Solution loan limits reduce their housing options. The loan limits are less of a factor for home buyers interested in less expensive homes.
Restrictions on Property Type
Only single-family, owner-occupied primary residences are eligible for the Affordable Loan Solution Program, unlike other low or no down payment mortgage programs that permit applicants to buy multi-family properties with up to four units (as long as you occupy one of the units). Additionally, second and vacation homes as well as investment properties are ineligible for the program. By only allowing single-family properties, the program potentially limits the rental income from units in a multi-family property that borrowers can use to help pay their mortgage and offset their total monthly housing expense.
More FREEandCLEAR Resources
Mortgage Rates
Borrowers should compare mortgage rates for the Bank of America Affordable Loan Solution Program to interest rates for other programs. Use our rate tables to view updated interest rates and fees for lenders in your area. Comparing proposals from multiple lenders is the best way to save money on your mortgage.
Comparison of Low or No Down Payment Mortgage Programs
Review and compare multiple conventional and government-backed low or no down payment mortgage programs to understand key program benefits and eligibility requirements.
Bank of America Affordable Loan Solution Program Guide
Review our comprehensive overview of the Bank of America Affordable Loan Solution Program including program eligibility, borrower qualification guidelines and other important program information.
Sources
"Affordable Loan Solution mortgage." Low down payment mortgage options. Bank of America, 2019. Web.