Insider's Guide to the Latest Home Loan Opportunities
Mortgage lending is a continually changing industry. Here are some of the more recent changes in regulations, practices and products.
Lenders welcome borrowers with open arms
Affordable interest rates mean more people can qualify to buy a first home or move to a bigger home, and lenders are reaching out to make mortgages more attractive. Some lenders even sweeten the pot with low (or even no) closing costs. Recently, some of the best options have been 15-year and 30-year fixed-rate mortgages. In many cases, the rates for these loans have been just above adjustable rate mortgage initial rates, which are low for a short period of time and then rise or fall with the market.
FHA changes mean help for more buyers
Changes to the Federal Housing Administration's mortgage program opened FHA up to many more potential homebuyers. Homebuyers with an FHA-insured single-family home loan may now finance 100 percent of the closing costs with the loan. Previously, FHA allowed homebuyers to finance only 57 percent of the closing costs, which added hundreds of dollars to the upfront costs homebuyers need for settlement.
A second important change was the raising of the maximum loan amount in high-cost areas and linking the maximum to local housing costs. The FHA's mortgage limit varies by location and property type, depending on home prices in an area and the number of units on the property. In addition, FHA has higher limits in Alaska, Hawaii, Guam and the U.S. Virgin Islands, because these are considered to be high-cost areas. You can check the current FHA loan limit in your area by visiting hud.gov.
Now borrowers will have to put down 3 percent of the first $25,000 of the loan amount, 5 percent of the loan amount between $25,001 and $125,000, and 10 percent of the loan amount above $125,000.
These changes will interest upscale buyers in FHA loans and make FHA loans more accessible to those whom the program is primarily intended to serve—prospective buyers who do not qualify for conventional financing. Traditionally, FHA has served buyers who have lower incomes and who make smaller down payments and purchase less expensive homes.
More good news for loan shoppers
Federal regulation now mandates that mortgage brokers itemize all fees they receive to originate or close a loan.
Previously, brokers were allowed to lump miscellaneous charges and premiums into a general fees category, which made it nearly impossible to comparison shop lender fees. The law applies only to mortgage brokers, not mortgage bankers. Fees really do add up, so when loan shopping, ask upfront for an itemized breakdown of lender fees.
Mortgage help for first-time buyers
An exciting Fannie Mae program may help open the door to home ownership for low- and moderate-income buyers.
The Community Home Buyers Program allows for slightly more debt when qualifying for a loan than standard mortgage plans do.
Although this program requires a 5 percent down payment, borrowers can make the down payment with as little as 3 percent of their own money and up to 2 percent from a family gift or loan from a government or non-profit agency. In addition, the Community Home Buyers Program waives the common requirement that borrowers must have two months' worth of mortgage payments in savings after closing.
There are special requirements to qualify: Borrowers must attend a series of homebuyer education classes and the borrower's income must not exceed 115 percent of the median income in the area.
Computer programs rate borrowers
There's a relatively new twist in mortgage lending. Recently, lenders have started to replace traditional underwriter's judgments on an applicant's creditworthiness with a computerized credit rating called "credit scoring."
Both ways of assessing a potential borrower's ability to pay back the loan (the underwriter's discretion and credit scoring) rely on much of the same information: salary history, credit history from credit-reporting companies, debt-to-income ratio, etc. But credit scoring uses a computer program designed to predict who will default on a loan. It assigns a numerical score to each factor and then adds them up. Credit scoring is objective and designed to uncover hidden problems. For this reason, credit-scoring programs may assign more importance to some factors that the underwriters might overlook.
If you are interested in learning more about any of these new lending procedures, call or email us. We'll be happy to assist you. These numbers and provisions change frequently, so call us for the latest info.