Mortgage Insight News #1

By Ray Peña

The Mortgage industry has seen better days. With the credit crunch, economic uncertainty, soft real estate markets and the sub prime issues abounding, it would appear that the mortgage industry is in the midst of a major overhaul. Despite all the gloom and doom, it is still a buyer’s market and there are still several ways for borrowers to purchase, refinance, and even invest in real estate.

What started these changes: The sub prime market once offered opportunity for home ownership to many borrowers by providing an alternative to traditional/conventional underwriting, by relaxing credit requirements and increasing Debt-to-Income (DTI) ratios. Since late 2006 the mortgage industry has seen the ramifications of such lending practices. Times have changed, and so must the way in which we provide help to the many potential homeowners out there looking to capitalize on this buyer’s market. Today the Federal Housing Administration (FHA), in conjunction with the Housing and Urban Development agency (HUD), has many programs to help provide a solid alternative for today’s home buyers.

Purchase and Refinance: The FHA offers several options for principal home ownership, refinance, as well as rehab construction loans for buyers who intend on living in the property. On the purchase side, borrowers can purchase a property with as little as 3% percent down, have little or no credit and even past credit issues, and/or use down payment assistance programs and sellers' concessions to help finance closing costs - with a purchase limit up to $271,050.00. Borrowers with past credit issues are given an opportunity to explain their situations, and underwriters can determine whether or not there is a pattern of credit delinquency or just a hiccup that has made the credit score low. In addition, many times there may be inaccurate information on a person’s credit report that can cause other problems. So it is always important to check your credit at least every three to six months to make sure the credit agencies are reporting your activity correctly. Your loan officer can give you more information regarding your credit and the best ways to help raise your score.

Refinancing: A borrower would consider refinancing to get a lower interest rate, to get out of a sub prime loan, or to get cash-out and pay off debt or make repairs to their home. Another product that FHA offers is the FHA Streamline Refinance. For those who may have an existing FHA loan, they can refinance without any of the standard credit qualifications or providing income and/or employment verification. With FHA you can refinance up to 98% Loan-to-Value (LTV) of the appraised value. For cash out, you can finance up to 95% LTV, depending on your qualifications. When refinancing from any other mortgage product outside of an FHA Streamline Refinance loan, verification of income and employment qualifications do apply. Talk to your loan officer about the different options for refinancing your home mortgage.

FHA Rehabilitation Program: FHA and HUD have derived a loan product for borrowers who find that property that might need a little work. This is the federal government’s way of revitalizing our nation’s existing housing stock. This loan, more commonly referred to as the FHA 203(K), provides the buyer with the acquisition and repairs funds all in one loan. There is no need to get two loans and refinance later. Buyers can lock a fixed rate, start work on their project, and make it the home of their dreams all at the same time.

Investor’s Mortgages: Some would think these loans are gone. Well to some extent they are. No longer are the days of 100% percent investor loans; however there are still stated income and low documentation options. The main differences these days are that requirements and guidelines have changed for investors. The credit score requirements have gone up to the low to mid 700s and assets are a key component to underwriting. An investor must have savings or retirement products to show ability to pay, and monetary reserves in case of future income lows. In addition to credit and assets changes, the amount required for down payment has increased as well. This is the most shocking to investors who came into the game during the sub prime days when you could buy property with little or no money down. Now you will need to have 10-20% down to get into similar investor loans. There are other ways to purchase investment properties, but we will save that for another article. It is good enough to say that now is a good time to buy for the right investor.

Be sure to join us next month when we will talk more about credit and how to improve your scores. It’s not as hard as you might think. Until next time, “know your mortgage options.”