Can you tell me about recent changes in lending procedures I should know about before I shop for lender?
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.
FHA Makes Loans More Accessible To More Buyers
The Community Home Buyers Program allows for slightly more debt when qualifying for a loan than standard mortgage plans. It raises the percentage of the gross monthly income borrowers may spend on housing payments (mortgage, taxes, insurance, and condominium fees) to 33%, compared to 28% under standard mortgage plans. Total debt payments are increased to 38% under the program, up from 36% in standard mortgage plans.
In addition, the Community Home Buyers Program waives the common requirement that borrowers have two months' worth of mortgage payments in savings after closing.
There are special requirements to qualify: borrowers must attend a series of home buyer education classes and the borrower's income must not exceed 115% of the median income in the area. For more information, contact Fannie Mae, Public Information Office, 3900 Wisconsin Avenue, NW, Washington, DC 20016 or call (800) 732-6643.
Home buyers with an FHA-insured single-family home loan can now finance 100% of the closing costs on the loan. The previous rule allowed home buyers to finance only 57% of the closing costs, adding hundreds of dollars to the up-front cash home buyers needed for settlement.
Lenders Welcome Borrowers With Open Arms
A recent change to FHA set the maximum loan amount in high-cost areas at $625,500 for 2009. FHA's mortgage limit varies by area as it is linked to an area's median home price. To find the limit in your area, go online to entp.hud.gov/idapp/html/hicostlook.cfm.
Now borrowers will have to put down 3 1/2% of the loan amount and pay a 1.5% funding fee (which can be financed by the loan).
These changes will attract higher-end buyers to FHA loans and make FHA 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, make smaller down payments, and purchase less-expensive homes.
Affordable interest rates mean more people can qualify to buy a first home or move up to a bigger home, and lenders are making loans to borrowers with good credit. Recently, best buys 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 (ARM) initial rates, which are low for a short period of time, then rise with the market. Because fixed rates have been so attractive, many current homeowners with ARMs are trading them in for a fixed-rate loan.
Computer Programs Rate Borrowers
In recent years, lenders have been replacing 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 judgments and credit scoring - rely on much the same information: salary history, credit history from credit reporting companies, ratio of debts-to-income, 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 would overlook.
If you are interested in learning more about any of these new lending procedures, call or e-mail us. We'll be happy to assist you.