The Funding Source Syracuse

The Funding Source Syracuse

Thursday, January 29, 2015

FHA loans - more accessable?

Everything that goes up must come down they say.  And we have seen that with the price of gasoline (now expected to go back up).

And, we're seeing an increase in new home sales on the rise - something we have not seen since the crash.

So, that brings us to the question - what's happening?  A lot in the industry are seeing a big divide between high point and lower point pricing sales.  In other words, new homes in the luxury sector are beginning to see movement.

But, FHA and other federal agencies have pushed to open the door to credit after slamming in shut in the face of the financial meltdown of 2009 and blaming mortgage lenders for lending to people who should not have gotten mortgages (even though they qualified at the time of getting their mortgages).

So, for example, FHA has come out with a lower Mortgage Insurance Premium (MIP) for 2015.   The MIP is what HUD collects on FHA loans to put in their insurance pot to pay out on foreclosed homes.

A few years back, facing numerous claims on foreclosed homes, HUD raised the MIP to 1.35% of the loan amount.   That was a hefty payment.  It's been reduced to .500% which is a hefty reduction.

This requires congressional approval, but it means so many more people can now qualify for an FHA loan - or if they could qualify before it means they can either buy a higher priced home or pay less on the home that they wanted initially.   Good thing, right?

What about those that declared bankruptcy?  If you filed Chap 7 you still need to wait 2-years from the discharge date before you can qualify for an FHA loan.  If you filed Chapter 13 the rule is 1 year with the Trustee permission.  So, use the time to re-establish your credit with the use of pre paid credit cards that are easily obtained.  I'd go to a major bank that offers a Visa or M/C and ask if they will report it on your credit.  You want to show that you've taken out - and paid - credit after the bankruptcy and used credit properly to re-establish your credit while you sit out the bankruptcy.

And - if you have declared bankruptcy don't feel defeated or shamed. I know of a mortgage underwriter for a mortgage lender who herself filed Chapter 13 which is listed in the public records.    Maybe the person underwriting your loan declared bankruptcy himself or herself.  Remember that when you apply for a loan and be honest, sincere and explain what caused the bankruptcy.   Overzealous use of credit is not an excuse.   Documented loss of work because of the economy or medical reasons are some of the reasons that will assist you in overcoming the black mark on your credit report

Friday, January 2, 2015

Lower down payment mortgages back

In an effort to stimulate the economy, Fannie and Freddie have re-introduced the low down payment conventional mortgage.

Fannie and Freddie both had "Low to Mod Income" loans and the "97%" loans available before the mortgage meltdown.   Lending became tight as home prices dropped and borrowers defaulted.

After much debate between lenders and the federal government, the national Fannie and Freddie agencies have re-introduced the 3% down mortgage.

Fannie and Freddie usually are more cautious than FHA/HUD.   FHA requires 3.5% down (up from 3% before the crisis) with a very low credit score (usually 580, but very few lenders will go that low).  Fannie and Freddie are back to 620 credit score

Both require mortgage insurance and typically FHA is not as good.  It's usually more costly than a conventional mortgage insurance policy - and you can push off a conventional mortgage insurance policy once you've established enough equity (see your lender's rules regarding this).

So the question is how a lower down payment for conventional loans will impact housing.  Overall, it will open the door to those who otherwise would not qualify or did not have enough for their down payment.

But, it also increases the risks of lending - as the less a borrower puts down the less "skin in the game" they have.   We can't forget the "keys in the mailbox" route that many borrowers took just a few years ago when they owed significantly more than what their home was worth.  That's what happens when the down payments are not enough to make a person feel vested in the transaction.

The second question is what type of credit over lays will there be for the 620 borrower versus the 740 borrower, both with just 3% down?   Will it be a point or two points?  Will it be via rate?   If the rate is higher, how will that impact the DTI and will that then impact the lower income borrower from getting the 3% down loan?

We shall see how this plays out.  The banks have not forgotten the costs of mortgage lending, nor should they.   Prudence will most likely rule the day on the part of the banks.