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, 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 initial rates, which are low for a short period of time, then adjust (rise or fall) with the market.
FHA Changes Mean Help For More Buyers
Changes to the Federal Housing Administration’s (FHA) mortgage program opened FHA up to many more potential home buyers. Home buyers with an FHA-insured single-family home loan may now finance 100% of the closing costs on the loan. Previously, FHA allowed home buyers to finance only 57% of the closing costs, which added hundreds of dollars to the up-front cash home buyers need for settlement.
A second important change to FHA was raising 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 in 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 going online to: https://entp.hud.gov/idapp/html/hicostlook.cfm
Now borrowers will have to put down 3% of the first $25,000 of the loan amount; 5% of the loan amount between $25,001 and $125,000; and 10% of the loan amount above $125,000.
These changes will interest higher-end buyers in 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.
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 up-front 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.
Although this program requires a 5% down payment, borrowers can make the down payment with as little as 3% of their money and up to 2% from a family gift or loan from a government or nonprofit agency. 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: Fannie Mae, Public Information Office, 3900 Wisconsin Avenue, NW, Washington, DC 20016 or call (800) 732-6643.
Computer Programs Rate Borrowers
There’s a relatively new twist in mortgage lending. Recently, lenders have started to replace traditional underwriter’s judgements 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 judgements 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 might 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.