To say the least, 2008 has been a year of changes in the mortgage industry.
For better or worse, many types of loans are no longer available, such as No Doc and Stated Income programs, as well as 100-percent investment property loans. The lack of these loans will most assuredly prevent many clients who do not qualify for a loan from getting one and then defaulting.
The lending institutions are going back to the basics of the1990s way of lending. With more than 15 years experience, I have seen changes in the mortgage industry come and go, but the "clean credit and verifiable income with a little money down" has always been in style.
Federal Housing Authority lending changes include the demise of the Down Payment Assistance Programs such as Nehemiah. In 2008, lenders were allowed to increase loan amounts to $300,000 to help more people get into homes with 3 percent down. Effective Jan. 1, 2009, a larger down payment of 3.5 percent will be needed, and no closing costs or prepaid items will be rolled into the loan amount. MIP premiums both upfront and monthly have increased slightly.
Also, conventional lending is back to a minimum of 3 percent down in some Income Limit Community Oriented programs and 5 percent with overall lending. Higher credit scores now apply.
In addition, for clients keeping their residence and purchasing a new one, more rules apply on qualifying for both homes.
Private mortgage insurance companies have adjusted rates to reward higher scores and lower loan to values with lower PMI rates when purchasing or refinancing. In addition, in some cases PMI is tax deductible.
JUMBO loans (more than $417,000) have increased the credit scores requirements and lowered the loan values as a rule. No more 95 percent financing on $1 million homes.
Appraisals are one of the most important pieces of the puzzle. There is more scrutinizing the comparable sales, length of time on the market and distances away from the home being appraised. In addition, lenders are even more diligent for any signs of fraud, whether it is associated with the appraisal or one's income or asset documentation.
I don't see these changes as negative, but rather helping to prevent future increases in foreclosures with more diligence on the lender's part and more conscious endeavors on the buyer's part. After all, the American dream is homeownership. The ultimate nightmare is losing a home in foreclosure.
Lenders are now taking a bigger step to assist in loss prevention of homes in America. Consulting with a knowledgeable lender is key to make sure you have the right information and are given choices about your individual mortgage needs.
Rates are still good, and there are many homes to choose from. The changes are not gloom and doom. They are back to more common sense loans to prevent future losses. Now is the time to buy.
Angie McCarter of Lake Wylie is a licensed mortgage consultant for Coastal Mortgage Services Inc. She can be reached firstname.lastname@example.org.