The mortgage market has changed drastically since the collapse of the housing and financial markets. Things just aren’t the way they used to be. Some banks are still struggling and investors are more careful. That means the days of NINJA loans (No Income, No Job or Assets!) are gone. But, people with decent credit scores and income are still able to qualify for loans. I wanted to give an update on the mortgage industry as it stands today. There have been changes in underwriting, appraisals and other aspects of obtaining a mortgage loan that make it more important than ever to choose your mortgage lender wisely. Below I have asked loan officer extraordinaire and Vice President of SWBC Mortgage, Cameron Breed, some questions that may be on a potential home buyers mind….
Do homebuyers have to have 20% down?
Not at all! We are doing a lot of FHA loans which require only 3.5% down and you do not have to be a first time homebuyer to use FHA financing. FHA loans are available on homesteads & can have the amount financed up to $288,750. Conventional financing starts with as little as 5% down.
How hard is it to get a second lien?
It is more difficult today to qualify for subordinate financing but both 80/15/5 and 80/10/ 10 loans are still available for borrowers with stable income and good credit scores.
What credit score is required?
The minimum for FHA loans is 620. Conventional loans require higher credit scores depending on the loan program most require a 660.
What should a buyer/seller watch out for in the loan process?
I recommend working with a reputable lender who has experience and who is able to close and fund in a timely manner. It is imperative that the loan processing, closing and funding take place in Austin to ensure a timely process. Also, new rules(Home Valuation Code of Conduct) that were intended to reform how appraisals are completed have ended up causing issues sometimes as appraisers are chosen from a pool and aren’t necessarily experts in the area in which they are asked to complete an appraisal. I would recommend only using companies that use their own list of appraiser and do not use a national service provider. I would also ask the companies policy on updating that list in cases where the selected appraiser provides inferior service. SWBC automatically reports issues and the appraisers are provided written notification and are removed from further business with SWBC.
What questions should a buyer ask a lender?
I would recommend the buyer ask if the lender has in house underwriting to help ensure a timely closing. With some many new underwriting requirements, an open line of communication with the underwriter is key. Ask your lender if they have enough funds to close your loan. Sounds silly, but with banks struggling there have been cases where lenders run out of money aren’t able fund the loan. Ask them how they get their appraisers, as mentioned in the previous question. Ask them how long it takes them to close a loan & how many days for underwriting.
What are interest rates now on a 30 year fixed loan?
Interest rates are based on many factors including the type of loan, down payment and credit score therefore interest rates should always be quoted in writing in the form of a good faith estimate that discloses all the terms and fees of the loan.
Are rates expected to increase?
As the economy is beginning to show signs of recovery we are starting to see interest rates go up. As investors reenter the stock market those buying dollars are pulled out of the mortgage bond market which causes interest rates to go up. Also as the economy recovers inflation will rise and inflation also causes interest rates to increase.
How do interest rates affect buying power?
Obviously, interest rates effect your monthly payment and buying power. See the chart below which shows very similar monthly payments on a 200,000 vs. 222,000 home when the interest rates are one percent apart. In other words, you can afford a more expensive home if interest rates are lower.
