Given all of the media attention on the credit crisis, buyers and sellers are concerned. I’ve received many calls from individuals who wonder whether or not there is any money available for home financing. These are certainly unprecedented times - with banking giants such as Bear Stearns, Lehman Brothers, Indymac, and Wachovia disappearing. With the government bail outs of AIG, Fannie Mae and Freddie Mac. The markets are extremely volatile, and the analysts are finally admitting we are indeed in a recession. The fears of buyers and sellers are warranted. With everything that has happened, is there still money available to buy a home? The answer is absolutely.
With the government takeover of Fannie Mae and Freddie Mac, the federal government made sure that there is liquidity in the mortgage market by providing financial support to allow Fannie and Freddie to continue to buy and sell mortgages. In addition to increasing liquidity, it also caused a drop in interest rates by easing the minds of investors in the mortgage backed security market. With the government guaranteeing mortgage-backed securities through Fannie and Freddie, it also guaranteed the continued availability of funds for mortgages.
In the recent past, almost anyone could get a loan. In the industry, we said if you could fog a mirror, you could buy a home. Now, it takes a little more than that. Stated income and other low documentation loans have virtually vanished. Today, you have to prove your income and that you have some money in the bank to buy a home. Underwriting guidelines have tightened significantly in the past year. Does this mean if you have so-so credit and a limited downpayment that you can’t get a loan? Absolutely not. There are certainly higher standards than before, but there are still plenty of loans available. FHA loans, insured by the government, have become extremely popular. FHA allows borrowers with not so perfect credit to get into a home with just a 3.5% downpayment. The program allows for gifts from family members as well. And, it allows non-occupant co-borrowers to help with qualification. It is actually very flexible - but does require full documentation of employment, income and assets.
So in conclusion, in spite what you are hearing in the news, there is plenty of money available for home financing. Recent actions by the Federal government assured that funding would continue. However, the rules have changed - and probably for the better. With tighter lending guidelines, foreclosure rates should decrease in the future. And look around - there are many great deals for buyers, lots of inventory from which to choose, money is available and interest rates are low. The opportunity has never been better.
Give me a call if you’d like to discuss your home purchase plans. Getting pre-approved from a reputable mortgage professional is the first step!
10/03/2008
Buying Before Selling?: Know the New Rules
Often, a buyer wants to purchase a new home prior to selling their prior residence. They may plan to rent the prior home, and assume that they can use the rental income to offset the mortgage payment. Recent changes have been enacted by *both* Fannie Mae and FHA regarding the use of rental income from prior residence in qualifying for a new home. Freddie Mac is widely expected to follow these rules shortly, and most lenders have already implemented the new rules regardless of Freddie’s delay.
A new trend has been seen in homebuying - called “Buy and Bail” - where homeowners upside down in their own homes decide to purchase a new home, often right down the street or perhaps closer to work, at a significantly lower price than their current residence - with a plan to let their original home be foreclosed after they have moved out of it. Obviously, this is not good for the overall industry, and that’s why these new rules were enacted.
Fannie Mae’s New Guidelines:
Fannie Mae has issued the following requirements for a borrower to use rental income on the property they are vacating to offset the mortgage payment:
- The borrower must provide a fully executed lease agreement covering a 12 month period AND receipt of security deposit from the tenant along with proof of deposit into borrower’s account.
- Must document 30% equity in the property being vacated. Acceptable documents are AVM, Appraisal or BPO.
If both of these requirements can be met, use 75% of gross rental income to arrive at rental income.
If sufficient equity in the vacated property cannot be documented, the rental income cannot be used to offset the mortgage payment. The borrower will have to qualify with both the current and proposed mortgage payments (PITI).
FHA’s New Guidelines:
For FHA: HUD has issued a Mortgagee Letter 2008-25 to revise their underwriting requirements for borrowers who are converting their primary residence into a rental property. Beginning with case numbers assigned on or after September 19th, the underwriting analysis may consider rental income from the property being vacated if the following requirements are met:
- Relocations - Homebuyer is being relocated by existing or new employer to a location that is not a reasonable commuting distance.
OR
- Must document 25% equity in the property being vacated. Acceptable documentation includes current appraisal, or comparison of the principle balance to the original sales price.
AND
- The borrower must provide a fully executed lease agreement covering a 12 month period AND receipt of security deposit from the tenant along with proof of deposit into borrower’s account.
What does it mean to you?
Again again, more than ever, it’s imperative that you have your borrowers talk to a mortgage professional early in the home shopping process. Many borrowers with excellent credit just assume that they can rent out their prior home and buy a new one - without understanding that things have changed in the lending world. Atlanta Home Loans are becoming more challenging to come by each day. Ensure that you are working with an Atlanta Mortgage Lender who is staying on top of the quickly changing financing landscape.
