Contrary to popular belief, the entire mortgage market is not in crisis.
How easy is it to get a mortgage today? It may be easier than you think. Many consumers believe all types of mortgages are difficult to arrange right now, thanks to the shock wave from the subprime mortgage crisis. But the so-called “mortgage meltdown” has really clouded the reality of today’s mortgage industry.
The reality is, most mortgage products have not been hugely affected as a result of the subprime crisis, and mortgage money is still abundant. Maybe you don’t have a spotless credit history, but if you’ve got a good one, you can likely qualify for a 30-year fixed-rate mortgage (FRM) with interest rates of 6.5% or less. Jumbo loans can be arranged with interest rates well below 8%.1
Conventional mortgages are alive and well. You’ve probably read that major mortgage lenders like Countrywide Financial expect to originate fewer mortgage loans in 2008.2 But conventional mortgages aren’t disappearing, just the “liar loans” and lenient underwriting standards that permitted people to buy more home than they could comfortably afford.
With stated income loans now all but history and fewer exotic mortgages being written, that means lenders are going back to basics. If you want to buy a home, they will look very closely at your credit score and repayment history, then W2s and pay stubs (or your tax records, if you work for yourself). A lender may ask for proof that you have enough cash reserves to pay 2+ months worth of mortgage, insurance and tax payments. If you’re applying for a jumbo loan, expect a lender to ask for proof of 6 months of cash reserves or more. Accept the fact that it will probably take a week or more for the loan to be approved.3
What about guarantors like the FHA? If you’re a first-time buyer and you have great credit history, you may be able to buy with nothing down through Freddie Mac and Fannie Mae (if you need a loan of less than $417,000) or with help from the FHA or VA. And the FHA may undergo a real transformation – in addition to the FHA Secure program designed to help those with ARMs refinance, FHA loan limits could be raised as well. On September 18th, the House of Representatives passed legislation introduced by Rep. Maxine Waters (D-CA) and Rep. Barney Frank (D-MA) that would, among other provisions, raise FHA single-family home loan limits from 95% of a market region’s median home price to 125% of a market region’s median home price, or 175% of the limit for loans bought by Freddie Mac and Fannie Mae.4 The Bush Administration is opposed to the higher loan limits, however.
Take time to shop. The mortgage industry is healthier than publicized. You still have choices. In this financial climate, the brokers who have strong relationships with the largest lenders or good, credible contracts with Freddie Mac or Fannie Mae will likely provide the widest range of options for you.
Yes, you can still buy – and refinance. The days of “easy credit” may be gone, but if you talk with a qualified mortgage professional, you may be relieved at what you learn. The consumer perception of today’s mortgage market differs from the reality.
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