I bought my first house at the age of 23 in the late 80's. I was just out of college, struggling to make ends meet, and soon to be married. It was an American West home in a new area of Vegas. 2,100 sq. ft. $134,000
We had one restaurant within five miles of us. The food was average, at best. OK, it was awful.
Summerlin, the number one master planned community in Las Vegas' history, was a dirt dream of cacti, sagebrush, a handful of wooden "Coming Soon" signs, and a few very brave, some would say "crazy" developers.
My Dad gifted us 20% down to qualify. The interest rate was 12.500% and that was good. My payment was nearly $1300 per month. We grossed around $2600 per month in income. How that loan officer got me qualified baffles me today and how we didn't lose that house is one of life's great mysteries. And the Vegas housing market was on fire!
This brings me to today's "doomsday" mentality in many of today's markets. I don't fault it. I just don't understand it. I think a lot of it stems from rumors possibly caused by all of the sensational media reports.
Now, I am usually a news-defender. I started my professional career in my early 20's in television news. However, in this case, I believe its hurting our business.
News stories in this form of media, the most popular way for people to get news today, are meant to be delivered in 90 seconds or less and rarely without updates.
New news is newsworthy. Updates are for the back page of the newspaper. The "Sky is Falling!!!" is a 90-second news clip that leads the 6:00 newscast. "Oops, it was just some hail," is for page 15 of the newspaper.
"The Mortgage Mess Has Made It So People Can't Buy Houses," was the lead on the network newscast seen by millions recently. "Many Can Still Qualify" will be the cover story of Mortgage Digest next month, seen by 78 people.
Last week, a real estate professional asked me, "Aaron, do you think there will even be a lending business at this time next year?" He was serious.
Let me try and straighten out some of today's lending facts versus the fiction that many believe.
STATED INCOME LOANS ARE GONE IN NEVADA AND OTHER STATES - FICTION!
The new legislation passed in the State of Nevada and some other states has chased some lenders out of town but at the end of the day stated income loans and other loans with reduced documentation are still around. They may require an additional form or two to be signed in some cases.
Don't plan on getting a 100% loan with stated income but there are a lot of loans for stated income borrowers with a 5% down payment. Also, plan on being reasonable. If your client is a waiter at Bob's Big Boy and he needs to state $75,000 per year to qualify, it's not likely to happen with a reputable lender.
100% FINANCING IS NO LONGER AVAILABLE - FICTION!
So long as your loan amount is $417,000 or under and your borrower can prove his income, there are plenty of fantastic 100% loan programs available from Fannie Mae's My Community and Flex programs to Countrywide's House America.
Some of these programs even allow a 6% seller contribution on 100% financing so your seller can not only pay closing costs but get the buyer into an interest rate he can afford and can qualify with. And if that doesn't do the trick, in my area, there is always the Nevada State Bond program that offers a first mortgage for 5.85% and a second mortgage for 4.85% for those who qualify. Check your local lenders for state programs similar to this. Many states have them.
BUYING A BANK FORECLOSURE IS DIFFICULT FOR THOSE WHO REQUIRE FHA, 100% FINANCING, OR CLOSING COSTS - FICTION!
As more and more homes go into foreclosure, the banks want to get rid of them. Forget what the listing in MLS says about "no FHA and VA." I have no less than eight loans in my pipeline right now where the seller is a bank and the buyer is going FHA, VA, getting 100% financing, and/or getting all of their closing costs paid.
The closer you get to a full list offer with few conditions, the greater the chance you have of getting one of these offers accepted. Don't be afraid to ask for anything. Sellers in this market today, especially banks, are open-minded. They want your offer, even if it's FHA or 100% financing with 6% seller contributions.
INTEREST RATES ARE LOW TODAY - FACT!
Even though the Fed's cutting of interest rates is not directly related to mortgage rates, which are tied to the bond market, mortgage interest rates are currently at a five-month low. I cannot tell you how many borrowers have said to me this year, "I want rates to get lower before buying." Pick up the phone and call these people this week. Rates haven't been this low since the beginning of the year.
JUMBO INTEREST RATES ARE VERY HIGH TODAY - FICTION!
There was a 60-day panic period when the credit markets dried up that jumbo mortgage (over $417,000 loan amount) rates were a full point to a point and a half higher than conforming rates. If the conforming rate was 6.750%, the jumbo for the same borrower was 7.750-8.250%. Today, the spread is around a half point in many cases. Time to start calling those people again.
A JUMBO LOAN TODAY REQUIRES A VERY LARGE DOWN PAYMENT - FICTION!
You can still get a $1,500,000 home today with as little as 5% down with good credit.
ON A STATED INCOME LOAN YOU NEED A LARGE DOWN PAYMENT - FICTION!
Many stated income loans today simply require a 5% down payment with good credit.
INVESTORS AND SECOND HOME BUYERS HAVE TO PUT DOWN AT LEAST 20% - FICTION!
Investors, with good credit, can find programs today with as little as 10% down full doc and even with stated income. Second home buyers can do it with as little as 5% down full doc and 10% for stated income.
SUPER JUMBO LOAN MARKET IS VERY DIFFICULT TO GET A LOAN - FICTION!
The super jumbo market is still doing well in many areas. If you are in this market, you can still get loans up to and over $6,000,000 with decent credit and a sizable down payment. These loans do require, in many cases over $3,000,000, a second underwriting signature, and a bit more scrutiny, however they are still readily available.
SUBPRIME IS DEAD - FACT!
If your credit score is less than 620, it is more challenging to get a loan today without a sizable down payment. However, if you can prove your income, there are some less credit sensitive programs like FHA and other Fannie Mae products that allow 95-100% financing. I highly encourage you to get with an experienced mortgage professional to let him/her take a look before making a determination yourself. Don't judge a borrower solely by his credit score. There are many compensating factors to consider like job, assets, mortgage history, etc.
FHA LOANS ARE BACK - FACT!
In the last few years, I did two FHA loans. This year its well over a dozen. FHA is back and getting bigger. Congress will likely soon pass the Act that will increase these loan limits, probably to $417,000 or beyond.
A few things for you to remember about FHA. FHA loans require a 3% down payment but this can be gifted or gotten from a Down Payment Assistance program like Nehemiah. They are for owner occupied homes only. They allow up to a 6% seller contribution. Your buyer can use a family member who won't live there as a co-signer. Its not based solely on credit score. They can be closed in less than 30 days today.
To refresh your memory on FHA, you can visit my blog at FHA Loans are Back and Just In Time--What You Need To Know About Them (http://activerain.com/blogsview/160487/FHA-Loans-are-Back )
FHA HAS GOTTEN RID OF DOWN PAYMENT ASSISTANCE PROGRAMS - FACT....AND FICTION, FOR NOW!
Down payment assistance programs have now been banned by HUD as of October 31, 2007. Two companies have extensions. AmeriDream is allowed to do them until February 29, 2008 and Nehemiah is allowed to go until April 1, 2008.
This ban is currently under litigation but don't plan on it being overturned. If you have clients thinking about using FHA and a down payment assistance program for the 3% down payment, they better act quickly. As you can imagine, AmeriDream and Nehemiah, as the only two left standing, have to be swamped. The good news is many insiders believe FHA will soon announce 100% financing or at least 99% financing.
It is important today that you keep the lines of communication open with your preferred mortgage professional. Please don't attempt to pre-qualify any of your potential buyers based solely on your conversation with them and what you "think" is available in loans today.
A year ago, for all intents and purposes, anyone with a decent job could qualify with no money down. Today, it takes a bit more work and knowledge, but many of those same people can still qualify, and with little to no money down.
Everyday we are seeing the guidelines loosen up a bit from a few months ago. The most experienced of loan professionals know their loan products, stay educated and they know what is available today. Use them.
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