You are going to be hearing a lot about restructuring the mortgage industry in the next months and years. But the bottom line for home buyers is buy now and get financing in place by as early as May. The great terms of recent years will soon be gone, and probably gone forever.
Experts say you will probably never again see down payments in the 5 percent range (even now becoming harder to find) or 30-year fixed rates under 5 percent.
The median down payment in nine major U.S. cities rose to 22 percent late last year. This was the highest requirement since 1997 on properties purchased through conventional mortgages, according to a Wall Street Journal report.
In many areas, however, a down payment of only 10 percent of the mortgage amount could be available for people with high credit scores.
The lowest down payments are still offered by the Federal Housing Administration, FHA. They will finance a home with a 3.5 percent down payment.
But a recent Obama Administration white paper on the mortgage industry hints that this very low down payment might change as the federal footprint in the mortgage market shrinks.
According to CNN Money, Congress will be considering raising FHA down payment requirements, approving higher insurance fees for FHA mortgages, and changing rules for 'qualified' mortgages. This could mean higher interest rates for consumers and higher down payments, perhaps up to 30 percent.
With its low down payment requirements, low interest rates, and lower credit score requirements, FHA now has a 30 percent market share in the mortgage arena but plans are to reduce its activity to just 10 percent.
Administration officials say the planned process could take some time, but it might include phasing out federal backing of Fannie Mae and Freddie Mac. Since the mortgage crisis began, the government has bailed out the federally backed entities to the tune of $150 billion.
How to Qualify
If you are interested in buying a home with an FHA mortgage, it’s important to determine whether you have a favorable mortgage expense to income ratio. Here’s how to calculate whether you would qualify for the maximum ratio of 29 percent.
Say the total monthly payment on the home would be $750, including hazard insurance, mortgage insurance, homeowners dues, etc.
Then, say the borrower’s gross monthly income, including spouse income if married, comes to $2,850.
Divide the house payment by the monthly income.
In this case, it would produce an expense to income ratio of 26.32 percent or well below the 29 percent maximum.
Low Interest Rates and Long Terms Soon Will Be History !