This afternoon I began thinking about the chameleon like changes I have had to make to adapt to Florida's mortgage and real estate market. The thought then occurred to me...How many of my peers have made these same changes? My train of thought than moved on to the many local Realtors that my be losing business because their #1 mortgage broker either does not understand or does not have the option of offering these solutions. Let me explain the details...
The entire state of Florida (and most of the country) is considered a declining market. Lenders have now made a mandatory condition for all conventional loans that requires a 5% reduction (or more) to properties financing in declining markets. The maximum conventional loan is 95% of the purchase price so a 5% reduction results in a max financing of 90% for most of the properties in Florida. There are some lenders that will allow for 95% financing if the home is being purchased by a primary resident and is only 1 unit BUT they still require an appraisal review. So Bottom Line...There are no guarantees that your conventional loan will financing for 95% even 90% as lenders reduce the value/financing based on the appraisal review!! To top it off conventional programs have seen a recent increase in the required credit score to a 660 mid from a 600 mid. Now 600 mid scores are no longer eligible for standard conventional products and if borrowers are between a 620-660 mid the lenders will add a "hit" (increase) to the interest rate, resulting in another reason that this product has become even less attractive.
WHAT IS OUR SOLUTION??? FHA FINANCING!!! The great old friend for most experienced mortgage brokers is the FHA loan. This loan product has been around for ages but always gets pushed to the back burner because brokers fear the harder approval process and yearly audits that are required. The great news is that FHA programs do not acknowledge the "declining market" so there will be no reductions to your clients maximum loan to value. Unlike the conventional loan, The FHA loan is what it is! With only 3% down payment requirements and 6% seller contributions allowed, your buyer can virturally purchase their home for little to no money down. The best part is the loan is guaranteed to close with no appraisal strings attached as long as the borrower meets the underwriting requirements. Plus FHA loans allow borrowers to have credit scores as low as a 550 mid. There is an FHA myth that needs to be dispelled about the appraisal. In the past FHA had very strict requirements for appraisals and repairs. This thought is still in the back of most Realtors and mortgage brokers minds. Well, I urge you to let this thought go. In the past couple of years FHA has made it just as easy to complete an FHA appraisal as it is to complete a conventional appraisal with only minor differences in the paperwork. Whether you are a Realtor or mortgage broker and you are having trouble with your conventional products I suggest you tap into the FHA mortgage market TODAY before you lose anymore money. Brokers, it is worth the time you will spend to become FHA approved and Realtors, the time you will spend developing a relationship with a new mortgage partner experienced in FHA loans will help keep your business on track and even increase your profits.
For more information read my detailed post on The benefits of FHA financing!