I definitely recognized that changes were taking place, as a many of the Chicagoland housing markets have healed to a good degree since the housing and economic downturn of the mid-2000's. I was expecting that my business would reflect that better health.
But I truly had not realized that my personal business was subtly but steadily evolving throughout the past year to a noticeable degree too. I guess I was "head-down-blinders-on" while concentrating on delivering Closings for my clients.
One of the ways I categorize and analyze my database is by Loan Type ... that meaning Jumbo Loan, Conventional, FHA, VA, and "others" (in-house Portfolio). While I had noted that the majority of my clients had held higher Credit Scores than those of previous years, I had not realized just how much those Scores had improved. Or how those improvements had resulted in real change taking place throughout the year.
The number of closed Conventional Loans reflected the starkest improvement and growth. There was a marked shift away from FHA loans.
Many of my clients that might have gone FHA previously had this year qualified for and taken advantage of the Fannie Mae "HomeReady" or the Freddie Mac "My Community" Program. In many of these cases, my clients could qualify (and thus choose) between an FHA and HomeReady Loan.
As a refresher, here's a breakdown of the features of each kind of loan:
- 3.5% minimum Down Payment
- Typically has lower Credit Score Requirements
- Higher Monthly Mortgage Insurance payments
- When placing less than 10% Down, offers "life of loan" (30 years) Mortgage Insurance
"HomeReady" (Conventional Loan) Requirements:
- 3% minimum Down Payment
- Slightly higher Credit Score Requirements (than FHA)
- Lower Monthly Mortgage Insurance payments
- MI payments that can, and typically do fall off after 8, 10, 12 years of payment when the original Loan is paid down to 78% - 80% of the initial Purchase Price
Note: When considering the utilization of each the above, a study is performed. Then comparisons are made showing the benefits of using the FHA Loan VS "HomeReady" Loan. As in every case, Credit Scores, Down Payment amounts, Loan amounts, Debt-to-Income Ratios, can and do affect the cost of the Monthly Mortgage Insurance Payments.
This side-by-side comparison between FHA and Conventional "HomeReady" or "My Community" loan is then presented to the Borrower for their consideration.
At this time, I also deliver my recommendations as to which Loan Program I project would lead to the most beneficial results.
The criteria considered most heavily is:
- Which loan type produces the highest likelihood of a successful Loan Closing?
- Which loan type provides the best financial choice/results for my Borrowers ... both in the short-term and long-term?
This comparison is also made:
- Monthly Payment(s) VS Projected Stay in the Home