On Friday, Countrywide announced their maximum loan to value for sub-prime is 90%. This morning Option One announced the same limits. Also last week, New Century halted all loan operations and they were the 3rd largest sub-prime lender nationally. So what to do with your less than stellar credit clients?
- FHA loans are still a viable and competitive product. Interest rates are low and there are no pre-payment penalties or other goofy stuff which lands home owner's in trouble with changing loan payments 2-3 years down the road.
- Conventional 80/20 still exist. They have more stringent qualifying criteria (680 credit scores) then what many people have been using the sub-prime loans for. ***
- Conventional 100% in the My Community is a Fannie Mae program for qualifying buyers above 95% but the private mortgage insurance can sometimes be cost prohibitive. The Freddie Mac version is called Home OpportunitiesThe credit scores don't have to be as high as the conventional 80/20 but they also can't be as low as FHA will allow. Furthermore, both programs have limitations on the household income of the home buyer unless the property is located in an eligible census tract.
***update 2/15/2008 - Conventional 80/20 programs are very close to extinction. 80/15 appears to be the maximum financing going forward.
Other 100% financing options that still remain are listed below: (information below also updated on 2/15/08)
Teacher/Fire fighter/Policeman/healthcare worker - 100% financing options for people in certain professions. These programs do have PMI.
- Some banks still have Low-to-Moderate Income mortgage programs for 100% financing. Because banks are required to meet government standards per Community Reinvestment Act(CRA) guidelines, there are still some programs out there for home buyers who are below certain household income limits. Some banks have pulled back from these programs providing 100% financing.
- My Community and Home Opportunities which were listed above are still viable 100% financing options but again, are limited as to household income or property location.
- VA loans continue to provide a much deserved benefit to our military personnel. It is more appropriate to think of the VA guaranteed loan as an entitlement or "reward" for serving our country instead of a loan program as it is very specific in who is eligible to use this program.
These are changing times and it is difficult for everyone to accept the speed at which loan programs are changing. Not only is there volatility in the interest rate markets, but also in what programs are available to consumers. Now, perhaps more than ever before, a real estate professional should be aligned with ONE mortgage broker / loan officer AND ONE direct mortgage banking loan officer. The mortgage broker has the flexibility to move the transaction between lenders in response to sudden changes. The direct mortgage bank loan officer is going to have access to portfolio and/or CRA programs that the broker is not able to access. By utilizing a dual strategy, realtors can give their clients great service in recommending a mortgage loan professional.
©2007 Ken Stampe
Ken Stampe is a Mortgage Loan Originator, Mortgage Author and Mortgage Loan Officer Instructor living in Dallas, TX. Ken provided his first client a mortgage loan in 1996 and writes about home buying and mortgages to help clients make smart home mortgage loan decisions. Contact by email at Ken@KenStampe.com
What resource do SMART home buyers use?... Mortgage Calculator Bank.com
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