The Sky is Not Falling for Mortgage Financing-Recent Changes Discussed

Mortgage and Lending with Guaranteed Rate, Inc.

However, there are lots of changes in the mortgage world that those looking to buy or sell a home should be aware.  First, let me say, mortgage underwriting is really based on common sense -does it make sense?  Will the buyer be able to afford to make the payments on this house!

For a buyer, it is more important than ever to get pre-approved before going house shopping.  For those that can verify their income and have a decent credit score, very little has changed.  By a decent score, I mean in the 600 range, although the mid to upper 500s can work in many cases.  Borrowers should expect to pay up to 3% of the purchase price towards a down payment for an FHA loan.  This 3% can be a gift and come from parents, relatives, etc.

A big misconception is that FHA loans are more complicated and have tighter guidelines.  In fact, FHA is one of the most liberal programs especially in the current market.  The biggest misconceptions are that you need to be a first time homebuyer, need to make below a certain income level, or must live in a certain neighborhood.  All of these are factually incorrect.  Right now, for those putting less than 10% down, an FHA loan will most likely be the best option for you.  They even allow for a non-occupying co-borrower still!

The biggest actual changes have been with conventional loan products, those typically sold to Fannie Mae and Freddie Mac.  Unless someone is seeking a loan amount between $346,250 and $417,000, the changes will not matter in practical term.  For those in that range, there will be lots of factors such as credit score, amount of down payment, loan to value, etc that will come into play.

For sellers, it is important to be aware of what may be expected of you by a buyer and by a lender.  In most cases, I am seeing buyers requesting that the seller contribute up to 3% of the purchase price towards closing costs and escrow items; this has almost become standard these days, so do anticipate that.  Also, sellers need to be prepared to take care of any necessary repairs before the loan closing.  In the past, an allowance could be given at closing for the seller to give funds to a vendor of buyer's choice to do repairs post-close.  This has not been allowable in this current market, so it is important to realize why the buyer is asking for things to be done in advance rather in than an allowance at closing.

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