It is crazy to see that mortgage lending here in Phoenix is starting to get much more agressive, we are seeing loan programs to qualify borrowers a day after their foreclosures and short sales and now the credit score overlays for FHA loans have completely disappeared.
The thing is, FHA loans always required a minimum credit score of a 580, it has been this way for a while however many lenders/investors who were buying a funding these loans slapped on an overlay of 620 or 640. The investors we are working with now have removed that overlay completely and are doing FHA loans with 580 credit scores or better.
I can’t tell you how many people we have had to decline due to their credit score not meeting the minimum requirements, we have free in house credit services but sometimes they just couldn’t get the scores to where they needed to be to qualify at 620 and 640. It is a great thing that we have kept a pretty good database as it sounds like I have my work cutoff for me in regards to calling everyone who previously applied and we couldn’t get financed.
So what else is on the horizon as far as potentially “niche” type products? We have seen a couple investors out there offering stated income loans in which we thought that we would never see again although you will not find and 100% financing type products for stated income as they now require the borrowers to have a lot more skin in the game… By that I mean investing a much larger down payment, I guess they got smart and decided this is the only way to get the client from walking away from the house if they are in financing distress.
My bet is that with the market flattening out and home prices stabilizing, the investors that are buying these mortgages have made a decision that it is safe to come out and test the waters with innovative new programs. As long as they have all learned their last time from the last housing bubble and don’t come out with any of these ridiculous products like the negative am option arms I think we will maintain some consistency within the market place and it will continue to be a safe bet for homeowners.
But back to FHA loans with 580 credit scores, because Phoenix, Az was one of the places that got hit pretty hard with the housing collapse I think this is a great product to be able to offer as there are many qualified candidates who have great job history, a down payment and can afford a housing payment but are unable to meet the current credit score guidelines of 620. As far as overlays the only two things I can think of here is that we will have to follow FHA’s manual debt to income ratio max of 31/43 (contact me and I will calculate yours for you) and we do not allow any of the down payment assistance products.
As long as you meet the FHA 36months from foreclosure or delinquent short sale and 24 months from a bankruptcy seasoning periods you should be good to go to pursue a pre-approval with us, reach out now and let’s get you rolling!
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R.I.P. 97% Loan to Value: I can’t believe what I just read, I mean all of these new loan programs coming out and the market heading in the right direction and now this? I now know of companies offering Stated Income loans and companies that will offer loans the next day after your bankruptcy or foreclosure but the last person on the planet I thought would pull back would be Fannie Mae. Over the past couple years, I have seen the MI companies (mortgage insurance companies) get more aggressive with their guidelines allowing more and more homeowners to qualify for mortgage loans. I mean, the market has seen a somewhat stabilizing trend so it’s expected that more players are going to get in the game and offer some new loan products but Fannie Mae must have had enough?
The 97% Loan To Value maximum that Fannie Mae allowed on their conventional loans allowed me to compete with FHA, whose Mortgage Insurance Factors are through the roof by the way, but this 97% program is going to be gone soon. My suggestion is that if you are going to do this program you better do it really quick. Fannie Mae is implementing the changes to their automated systems effective the weekend of November 16th 2013 however the max loan to value of 97% will be disappearing on January 10th of 2014. I guess this gives us a little time to prepare?
Well, here’s the deal… It’s not the end of the world, it really is not. Personally as a Phoenix Loan Officer I rarely EVER offer this program… Why you may ask? Well, because I can NEVER over promise and under deliver… The fact is that unless you have stellar 740 credit, low debt to income ratios and some reserves (money after your cash to close is taken into account) you most likely will not even qualify for the 97% loan to value anyways. Usually when structuring a low down conventional mortgage I suggest to my clients that they need to have 5% down and if for some reason the stars align properly I might be able to pop them into a 97% loan to value program if they so desire it.
I guess what threw me for a loop was the fact that all of these new loan programs are evolving, and my theory is that new investors see opportunity in the stabilizing housing market and they are ready to play ball, but the biggest investor of all says no way, we are pulling back. Do they know something we don’t? Mini housing bubble again? Not too sure but it could be an accurate theory.
Really at this point, I am not really going to lose any sleep and neither should you… If you look at the average mortgage insurance premium on the 97% loan to value program totals to be about 1.15% annually based on the loan amount, for a $300k loan that is a payment monthly of $287.50/mo. In comparison to the .67% average for a 95% loan at $167.50/mo it usually makes a lot more financial sense to take the 95% route anyway.
I’m done rambling for the day, that’s all I got… Don’t lose sleep and if you want to work with local mortgage professional you know where to find me!
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