LOW-DOWNPAYMENT MORTGAGES
There was a time not so long ago when 100% financing (no-downpayment) mortgage loans were common. “Smart” buyers used the concept of OPM (other people’s money) to get ultimate leverage on purchases. Lenders thought that they were bulletproof and that their returns would never end. Even if borrowers couldn’t make their payments, rapid appreciation would protect them from losses.

But something happened on the way to untold riches: mortgages suddenly became suspect. The secondary market virtually disappeared for almost all types of mortgages except for the traditionally safe products offered by Fannie Mae, Freddie Mac and Ginny Mae, the conforming market’s leaders. A major by-product of this major market correction has been the disappearance of most no-downpayment options for first-time homebuyers unable to save for the initial investment due to high regional rental costs or who are saddled with student loans. VA loans are wonderful loans available to eligible veterans and personnel and FHA currently requires a almost a 3% initial investment.  Both loans have limits, depending on where the property is.

But Fannie Mae and Freddie Mac do still have 100% options available, though their underwriting guidelines are stricter than before.   Fannie Mae currently offers three:

The “My Community,” Community 100 products requires full documentation (stated income and stated asset loans are gone on many products), have income limits based on the metro area the property is in, debt-to-income ratio limits, as well as minimum credit scores and may have asset reserve requirements.

The choices available are fixed-rate loans or 5/1 ARMs, but amortizations can be extended to 40 years and most can have interest-only options. The key component of these loans is that private mortgage insurance is required.

The Fannie Mae Flexible 100 is similar to the My Community program. It eliminates income limits, but requires that the borrower must contribute at least $500 from their own funds towards closing costs and prepaids. Some versions of the program require a 3% “Flexible Contribution” but the money can come from several sources.

The Fannie Mae 75/25 Fixed Rate is available without MI so long as the 1st trust lender’s exposure is at 75% or less. There are no income limits but the borrower must have $500 invested in closing costs or prepaids. The strength of this program is the ability to get 100% financing above a sales price of $417,000 (Remember that the 1st mortgage cannot exceed the conforming limit of $417,000 but with the 2nd you could have a sales price of $556,000 with no money down!). You will be limited to fixed rate products but it is possible to get an IO option or to use a 2-1 buydown to make the payments more affordable. The trick with this program will be to find the 2nd trust lender since Fannie Mae will only buy the 75% LTV 1st mortgage.

Freddie Mac also offers three options similar to the Fannie Mae products:
Freddie Mac “Home Possible” mirrors the My Community mortgage, but has more liberal income limits. In addition, there may be a requirement for homebuyer education if it is required by the MI company. Freddie will allow for “boarder” income in some cases.

The Freddie Mac 100 is similar to the Fannie Mae Flexible program. Freddie Mac seems to be more flexible on the source of funds for the required $500 or 3% and will allow for lower credit scores. However that might be offset by lower debt-to-income ratios.

The Freddie Mac 80/20 is like the Fannie Mae 75/25 program. The largest purchase, with no money down, would be lowered to $521,250 with the same restrictions as to finding a willing 2nd trust lender.

The trick for 2008 will be to stay constantly alert to what new programs might be available when you are ready to purchase. The face of mortgage lending is changing rapidly with many small and big lenders closing their doors, brokers facing limitations in their product offerings and over-regulation by hud and the govt., and banks closing/limiting their wholesale operations such as Bank of America and National City Mortgage.

The good news is that no-downpayment loans still exist. You will be required to substantiate your income and your ability to pay. In most cases you will have to pay MI, but for many it will be tax-deductible.
If you aren’t inclined to do the research yourself, talk with a  full time mortgage professional… a Choice Finance® Loan Officer.  |  Todays rates
© 2007, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc. & Choice Real Estate of VA, Inc., & Choice Finance®

ESSENTIAL STEPS FOR GETTING A MORTGAGE
With mortgage programs currently rewarding buyers with the best credentials, a first-time buyer is well-advised to do everything in their power to qualify for the most advantageous programs and best rates possible. And once approved, you must steer clear of moves that can torpedo your loan application and purchase, even when you thought you were in the clear. Many first-time homebuyers’ biggest mistake is not getting their financial house in order and getting approved for the loan until they begin looking for a home.

(1) Make sure you have a credit history. Your credit history is usually the most important single factor in determining if your loan is approved and at what interest rate. Paying for everything in cash or with a debit card won’t help establish your creditworthiness. You need to get credit, even if it has to be a secured or high interest rate card and make timely payments.

(2) Check your credit report for errors, oversights. Credit reports often contain errors than can lower the credit score derived from it (which is what lenders look at). Check your report for inaccurate information and get mistakes corrected BEFORE you apply for a
mortgage. You need to check all three credit bureaus—Equifax, Experian and
TransUnion—to see if your report contains inaccuracies or oversights. Common errors are not clearing a balance when a loan has been paid off, listing accounts you are not responsible for or failing to include a credit account.

If there are errors, deal with them immediately and look into a “rapid rescore“.  Understand, the credit bureaus will charge you if you want to see your credit score.  Contact Choice Finance® if you’re buying in a state they’re licensed in, and have them run your credit report for you, let you know your scores, and advise you about how to increase them.

(3) Keep credit lines open to optimize your credit score. It is not true that closing open credit lines helps your credit score. It’s the relationship between your available credit and what you owe, along with how long you have been managing that credit, which
determines your score. Consolidating several credit cards into one shows up as a “maxxed-out” card. But having lots of available credit and using a small percentage of it scores high. If you do close an account, make sure it is not one with a long (and
valuable) credit history. The longer you have a good credit history with a credit card, the better your score.  More on improving your credit scores.

(4) Put off any major purchase until after you are in your new home. Getting a new car loan will significantly and unfavorably alter your debt ratios. In addition, the new car loan will not have a payment history and that will also lower your credit score. You can hurt your credit score just by going out to shop. Each time a store runs your credit, it affects your score.

(5) Get a bank account. Even if you are not making a downpayment, you should expect that you will be asked to show adequate funds for closing costs, pre-paids/escrows as well as reserves. To do this, you will need visible records. Mattress money and unexplained large deposits raise a question of the source of funds. A gift from a parent or relative
is viewed as a loan (though some programs do allow for gifts) unless the funds have been in your bank account for at least three months.

(6) Postpone switching jobs or making a career change until after you settle. Lenders double check loan applications before settlement to verify that you are still working at the job you listed on the application. Purchasers who quit their jobs before settlement in anticipation of finding employment closer to their new home wind up not getting the house.

(7) Substantiate your rent payments. Most first-time buyer programs place an emphasis on rental history as evidence that you are capable of paying a mortgage, since a rent payment closely resembles a mortgage. If you rent from an individual, lenders require
twelve months of either cancelled checks or bank statements showing the same amount going out each month. More is being done for first-time buyers with nontraditional credit histories. More loan programs now directly address these borrowers and offer special programs at competitive rates that place less emphasis on traditional credit.
© 2007, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc. & Choice Real Estate of VA, Inc., & Choice Finance®

2008 First-time home buyers
The housing market has been going through a difficult time and the adjustment period is likely to continue into 2008. What does this mean for the first-time homebuyer? With favorable prices and extensive choices the norm, house hunting in 2008 should be pure bliss for most. Understand, though, there are some challenges to be met. Specifically, the mortgage hurdle will be a little higher than in previous years for some, though not insurmountable for most first-timers.

In the Maryland, D.C., and Virginia areas, you will find that the selection of available existing homes is exceptionally high compared to recent years and most sellers are now more realistic about what they can expect to get for their house. Looking for a newly constructed home? Builders are desperate to get you into one of theirs, offering big price cuts and incentives galore.  While the considerable positives of the current market are indisputable, it is the financing arena where there could be obstacles. Lenders have been tightening their loan standards and dropping some programs, so financing will not be quite as freely available as in recent years.