Wednesday, May 20th, 2009
Go directly to rate page for all posted FHA rates

FHA rates

Choice Finance® is committed to providing you the lowest rates and lowest costs.
We welcome you to verify:  Quicken Loans, Bank of America, Wells Fargo, SunTrust, ditech, Citimortgage, Navy Federal Credit Union

Wednesday, May 20th, 2009
Go directly to rate page for all posted rates

Lender  –  rate  –  points in $  –  fees –  apr
30 year conforming fixed

Choice Finance® is committed to providing you the lowest rates and lowest costs.
We welcome you to verify:  Quicken Loans, Bank of America, Wells Fargo, SunTrust, ditech, Citimortgage, Navy Federal Credit Union

 Well it’s been a few weeks since HVCC went into place. In order of importance to me would be any stories from affected homeowners, loan officers or appraisers who have complaints against the new system. It’s my humble opinion that this has been and will continue to be a complete disaster for the homeowner. We can get into why I think that later if anyone would like to know. Let’s hear what’s going on out there.

Thanks,

Brent Mendelson
Choice FInance
Senior Loan Officer
O-301-881-8900X123

brent@choicefinance.net

The Fed’s program to buy Fannie Mae and Freddie Mac securities has helped to push rates for 30-year fixed conventional mortgages down to below 5%, a reported 4.82% average in mid-April.  Due to the combination of low mortgage rates and the decline in home prices, America’s houses are at record levels of affordability.

The National Association of Realtors’ Housing Affordability Index stood at 173.5 in February and should climb to even greater heights in succeeding months. The index is at 100 when a family with the median income has exactly enough income to purchase a median priced home (assuming 20% down, with housing principal and interest at 25% of income). 

In addition to low rates, borrowers got a boost from the administration’s Making Home Affordable foreclosure prevention program, which will reach some who have been ineligible for a refinance under the old rules.  Fannie Mae’s Home Affordable Refinance and Freddie Mac’s Relief Refinance Mortgage provide refinance options for those current on their mortgage payments, but who, due to a decline in home prices or where mortgage insurance is not available, have been unable to refinance.  Thus they cannot take advantage of a lower payment or move to a mortgage with a stable fixed rate. The Fannie and Freddie programs will permit loan-to-value ratios of as high as 105%. The programs started functioning in April and will continue in operation until June 10, 2010.© 2009, Real Estate Information Services, Capitol Assets, & Choice Finance®

Eric Strasser
Loan Officer, 301-996-5001
contributing editor choicefinance.net

Credit scores are arrived at by inputting information about your credit history and behavior into a mathematical model. Those based on the model developed by Fair Isaac and Company are called FICO scores and are used by most mortgage lenders. 

Lenders are looking for ways to weed out risky borrowers, so good credit scores are as vital to homebuyers as they have ever been.  Great mortgage rates are available, but they will only go to those with the very best credit scores.  Fair Isaac describes its FICO score as “an estimate of your credit risk based on a snapshot of your credit report at a particular point in time.”  FICO scores range from 300 to 850 (a high score is good). Scores above 720 to 740 typically qualify for the best rates. For every 20 points or so lower that your score is, you will be paying increasingly more discount points up front or higher interest rates.

We’re not totally sold on where Fair Isaac has set its score demarcations on the site, though. For instance the company has scores of 760 to 850 getting the best rates, which is on the high side. Still, it is a helpful guide.  Complicating matters this year, is that Fair Isaac has begun to roll out a new version of its scoring system, FICO 08.  The new system leaves the 300-850 score range intact, but has modified how those scores are arrived at, with new predictive variables and a greater number of risk profile groups.  There are three major credit reporting agencies, each of which maintains your credit history-Experian, Equifax, and TransUnion-and a separate credit score is generated based on the information at each one.

Because each credit agency may have slightly or even significantly different information, your score can vary from agency to agency.  Mortgage lenders generally request scores from all three agencies and look at the middle one.  According to Fair Isaac, your credit payment history is responsible for 35% of your FICO score; amounts you owe, 30%; length of your credit history, 15%; applications for new credit, 10%; and types of credit used, 10%.

Caution:  other web sites may offer you a free credit report or score, but it probably  is not a FICO score and may subject you to their advertising pitches.  If you get a free credit report from one of the agencies, they will be happy to sell you your score at the same time, but the Experian and Trans-Union scores will not be FICO scores and will have a different scoring range.  Here are some tips for boosting and maintaining your credit score, maintaining courtesy of Fair Isaac:  

Closing unused credit accounts won’t increase your score, in fact it may decrease it by having fewer open accounts. But don’t open new accounts just to increase your available credit; that could actually lower your score.  If you are starting to establish credit, don’t open a lot of accounts all at once.  Credit inquiries can lower your score.  However, FICO scores distinguish between searching for a single loan among several ders and applying for multiple credit lines.  Try to fit your comparison shopping within a two week period.  

Want more information? You can get booklets that provide an overview of credit scoring, including more factors that influence credit scores and tips on improving them at annualcreditreport.com.© 2009, Real Estate Information Services, Capitol Assets, & Choice Finance®

It wasn’t so long ago that we could write about how easy it was to get financing to purchase or refinance a home.  Lenders were simply looking to you for the “Holy Trinity” of income, credit and reserves/assets.  The good news is that Calculating income used to be so simple. If you were a salaried employee, you provided W-2s for the last two years as well as pay stubs for the last month.  The loan processor would either send out a VOE (a verification of employment) or make a phone call to the payroll department and your income was verified.  You then divided that annual income by 12 and you had your monthly income.  If you were self-employed, you provided two years of tax returns with schedules and a current year update.  The net income was averaged, divided by 12 and, voilá, you had your monthly income.  The loan officer might ask you to sign an IRS form 4506 tax return request, but then it went into your file to collect dust. 

INCOME

Today, the process has a different reality.  For the salaried individual, the documentation remains the same, but the verification is a lot more stringent.  Though you are required to supply the same paperwork, your employment will be verified independently by not only the lender’s processor but also by the closing department.  Why? Lenders have found that it is too easy to create W-2s and paystubs on a computer, submit a friend’s phone number for income verification and create phantom income. It happens.

The new step is that lenders are now requiring a signed IRS form 4506 even for salaried employees.  What is a 4506?  It is a request for copies of your filed tax returns from the IRS. In the past they were placed in your file in case of a lender audit.  Now, they are run on EVERY loan application.  Not only is the lender looking for potential fraud but also for the too-common situation where the salaried individual has a side business that shows large paper losses that greatly reduces residual income.

CREDIT

We have written often about the importance of a good FICO score.  Today it is more important than ever.  To get the very best rates and terms, you will need a 740 credit score and a 20% downpayment.  To get a conventional, Fannie Mae or Freddie Mac loan without a 20% downpayment is impossible unless you have a minimum credit score of 720.  FHA allows for lower scores and lower downpayment of 3.5%.

Why? Because there isn’t a single mortgage insurance company that will insure that loan.  Even if the DU/LP (Fannie and Freddie’s computer approval programs) approve your loan, MI companies will not insure it.  In every case, even with excellent scores, you will have to write a letter explaining every late payment and every credit inquiry.  In their due diligence, underwriters want answers.  In the case of inquiries, especially current ones, the underwriter wants to be sure that you haven’t obligated yourself for new payments that haven’t appeared on the credit report.  Don’t buy that new car or furniture before you purchase your home.

With 20% down, there is flexibility as to credit scores for conventional programs, but the era of low credit scores for conventional programs is gone for now.  This is why FHA has become the new focus for purchasers and refinancers alike, since FHA guidelines are not credit score driven.  Though FHA does not have a minimum credit score, most lenders will not originate a loan without a minimum score of 620.  Choice Finance can manually underwrite anything lower down into the high 500’s if the file makes sense.

Downpayment/Reserves

Unless you are a veteran with full eligibility, there are very few 100% financing programs available.  Whether you are buying a home or you are refinancing, you will need funds and you will need to document the source of these funds.  Lenders will want to see a minimum of two months’ statements on all assets used for qualification and every page of each statement.  And they will want an explanation, with documentation, for every large deposit that appears.  Conventional loans will require a minimum of a 5% downpayment (high risk areas may require more) while FHA requires a minimum 3.5% investment.  In addition, you will need extra funds for closing costs and prepaids.  Beyond that, you will have to show reserves.

In the past, conventional programs required two months’ reserves, but many lenders now prefer to see six months.  Retirement plans, 401ks or IRAs can be used to satisfy that requirement.  However, you will only get credit for a maximum of 75% of the portfolio’s value.  And when you are refinancing and not taking any cash out, conventional lenders will want to see two months of reserves even if you left 20% equity in the home.

Again, the government insured FHA/VA programs offer the best hope since their guidelines do not require reserves. © 2009, Real Estate Information Services, Capitol Assets, & Choice Finance®

Most important, the temporary mortgage maximums for conforming and FHA that loans andFHA that were in place for 2008 have now been extended through 2009. 

Because these limits are region specific and loan program fees and requirements are still in flux, you should ask your Choice Finance loan officer for the limits that apply in your area and for any updated information on these programs.

Conforming loans: 

Conforming jumbo loans are available with loan-to-value ratios of up to 90% for purchases.  They are available as 15-, 20-, 30- and 40-year fixed-rate amortizing conforming mortgages, 30-year fixed rate mortgages with 10-year interest-only periods, fully amortizing 5/1 ARMs and 5/1 ARMs with 10-year interest-only periods.  However, not every lender offers all of these and prices can differ significantly among lenders.

FHA loans: 

A non-factor in the housing market a few years back, the snoozing FHA has now awakened and is the Sleeping Beauty of the mortgage market.  FHA has gone from about 3% of the market a few years ago to over 30% today.  The newly expanded involvement of the FHA has been a key in helping to stabilize the housing market in recent months.

The attractions of FHA are its low downpayment demands (as little as 3.5%) and more flexible qualification requirements.  For those who are somewhat credit challenged, FHA is an attractive choice, since credit scores are not required, though, in practice, individual lenders may look at them.  Another reason for the FHA’s new attractiveness is the increased lending limits.

The overall limit for all areas of the country is $271,050, but in high-cost areas, the maximum goes up to as high as $729,750.  FHA’s brand of jumbo loans (above $271,050, $362,790 in high-cost areas) come at a price. Borrowers must pay discount points of around 1 1/4 points, or between three-eighths and one-half percent added to the interest rate. The spread has decreased in recent months.

A veteran with full eligibility can purchase a home costing up to the conforming limit ($417,000) anywhere in the U.S without a downpayment. The VA program does this by guaranteeing 25% of the amount of the loan.  VA loans repeatedly had been overlooked for limit increases in recent years. However, the former handmaiden is now a princess! VA loans in 2009 are available without a downpayment for loan amounts up to 125% of the median price for a single-family residence in a county.  This now means no-downpayment loan maximums of up to $1,094,625 in the very highest cost areas of the U.S.

Check with your Choice Finance VA loan officer for the maximum in your area.  The VA program comes with substantial upfront (“funding”) fees for those making no downpayment, but motivated sellers can often be persuaded to pick up the tab.  The fees are lowest for those using the VA program for the first time and are waived entirely for veterans with a service-connected disability.

Borrowers who are purchasing a home costing more than the Fannie Mae/Freddie Mac jumbo conforming loan ceiling will find a fragmented market, with each lender’s offering having its own rules and regulations, like so many sovereign grand duchies.  Individual lenders are starting to come back into the jumbo market, and we are starting to see more attractive rates and terms being offered, though they are still significantly above conforming loan rates. The best way to approach a jumbo loan is to complete a loan application and let us price it out accordingly.  In most cases, you will have to put at least 20% down and have high credit scores. 

 

David Wexler, Choice Finance Corporation