Just an hour ago, Malden Read, a reporter for the Washington Post, annoucned that the Feds are bailing out Fannie Mae and Freddie Mac. According to Read, this move by the Feds, “could aid a recovery of the broken U.S. housing market and arrest a slide in stock and credit markets worldwide.”
Read the full story:
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/08/AR2008090800542.html
With the loss of available cash for new loans, lenders have tightened their lending requirements, and some lenders have been forced to go out of business–filing for bankruptcy. According to an article by RISMEDIA entitled Mortgage Mayhem, the reason for the fiasco in the mortgage market, "—¦is largely based on the fact that market conditions in both the secondary mortgage market and the national real estate market have deteriorated to the point that many mortgage businesses are no longer viable or as profitable as before."
So what does this mean for homebuyers?
It means that it is now more difficult for buyers with less-than-perfect credit to qualify for a mortgage. The Associated Press had quoted George Hanzimanolis, president of the National Association of Mortgage Brokers , "lenders have raised the minimum credit score that qualifies for financing. Most lenders now require bigger down payments, he said, and are eliminating exotic loans or making them more difficult to qualify for." He mentioned, "The silver lining is that people with good credit who can document their income have the same access to home loans as they did a year ago."
First time homebuyers will have a tougher time buying their first home, but hope is not completely lost. The condition in the mortgage market now requires first-timers to do a little more planning, and more saving for the future. Buying a home is not only one of the biggest financial investments of a person‘s life, but it is also one of the biggest responsibilities. It is worth taking the extra time to plan and wait–making sure that all financial considerations are in order, saving enough money for a larger down payment–with some savings left over–and making sure that credit scores are brought up to justify a lower interest rate.
In response to the current situation in the mortgage market, where foreclosure rates are at an all time high, lenders across the board are tightening up their lending requirements, making it more difficult for buyers to qualify for a mortgage.
Gone are the days of 100% loan-to-value mortgages. While some may see this as a barrier to homeownership, it is actually a blessing, because nothing is more financially devastating than a foreclosure on one’s credit history. According to Carolyn Said of the San Francisco Chronicle, who interviewed a number of larger lenders, explained that the new standards fall into the following areas:
“Ability to repay. Buyers are no longer being qualified at the low initial rate. They must qualify for the loan payments at rates equal to what the loan would be if it reset at a higher rate.”
“Down payment. Lenders want buyers to put some money down, even as little as 5 percent or 10 percent. Loans for 100 percent of the price are very hard to get.”
“Credit score. Credit scores range from the high 300s to the low 800s. Borrowers with a credit score above 680 are likely to qualify for a reasonable deal. Between 660 and 680, they may qualify, but the deal could be pricey. Potential borrowers with a score of 620 or less need to raise their scores before they can qualify.”
“Income and income verification. Producing proof that a borrower has a job is key; "stated income" loans are much more difficult to get. Also lenders are unlikely to approve a loan in which the home buyer will spend more than 45 percent of his gross income paying off debt, including paying the mortgage.”
Cite Source from Realtor Magazine,click here.
While these changes may delay homebuying plans for some buyers, this is actually a blessing in disguise–because these new standards will cause buyers to improve their financial situation before taking on the huge financial burden of taking of a mortgage. It will also benefit buyers in the long term, because these new standards will ensure that they stay on path to a healthy financial future. For buyers who are financially capable of maintaining mortgage payments, but who do not qualify due to credit scores, there are still alternatives available such as lease-to-own.
However, buyers need to keep in mind that a mortgage will come into the picture, at some point in the future. Therefore, buyers who choose this route should plan to financially position themselves during the lease period in order to qualify for a mortgage when the lease period is up. Buyers should also have a decent down payment–at least 10% of the purchase price–to demonstrate financial capability to sellers who would consider lease-to-own arrangements.
Bottom line…
While it is now tougher to qualify for a new mortgage, the path to homeownership is not dead in the water. It just takes more long-term planning and financial considerations on the part of buyers, which will only help to benefit them over the years. It is well worth the peace of mind that buyers will have–knowing that they have made the right moves to make sure they can stay in their homes, and stay on the right path to a secure financial future.
Closing day can be a very hectic and stressful time. However, I cannot stress the importance of taking the time to read the fine print of your loan documents before signing them. It could be your last chance to spot items that need correction before they are recorded, and before the loan funds.
For example, if you told your lender that you preferred a fixed rate, and after taking the time to read the fine print, you discover that the loan documents show the mortgage will actually be adjustable, you can have this corrected before you go through with closing. It will be too late if you wait until after closing.
Make sure you read everything, or if you have an attorney, have them review these loan docs for you. Don’t let anyone pressure you into signing without reviewing your mortgage documents, and make sure that you clearly understand what you are agreeing to. All questions should be addressed prior to signing your loan documents, and all corrections should be made prior to signing your closing documents.