Update on Mortgage Climate

A couple weeks ago, I sat down with two mortgage brokers, Tim Taylor and Maddox Rees, of Prospect Mortgage (formally Metrocities Mortgage). They shared some great information, and I thought I would share it with you, since things are changing at such a rapid pace these days. A lot of the major changes in lending are less than six months old, and they are very different from the last 20 years in finance. Also, these things are not going to be changing anytime soon, so read on ...

Some bullet points on Standard and FHA loans:

• There are three main areas lenders consider when approving consumers for a loan: FICO score(s), Income, and Assets (Down Payment + Reserves).
• The conforming loan limit will go up to $729,000 by May 14th, 2009. This is great news for anyone shopping in this price range. (If you purchased a home at $911,250 and put 20% down, your loan amount would be $729,000.)
• There are still some 'stated income' loans out there, but very few and with tough restrictions.
• Paying points isn't necessarily a bad thing, but you do need to do your numbers and look at your return on income (ROI) to see whether or not paying points is beneficial to you. Loans are priced on a sliding scale these days, and rebate pricing has thinned out dramatically on these loans. A bank has to hold a loan long enough to make it worth the risk it takes on when giving out a loan. They are not as willing to give risks away at reduced prices, because now it is too risky.
• If you have less than 20% to put down, you may want to consider an FHA loan. Per Tim and Maddox, they will lend based on a 620 FICO score with 3.5% down. You would pay PMI (Private Mortgage Insurance) of 0.55% of the loan amount, and you can finance this for a fee. Even if you get to 20% equity, you cannot get rid of PMI for the first five years. FHA rates are 1/8 to 1/4 percent higher on rates but a good option to consider if you do not have a large down payment.
• Another type of FHA loan is called a 203k. This loan is only good on a primary residence - not on an investment property or vacation home. The rates for this loan are higher, because you can finance some construction or completion costs up to $100,000 (i.e. stove, windows, roof, misc. construction costs).
  
• If you are planning to get an FHA loan and you are looking for a condo, you want to (hopefully) find a complex that has FHA approval. It will make your life easier. FHA can do 'spot approvals' but they do not want more than 10% of the units in any given complex to have spot approval. Usually a development gets FHA approved when it's built. If not, it costs about $10,000 to get the FHA approval for the complex.
  

Jumbo Financing:

• There are good sources available for jumbo financing.
• Currently jumbo financing represents about 10-15% of the funding that goes on.
• Tim and Maddox do have programs where you can go stated income and 20% down (if you are approved) up to $3M, and there are portfolio loans up to $5M. The portfolio loans up to $5M have all sorts of great options (ARMS with two sets of 5 years of interest-only on a 40 year term, then 10 years later you'd have a 30-year amortizing loan OR a 40-year loan that has 15 years of fixed interest-only and amortizing over the next 25 years, etc.)

Private Bank Brokerage:

• To be eligible for private bank brokerage, you must have $1-2M liquid post-closing and $5-10M of total net worth. Great options available and very competitive.
  

**I am a Realtor and not a mortgage broker. I am here to share information with you.
*If you want to speak with Tim Taylor or Maddox Rees, they can be reached at 805.898.4222 or 805.683.7350, respectively.