I recently took an in-depth seminar on current trends in mortgage lending. It may sound a little dry at first, but it was actually quite fascinating. The most intriguing aspect of the class was its decidedly positive tone for potential buyers. Whereas news reports and articles (who often get their readership from sensationalism) have been consistently reporting on how difficult the lending market has become since the crash, this seminar, taught by professionals in the lending industry, showcased a very different perspective. It seems that things really are coming around and that lenders are now doing what they can to make a variety of loan types attractive to buyers and get back to business as usual. Below are some examples demonstrating recent changes in policy in the mortgage loan industry:
FHA (Federal Housing Administration):
FHA loans are loans that are backed by the Federal Housing Administration. These types of loans were put into place by the federal government to assist individuals who might not qualify for conventional mortgage financing. FHA allows for as little as a 3.5% down payment and the minimum credit score required is now generally around 600. They also have more liberal policies regarding previous bankruptcies and foreclosures; currently you must be 2 years past bankruptcy and 3 years for foreclosure. Mortgage insurance is required for all FHA loans for the life of the loan and it will add to your monthly premium. However, in order to better compete with the conventional loan market, FHA has recently announced a reduction in its mortgage insurance premiums.
Seeking to compete with FHA, conventional mortgages are now allowing for 3% down payments with credit scores of 620 or above. In general, minimum credit score requirements have recently become less stringent. The loan limit for a single family home loan is $517,500, although if you are looking to borrow more, it is interesting to note that jumbo mortgage loans (for loans above $517,500) will often provide even better interest rates than those for conforming loans, as lenders look at those who qualify for jumbo loans as a better credit risk.
With continued low interest rates and now more flexible loan qualification guidelines, it really is a historically great time to purchase a home. Of course, there are many factors to consider when choosing a loan, especially in the current market. In very competitive areas of Seattle, where multiple offers are common, certain loan types are likely to be favored over others. To learn more about how the current changes might affect your ability to make a move or to learn about additional programs and assistance for homebuyers, be sure to talk with both a real estate agent and a lender. I can provide you with a list of preferred lenders and am also available to answer any other questions you might have.
Portions of this article are taken from the seminar “Where is the Love? Current Trends in Mortgage Underwriting”, by Daniel C. Cote, Senior Loan Officer at HomeStreet Bank.