Deborah Donovan out at the Daily Herald in the Chicago area wrote an interest piece related to our post-subprime age in the US. Here is an excerpt:
What mortgage opportunities will you find when you want to buy a house in this post-subprime world?
Regardless of fears and stories you may have heard about tight credit, mortgages are available.
In fact, interest rates are low — 5 percent for a 30-year fixed-rate mortgage, said Paul Lueken, president of the Illinois Association of Mortgage Professionals.
Riskier loans that did not make sense according to traditional underwriting standards are gone or have become very rare.
These include subprime mortgages designed for borrowers with bad credit that require little equity or down payment and little or no proof of income. Rates for these loans often escalate over the years.
Now 30-year fixed loans are popular again, credit scores are important and FHA mortgages are a choice for those who don’t have large down payments.
Adjustable rate mortgages are less popular these days because rates are not much lower than 30-year fixed rate mortgages.
Experts recommend shopping around for rates and meeting with a mortgage representative to examine what options are available.
Remember, besides a down payment, with most mortgages there are $1,500 to $3,000 in closing costs and a few months of payments in savings required as a reserve.
FHA
If you are a first-time buyer, consider an FHA mortgage, said Frank May, senior loan consultant with Green Valley Mortgage in Bloomingdale.
May said such loans are good for borrowers in the 620 to 680 credit score range, which would require higher fees or interest rates with conventional mortgages. Some FHA borrowers can have credit scores as low as the high 500s.
The very best credit scores are above 800, May said.
FHA (or VA loans if you are a veteran) have advantages:
• A borrower can pay as little as 3 percent for a down payment, which can come from either the buyer or as a gift from a relative. Closing costs are additional but can be paid by the seller.
• Generally, FHA borrowers should have housing expenses at or less than 29 percent of gross income and minimum payments for all debt at 41 percent. However, these numbers are flexible, and the FHA Web site, www.fha.gov, urges home buyers to consult with a mortgage professional.
However, such loans also have drawbacks:
• A mortgage must be $275,200 or lower. The median price for homes in the Chicago area in November was $247,000, according to the Illinois Association of Realtors.
There is talk of Congress raising the limit and lowering the cash requirement.
• If you have a down payment in the 20 percent range, you might want to get a conventional mortgage because mortgage insurance is still required with FHA loans.
