Lynn Underwood over at the the Star Tribune in Minnesota recently gave this useful overview of various mortgage programs now available:
Just six months ago, home buyers with borderline credit, questionable income and no money down could easily snag a mortgage.
Today lenders are playing it safe in response to increasing problems with subprime sweetheart loans and recent state legislation that created stricter lending guidelines.
Although the lending landscape has changed, there are still plenty of consumer-friendly loan options for a wide range of home buyers.
Ronny Loew, senior mortgage banker at First Horizon Home Loans, Edina, said the industry is responding by taking a more conservative approach. “We’re taking a big step back to the old ways,” he said.
Some of those time-tested loan programs have been around for decades. Federal Housing Administration (FHA) loans, for example, weren’t highly promoted in recent years because they offered less profitability to brokers, came with strict guidelines and could be time-consuming to process.
“Now they’re one of the only games in town,” said Kris Wilson, a senior loan officer at Fairway Independent Mortgage, Bloomington.
The following are some examples of conforming conventional loans (for amounts less than $417,000). Variables related to income, credit, assets and property determine if a buyer can qualify for a mortgage.
COMMUNITY HOME BUYER LOANS
What: Offered by lenders under a variety of names such as Home Possible, My Community Mortgage and Neighborhood Advantage, for low- to moderate-income buyers.
Good for: Borrowers who need 100 percent financing, zero percent down and have a credit score of 620 or higher (some exceptions). However, a buyer’s income must not be higher than the HUD median income for the area they are buying in.
Features: The interest rate is .75 of one percentage point higher than a standard conventional loan. Thirty- or 40-year fixed-rate or adjustable rate mortgages (ARMs) are available. Mortgage insurance payments are discounted (and can be dropped when the mortgage reaches 20 percent equity).
FANNIE FLEX
What: A Community Home Buyer loan that has no income limits.
Good for: Borrowers with a higher income who need 100 percent financing/zero percent down. Requires a credit score of 620 or higher.
Features: The interest rate will be about .75 percentage-point higher than a standard conventional loan. Available as a 30-year fixed-rate or ARM. Mortgage insurance is not discounted.
EXPANDED APPROVAL LOANS
What: Fannie Mae and Freddie Mac expanded standard qualifying guidelines so more people can get a loan. Two examples are EA1 and A Minus loans.
Good for: Slightly higher-risk, credit-challenged borrowers with a credit score under 620.
Features: Interest rate will be 1.25 percentage points or more above that of a standard conventional loan. Requires 5 percent down. Mortgage insurance payments may be higher.
FEDERAL HOUSING ADMINISTRATION (FHA )
What: FHA insures mortgages for low- to moderate-income buyers and is the loan of choice for many first-time home buyers.
Good for: Credit-challenged borrowers. FHA will allow more flexibility on credit scores, but is strict on income documentation. “FHA also will work with you if you lose your job and can’t make payments,” said Tim Bendel, president of the Minnesota Mortgage Association.
Features: The maximum mortgage amount is $272,683. Requires a minimum 3 percent down payment. Interest is charged at the market rate. Available in a 30-year fixed or ARM. Mortgage insurance payment is in effect for almost the entire life of the loan.
FHA Secure Program: A new refinancing option for credit-worthy homeowners who made timely mortgage payments before their ARM reset to a sharply higher rate, causing them to default.
FHA reform: Congress is considering legislation that will result in improved FHA options for home buyers.
VETERANS ADMINISTRATION
What: This government agency provides federally guaranteed home loans for military personnel or surviving spouses.
Good for: Veterans who need 100 percent financing/zero percent down; credit score may be lower than 620.
Features: Loan amount is higher than FHA; 30-year fixed rate available. One-time funding fee instead of mortgage insurance
