Effective June 1, 2008 Fannie Mae has revised down payment requirements for conventional, conforming loans that they will purchase or guarantee. The ratio of home loan to value can be a maximum of 97% for loans written through the automated underwriting system known as Desktop Underwriter. The lower ratio of 95% of loan to value is available for conventional conforming loans written outside of the automated Desktop Underwriting system. This new national policy makes low down payment loans available nationally in areas where home   prices were declining. This means that buyers of owner occupied single-family homes will have a consistent national approach when applying for a conventional conforming mortgage.

Housing sales peaked in 2005 and have been experiencing a pricing decline since. The good news is since the correction, prices are beginning to stabilize and Fannie Mae is seeing lower risk of further significant declines. This new down payment policy that supersedes the former “declining market” provisions means home buyers may not need higher down payments. The new policy also helps assure stability, liquidity and affordability for the housing market which should help those seeking mortgage loans.

Fannie Mae also has streamlined refinancing for borrowers whose mortgage balance exceeds the value of their homes; improved pricing for jumbo-conforming mortgages and undertaken a neighborhood stabilization initiative for targeted areas with high home foreclosures. These policies should help further strengthen the housing market’s long-term prospects.

Anyone applying for a home loan after signing a purchase contract may think that agreeing on the price of the home with the seller means that the sale will close as planned. In fact, the mortgage lender will require that an independent appraisal be done before a loan is approved. The reason is the appraisal value of the home will determine the maximum amount of a mortgage loan. The home value is the only collateral the lender has in the event the borrower defaults on the mortgage. The independent appraiser will review and document other home sales in the area as well as the condition of the home being appraised in arriving at a value. There may be adjustments up or down in arriving at the estimated value of the home. Here are some common facts and myths about appraisals:

Myth: The primary purpose for an appraisal is to make sure the buyer doesn’t pay too much for a home.
Fact:  While the appraisal provides valuable information to the home buyer and seller, the primary purpose of the appraisal is to protect the mortgage lender. Lenders will generally not loan more than the appraised value of a home.

Myth: If the appraisal value of the home is less than the purchase price, the buyer will not be able to purchase the home.
Fact:  The buyer can still purchase the home if the appraisal is lower than the agreed purchase price. The seller can reduce the purchase price and/or the buyer can increase the down payment, which means they will have to borrow less. An escrow account can also be set up and funded for repairs that will increase the value of the home after the repairs are made. In some cases the appraiser may reconsider the valuation if new evidence becomes available to support a higher valuation.

Myth: FHA loan appraisal requirements are much more extensive than non-FHA loans.
Fact:  The appraisal requirements for both FHA loans and non FHA loans are very similar.

Myth: The home buyer cannot see the appraisal report.
Fact:  The home buyer is entitled to a copy of the appraisal report obtained in connection with a loan application so long as the buyer has paid for the appraisal. Your mortgage lender will provide instructions for obtaining a copy.

Myth: A mortgage lender will always require that an appraisal be completed before making a loan.
Fact:  In certain situations, a mortgage lender may not require an appraisal, however a property inspection waiver will be offered at a nominal cost to the borrower.

Myth: A home appraisal is the same as a home inspection.
Fact:  A home appraisal is not a substitute for a home inspection. The appraiser formulates an estimated value of the home for the mortgage lender, while the home inspector determines the condition of the home and informs and educates the buyer about the major structural items and components of the home.

Applying for a home mortgage is a relatively easy process. However the information needed to obtain home loan approval in a timely manner requires a coordinated effort by the borrower and lender. The mortgage loan application is prepared by lender with the borrowers input and takes about 30 minutes to complete. The lender then gives the application to a loan processor, who organizes the information. The processing of the application may require additional information for verifying employment, bank balances or other information. This information is often obtained at the time of application and can help speed up loan approval.

During loan processing, some of the items requested may include the purchase contract for the home, if the home loan is being obtained to buy a home. Updated bank statements or investments that may have changed in value may also be requested. If a borrower is self employed or is in a specific career (Doctors, Nurses, Police & Fire, Teachers, Military & Veterans, Pharmacists & Dentists), then tax returns and/or Profit and Loss statements for the past 2 years may also be required. Depending on the personal home loan needs of the borrower and down payment amount, evidence of past mortgage or rent payments, divorce settlement papers, and gifts provided by a relative or a non-profit down payment assistance program may also be needed.

Simultaneously, an independent appraisal of the home is ordered. The appraisal is needed by the lender to establish the maximum amount a lender will loan based on the home’s appraised value. The loan processor is assembling and organizing the borrower’s financial information in an organized manner to present to an underwriter. The underwriter will review the information to determine if the borrower meets the guidelines for making the home loan. Once approved, a commitment letter is provided which states that the lender will make the loan based on the specific conditions determined in underwriting.

The whole process generally is completed in 30 days or less. Speeding up the mortgage process is a simple easy three step process.

Applying for a home mortgage is a relatively easy process. However the information needed to obtain home loan approval in a timely manner requires a coordinated effort by the borrower and lender. The mortgage loan application is prepared by lender with the borrowers input and takes about 30 minutes to complete. The lender then gives the application to a loan processor, who organizes the information. The processing of the application may require additional information for verifying employment, bank balances or other information. This information is often obtained at the time of application and can help speed up loan approval. 

During loan processing, some of the items requested may include the purchase contract for the home, if the home loan is being obtained to buy a home. Updated bank statements or investments that may have changed in value may also be requested. If a borrower is self employed or is in a specific career (doctors, nurses, police & fire, teachers, military & veterans, pharmacists & dentists), then tax returns and/or Profit and Loss statements for the past 2 years may also be required. Depending on the personal home loan needs of the borrower and down payment amount, evidence of past mortgage or rent payments, divorce settlement papers, and gifts provided by a relative or a non-profit down payment assistance program may also be needed.

Simultaneously, an independent appraisal of the home is ordered. The appraisal is needed by the lender to establish the maximum amount a lender will loan based on the home’s appraised value. The loan processor is assembling and organizing the borrower’s financial information in an organized manner to present to an underwriter. The underwriter will review the information to determine if the borrower meets the guidelines for making the home loan. Once approved, a commitment letter is provided which states that the lender will make the loan based on the specific conditions determined in underwriting. 

The whole process generally is completed in 30 days or less. Speeding up the mortgage process is a simple easy three step process.

Qualifying for a home loan can be a relatively easy process and should be the starting point for a home buyer. To qualify, a mortgage lender will look at a variety of information in determining if a borrower is credit worthy. The two key factors are your ability to repay a home loan and your past experience in paying off other debts.

Your ability to repay a home loan is measured by your annual income. If you are an employee this is usually reported on your form W-2 from your employer. Length of employment generally should be at least two years with the same employer or at least in the same field of employment for several years. Then your proposed monthly mortgage payments plus any other loan payments you have are divided by your current monthly income to determine your financial ability to repay. This calculation is called your debt to income ratio and is used by all mortgage lenders in determining if you can qualify for the amount of the loan you are seeking. In some cases other loan payments not related to your home loan can be excluded in the analysis of qualification with certain career programs.

Your past credit history will measure your willingness to repay the loan. A mortgage lender will obtain your credit report which will indicate how you have paid previous loans. Timely payment of past loans will help increase your credit score and late payments will lower your credit score.

Home loan qualification varies with each individual and can be tailored to the specific financial circumstances of a borrower. Many applicants that are weak in one financial area can compensate in another area. Some compensating factors could be down payment, long term employment, and professional licenses . NextHome offers career-specific options for Doctors, Nurses, Police & Fire, Teachers, Military & Veterans, Pharmacists & Dentists.

The turmoil in the mortgage loan industry has resulted in many changes including tightening credit standards for borrowers, revision of home loan underwriting standards and the elimination of many home loan tandem products. The mortgage markets are adjusting and consumer choices are also changing.

One example is 100% financing on home loans. In the past, many home loan programs achieved 100% financing by taking two mortgage loans on a home. The first loan would be for 75% to 80% of the purchase price and the second loan, also referred to as a “piggyback” loan was for the remaining 20% to 25% to achieve 100% financing. These types of home loan mortgage programs are no longer available. However, there are still mortgage loan programs to effectively finance the total purchase price of a home. 

FHA Loans are available through the Federal Housing Administration. With the Down Payment Assistance program, the seller of a home can contribute up to 3% of the purchase price and the remaining 97% if financed through the FHA at a competitive interest rate. 

My Community Mortgage is another possibility. The seller again can contribute 3% thru the use of a Down Payment Assistance program of the purchase price and a My Community Mortgage makes up the 97% balance. The loan interest rates for the My Community Mortgages are also very competitive with other mortgage loan products. 

NextHome Mortgage offers both FHA Loans and My Community Mortgages which can be designed with down payment assistance provided by the seller to effectively finance the home purchase.  Visit our home loan page to get more details.

The mortgage industry and banks in particular are reeling as a result of their inability to sell home loans they originated to investors. The concern centers on current economic conditions and declining property values in many markets. Consequently, the Federal National Mortgage Association (FNMA) has instituted specific guidelines to reduce credit and collateral risk to lenders.  

The term “Declining Market” is determined by appraisers and utilizes various data sources including national and local information. If a home is determined to be in a declining market, the maximum home loan amount that can be borrowed is reduced by 5% of the revised appraised value of the home. This simply means that a buyer must increase their mortgage down payment by 5%. The declining market rules are rather subjective, which means that declining markets can be defined within a city or suburb, or even a neighborhood.  

Both home sellers and home buyers should be aware of the ramifications of the declining market adjustment before an offer is made and accepted. An experienced mortgage lender familiar with the declining market underwriting process is essential for a home buyer before an offer is made. 

If your ability to purchase a home with a conventional loan is adversely affected by these changing conditions, NextHome Mortgage has a variety of home loans that can reduce the amount of money required as a down payment. Start your search by visiting our Mortgage Home Loan page.

Home buyers have a myriad of choices when considering which lender to choose for their mortgage. Choosing the right lender is a very important part of the home buying process and should be done very early on before you even seriously start looking at homes. There are many considerations to take into account when evaluating lenders and their importance will vary depending on individual borrowers’ needs. 

Important questions you should ask when looking at mortgage lenders include how long they have been in business, their Better Business Bureau record and the experience of the individual mortgage professional. The range of products offered provides you with valuable options when evaluating your specific needs. Banks may not necessarily be the best choice as they may not offer the variety of products a licensed mortgage broker can. In fact mortgage brokers originate the majority of home loans annually.  

Some questions should include the following: 

Do you offer fixed rate mortgages, variable and hybrid mortgages?A lender should be able explain the differences between your options and work with you to create a satisfactory solution.  

What types of fees do you charge?

Remember to request a Good Faith Estimate, which provides in writing detailed closing costs including fees and interest rate.  

Is there an origination fee being charged to obtain the quoted interest rate?

Some lenders may charge an origination fee that the borrower pays at closing. This fee may be used to provide a lower interest rate to the borrower. You should ask the lender what the interest rate is without an origination fee.  Are there Discount Points being charged to obtain the quoted interest rate? A discount point is a percentage of the loan amount paid by the borrower at closing. The lender may provide a lower interest rate by charging the borrower discount points. You should ask the lender what the interest rate is without paying any discount points. 

Are there any prepayment penalties that apply to this mortgage?  

Prepayment penalties occur when you pay down your mortgage faster than expected. The lender’s profit expected over the term of the mortgage is reduced if the borrower pays the loan off faster than the original term. 

Can I lock in at the interest rate you just quoted?

The lender may lock in a quoted for a specific period of time allowing you to shop for a home without the risk of your rate increasing. If your rate is locked, you will be able to negotiate from a position of strength with a seller.  

Ultimately, choosing the right lender is an integral part of the home buying process. By selecting a professional mortgage lender that has an understanding of your situation you will set the stage for a smooth transaction and a financial relationship that could potentially last for decades. Home buyers should approach the choice with careful consideration and do what is in their long-term best interests.  

With many adjustable rate mortgages (ARMs) approaching a reset date, and recent interest rate drops, many homeowners have begun to wonder if this is a good time to refinance their mortgage. The answer is not always clear, but answering a few questions will help point you in the right direction. 

1.       Why are you refinancing? 

Whether your goal is to lower monthly payments, consolidate debt, or borrow additional cash, you should consult with a mortgage professional who can calculate if refinancing will meet your needs.  This is a free service that consumers should take advantage of. 

2.       What is the current fixed interest rate versus your upcoming ARM reset interest rate? 

Conventional wisdom says that you should refinance when mortgage rates are 2% lower than the rate you are currently paying on your loan. Refinancing may still make sense if the difference is less than 2%, depending on your specific circumstances, including how long you intend to remain in your home, as well as other variables. Your mortgage professional can help you determine the best course by providing customized individual scenarios. In any event if current interest rates are lower than the rate you are paying, it is certainly worth looking into. 

3.       How long to you plan to stay in your home? 

There are generally fees charged by the lender to refinance a mortgage. In many cases these fees can be absorbed by a slightly higher interest rate when you refinance. If you chose to pay the fees up front and receive a lower interest rate, you should consider how long you intend to remain in your home. If you will not be in your home long enough to recoup that charge, it may not be worth refinancing. For example, if the bank charges a $2,000 fee to refinance and you save $100 per month in mortgage payments, you would need to stay in the home at least 20 months to recoup the cost. These factors are part of the analysis your mortgage lender can help you calculate if refinancing is in your best interest.

Mortgage interest rates are one of the most important elements a home buyer must be aware of when considering borrowing money for a home loan. . In simple terms, an interest rate is the annual percentage that the borrower is charged on the loan they obtain. Mortgage rates vary based on several factors including the cost of funds to the lender, type of mortgage, term of mortgage and the creditworthiness of the borrower. 

There are generally three types of mortgages: fixed rate mortgage, adjustable rate mortgages (ARM) and hybrid mortgages.

1)      Fixed rate mortgages– have a specific interest rate established at the beginning of the mortgage and the rate remains the same throughout the term of the mortgage.

2)      An Adjustable Rate Mortgage (ARM) has an interest rate that adjusts periodically, according to terms mutually agreed upon between the borrower and the lender at the time the loan is made. Adjustment periods may range from months to years. Many ARMs have rate caps so interest rates can only raise a maximum percentage.  Additionally there are floors which prevent rates from declining below a minimum percentage. The intent is to prevent severe fluctuations in rates and the corresponding monthly payments paid by the borrower.

3)      A hybrid mortgage has elements of both fixed and variable rate mortgages. The hybrid mortgage may begin with a fixed rate for a period of time, generally in years. At some point in the future, the rate may become variable. However a hybrid mortgage may begin with a variable rate for a period of time and the borrower has the option to “fix” the rate at some time in the future for the remainder of the mortgage term. 

Evaluating interest rates associated with different type of mortgage products can be a confusing and time consuming process.  We strongly recommend that you invest the time to educate yourself by researching your mortgage lender and selecting someone who will take the time to explain in detail the various mortgage rate options available.  Rate is one of several important factors when selecting a home mortgage.