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.

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.

Selling a home has been relatively easy in prior years. The challenge typically was finding a new home to buy. Many sellers refused to sell their existing home until they found a replacement.

Buying first worked well for many sellers in years past as the risk of owning two homes for a long period of time was relatively low.

Now there is substantial evidence suggesting that the real estate market is slowing with supply now exceeding demand. If so, is it still a good idea to buy before selling?

First, consider the alternatives. If you buy first, you will know where you’re moving, what it will cost and when you can move. Families with small children often find it easier to market their old home after they have moved out. Their home can then be prepared for sale and kept that way with little, if any, effort.

The downside to this approach is that it’s expensive. You must come up with cash for a down payment and closing costs before your home is sold. Many homeowners do not have the extra cash in savings to accomplish this. Some homeowners may tap into their home equity before selling by using an equity line of credit.

House Hunting Tip: In a changing market, it’s wise to factor in a longer marketing period for the home you’ll be selling. You could get lucky and sell quickly. However, in a soft market, it usually takes longer for homes to sell. It’s far better to err on the conservative side than to be caught short of cash making mortgage payments on two homes.

The biggest risk you face in buying before selling is that your home doesn’t sell in the desired time frame and the market worsens. In this case, you could be forced to reduce your list price in an attempt to speed up the selling process.

An option may be to rent your old home until the market improves. But, keep in mind that to take advantage of the federal capital gains tax exemption on the sale of a primary residence (a $250,000 exemption for single sellers and $500,000 for married sellers who file jointly), you need to have occupied the property for two of the last five years.

Homeowners who can’t qualify to buy before selling, or who don’t want the anxiety of owning two homes, have other options. The most appealing is to buy the new home contingent on the sale of your home. Unfortunately, sellers of the most desirable homes usually don’t look favorably on contingent sale offers. A local real estate agent will be able to tell you if contingent sale offers are a viable option in your area.

If not, consider selling your home with an option to rent it back from the new owners for a time after closing. This will give you extra time to find a home to buy if you haven’t found one by the time your sale closes.

Typically the seller’s rent covers the buyer’s costs of ownership during the rent back period. This may be more than you paid to own your home, particularly if your home has appreciated substantially and the buyer is taking out a large mortgage.

The Closing: Renting your home back from the buyer after closing is done for convenience sake. If you want to pay cheaper rent, you can always move to a temporary rental until you find your dream home.