(This commentary is by Tara-Nicholle Nelson, a Broker in San Francisco, CA. It was written as a real estate research piece for Trulia. It is well done and is accurate. The list of "hard hit states" at the bottom includes Florida. However, at this time, only Lee County qualifies. Obviously, the system is not fully fleshed out, as the Flagler County, FL areas of Palm Coast and Flagler Beach are experiencing short sales at an unprecedented rate - 60% of closings!)
In a mortgage market that changes as quickly as this one, today’s fact
is tomorrow’s fiction. For buyers, misinformation can be the difference
between qualifying for a home loan or not. Sellers and owners,
knowledge is foreclosure-preventing, smart decision-making power!
Without further ado, let’s correct some common mortgage misconceptions.
1. Myth: Buyers with bad credit can’t qualify for home loans.
Obviously, mortgage guidelines have tightened up, big time, since the
housing bubble burst, and they seem likely to tighten even further over
the long-term. But just this moment, they have relaxed a bit. In the
last couple of weeks, two of the nation’s largest lenders of FHA loans
announced that they’ve dropped the minimum
FICO score guideline from 620 (which allows for some credit imperfections) to 580, which is actually a fairly low score.
At
a FICO score of 620, buyers can qualify for FHA loans at many lenders
with only 3.5 percent down. With a score of 580, the lenders are looking
for more like 5 to 10 percent down – they want to see you put more of
your own skin in the game, and the higher down payment lowers the risk
that you’ll default. However, if your credit has taken a recessionary
hit, like that of so many Americans, this might create a glimmer of hope
that you’ll be able to take advantage of low prices and interest rates
without needing years of credit repair.
2. Myth: The Mortgage Interest Deduction isn’t long for this world.
Homeowners saved over $85 billion in 2008 by deducting their mortgage
interest on their income tax returns. A few months ago, the National
Commission on Fiscal Responsibility and Reform caused a massive wave of
fear to ripple throughout the world of real estate consumers and
professionals when they recommended
Mortgage Interest Deduction (MID) reform, which would dramatically reduce the size of the deduction.
Fact
is, the Commission made a sweeping set of deficit-busting
recommendations to Congress, a few of which are likely to be adopted.
Fortunately for buyers and sellers, MID reform is not one of them. Very
powerful industry groups and economists have been working with Congress
to plead the case that MID reform any time in the near future would
only handicap the housing recovery. Congress-folk aren’t interested in
stopping the stabilization of the real estate market. As such, the MID
is nearly universally thought of as safe – even by those who disagree
that it should be.
3. Myth: It’s just a matter of time before loan guidelines loosen up. The US Treasury Department recently recommended the
elimination of mortgage industry giants Fannie Mae and Freddie Mac.
I won’t get into the eye-glazing details of it here, but the long and
the short is that (a) this is highly likely to happen, and (b) it will
make mortgage loans much harder and costlier to get, for both buyers and
homeowners. It’s possible that loans are as easy to get as they’re
going to get. So don’t expect that if you hold out, zero-down mortgages
will come back into vogue anytime soon. Fortunately, Fannie and Freddie
aren't likely to disappear for another 5-7 years, so you have a little
time to pull your down payment and credit together. If you want to get
into the market, the time to get yourself ready is now!
4. Myth: If you don’t have equity, you can’t refi. Much
ado is being made about how stuck so many people are in their bad
loans, because they don’t have the equity to refinance their way out of
them. If you’re severely upside down (meaning you own much, much more
than your home is worth), stuck may be the situation. But there are
actually a couple of ways homeowners can refi their underwater home
loans. If your loan is held by Fannie or Freddie (which you can find
out,
here),
they will actually refinance it up to 125% of its current value,
assuming you otherwise qualify for the loan. That means, if your home
is worth $100,000, you could refinance a loan up to $125,000, despite
the fact that your home can’t secure the full amount of the loan.
If
your loan is not owned by Fannie or Freddie, you might be a candidate
for the FHA “Short Refi” program. While most mortgage workout plans are
only available to people who are behind on their loans, the Short Refi
program is only available to homeowners who are current on their
mortgages and need to refinance up to 115 percent of their homes’
value. So, if you owe $250,000 on your home, you can refinance via an
FHA Short Refi even if your home’s value is as low as $217,000. If you
think you’re a good candidate for a short refi, contact your mortgage
broker, stat – there are some in Congress who think that this program is
so underutilized (only 245 applications have been submitted since it
rolled out in September – no typo!) that its funding should be diverted
to other needy programs.
5. Myth: If
you’ve lost your job and can’t make your mortgage payment, you might as
well mail your keys in. Until recently, this was essentially true –
virtually every loan modification and refinancing opportunity required
that your economic hardship be over before you could qualify. And
documenting income has always been high on the requirements checklist.
But there are some new funds available in the states with the hardest
hit housing and job markets, which have been designated specifically for
out-of-work homeowners.
The US Treasury Department’s
Hardest Hit Fund
allocated $7.6 billion to the states listed below – all of which are
now using some portion of these funds to offer up to $3,000 per month
for up to 36 months in mortgage payment assistance to help unemployed
homeowners avoid foreclosure. Contact the state agency listed below if
you need this sort of help:
Over the last seven weeks, rates have increased over 1/2 a point going from 4.17 to 4.86. Looking at the attached chart shows this increase. Waiting for prices to bottom out seems to make perfect sense. Yet, at a time when rates are increasing, it might NOT make sense. Make sure you have a mortgage professional help you with this math before making a decision.
