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Finding a Home: Easy. Finding a Mortgage: Hard

You’ve heard it on the news, read the “price reduced” signs and seen the foreclosures lining the streets. With the market in distress and home prices dipping so low, one would think swooping in a buying a home would be an easy venture. Unfortunately, nothing could be farther from the truth. Shell-shocked by sub prime mortgages, today’s lenders are keeping the lid tight on their coffers and putting even the most qualified buyers through the ringer to qualify for a mortgage or to refinance.

“Financing has become the single most important factor for home buyers and sellers,” says owner of Palisades California based brokerage firm Amalfi Estates, Anthony Marguleas. “Lenders are changing their guidelines every day and making them more restrictive.” says Marguleas.

Several of Marguleas’s sellers had been preapproved for loans after a 10% down payment. As their closing dates approached, they were informed that the lending requirements had changed and approval would require 20-25% down. Marguleas now requires his clients to present a mortgage preapproval that is no more than a few weeks old. “If they show a preapproval from three months ago, it may no longer be valid.” he says. “If they show a preapproval from three months ago, it may no longer be valid.”

Steve Jacobson is the president of Fairway Independent Mortgage Corporation, a lender based in Madison, Wisconsin feels that perhaps brokers have gotten a bit spoiled from the previous market. “To me, it’s like it was back in the 1980s. When you sat with someone 20 years ago, you had to discuss four things: job stability, cash, credit and income. All four had to make sense for a loan to work.”

If you have a low credit score or are perhaps lacking in the assets department, do not fear. Weakness in one particular area of your application does not mean all hope is lost. The difference would merely have to be made up for in another area, perhaps with a higher down payment.

What do you need in the current market to get approved for the loan you desire?

A Solid Credit Score

What was that old saying?  “Cash is king?”  Well move over, cash. Meet the FICO score. As the real estate boom grew louder and louder, sub prime mortgages became more and more common. Stated-income loans (loans in which no proof of income is required) became commonplace. A.W. Pickel, President of LeaderOne Financial said, “A few years ago, you could get a 100% stated-income loan with a 640 FICO score.”

Such a thing is not the case anymore, which is bad news for people looking to buy stuff they can’t afford or for those folks who are on the cusp of buying that new house, but are edged out by tightening of lender purse strings. Vice President of mortgage research firm, HSH Associates says, “To be a successful borrower today at the best possible rate available, you have to have a FICO score of at least 700 or 720.”

Bruce Brown, president of First Security Mortgage Company points out that “Earlier this month, Fannie Mae issued a directive requiring lenders to adjust loan pricing by 0.5% to 2.75% of a loan’s value based on a borrower’s credit score. Those with scores of 720 or more can qualify for the cheapest rates and no fees. But with scores between 700 and 719, borrowers will have to pay an additional 0.5% of the borrowed amount in the form of a fee or a higher interest rate. That’s an added $1,000 fee on a $200,000 mortgage, or a rate increase that would be equivalent to that amount.  These cost adjustments are done in 20-point increments so if you jump your score by as little as 20 points, the cost savings are significant,” Brown says.

A Big Down Payment

The days of 100% financing are over. A down payment of 5 or 10%? Forget about it. Mortgage insurance providers no longer cover 100% financed loans. The same goes for about 95% of buyers with lower credit scores.   If you’re in the market for a condo, it could cost you even more.  Many mortgage firms require down payments of 20% or more with the additional requirement of bank statements confirming assets that will cover up to six months of mortgage payments.  “The combination of doubling the down payment and requiring reserves has pushed many people out of the market,” he says.

Get Your Paperwork Right

Where just a little over a year ago people walked away with 100% financing on stated income alone, things have gone in the complete opposite direction as of late.  Nowadays, even people with the best of credit scores are put under a microscope to verify their income, assets and other financials.  So when you take your paperwork to the lender, be sure to have all of your ducks in a row.  “Even people who were being treated like the kings and queens of credit before are now being treated like everybody else.” states Brown

Aftermath of Credit Collapse

With the market downturn in full swing and lenders scrambling to pick up the pieces, many changes can be expected in the coming months.  Below are just a few of the biggies buyers can expect to see.

No matter where you go, home values are in the basement and investors are more cautious than ever to fork over cash to banks.  As a result, appraisers feet are being held to the coals to make sure that appraisals are up to snuff.  “You’ve got people who are creditworthy and can get approved for a loan, but the investors may look at the appraisal and deny the loan or make the appraiser jump through a lot of hoops to justify it.”
Explains Bruce Brown.
For example, appraisers are required to show recent sales of comparable homes in the vicinity of the property over the past 12 months.  Recently however, that time period has been trimmed down to as little as 6 months which leads to what some might consider, insufficient data in less dense areas or where few similar homes are available for comparison.
Homebuyers can also expect hikes in fees as more banks are turning to third-party appraisers to make sure the appraised value is accurate.  “We’re seeing, in some cases, anywhere from $50,000 to $100,000 price adjustments,” he notes.  “A property that comes in appraised at $400,000 may come in, after review, at $300,000.”  Says Marve Stockert of Illonois Association of Mortgage Professionals.  With the cost of the review hitting upwards of $250, the cost is often passed off on the buyer as an additional fee.

Re-financing headaches

Many current homeowners are looking to take advantage of the low interest rates and refinance.  After all, if you’re not interested in buying a new home, why not pay less for the one you’ve got?  It sounds easy enough, even if you have never been delinquent on your loan.  It is becoming a common practice for second mortgage lenders to require homeowners to pay off their second mortgage before refinancing.  The reason?  Should a borrower default on their loan, the second mortgage lender gets paid only when the primary lender is paid what they are owed.  In many cases, this leaves secondary lenders empty handed when foreclosures and short sales occur. 

Return of the FHA loan

During the boom, FHA loans were largely ignored due to their low limits, strict appraisals and cumbersome paperwork.  Instead, most buyers went the easy route, that of the 100% subprime loans.  “They were more interested in moving fast and believed the hype out there that prices would keep rising forever and they could re-fi out of it,” says A.W. Pickel.

Presently, with subprime loans all but extinct and the Economic Stimulus Act of 2008 generating phantom cash from tax-payer/Chinese government coffers, FHA loan limits are reaching upwards of almost $730,000.  “Just for that reason alone you’ll see more people doing FHA financing” says Jacobson.  At his firm alone, there has been an 8% increase in buyers taking FHA financed loans.

It’s always something, right? Let’s just say that you found the perfect home for your family – it has the right amount of bedrooms/bathrooms, generous square footage, is in nice shape, newly updated, and even within your price range. You are psyched and ready to put down an offer, when the agent tactfully drops the bomb on you: part of the home (an extra bedroom, a sunroom, a garage conversion) was built without the legal permits some years ago, and the seller wants to sell the home in “as is” condition. What do you do? Is it an automatic deal-breaker if a home has unpermitted work done on it? Is there anything you can do to fix the situation? How can you be sure that the work was done well? Should you seek a discount from the seller?

Like so many other women my age, I love my Pinterest account. For the uninitiated, Pinterest is a sort of virtual bulletin board where members can accumulate and organize images, many of which are attached to links. Popular categories of pins include recipes, fashion inspiration, fantasy wedding details, and home décor and design. That last category accounts for the most pins on the whole site – over seventeen percent, says business-intelligent experts RJ Metrics. Pinterest users, which are eighty percent female, are using the service to plan both big and small home projects, ranging from redecorating a bedroom all the way to designing a mansion from the ground up.

Those who have ever lived with roommates can attest to the truth that life with other people can be a mixed blessing. On one hand, having roommates means help with the rent (or mortgage), and another person under the roof to leave a light on for you when you come home late. On the other, bringing in a roommate can mean some sticky conversations about money and bills, namely, how you will split them up. I recently read an article on this very subject on Bankrate.com, and feel that the advice was pertinent to anyone who is living in a roommate situation with another person or other people, and needs advice on how to confront the issue of sharing bills and rent.

African Americans have made significant gains in recent decades with regards to homeownership. And yet, tragically, the Great Recession is erasing those economic improvements. Experts say that the foreclosure crisis has made an especially devastating dent in racial progress, setting the clock back by years.

The Census Bureau announced this week that, in the first three months of 2012, the American homeownership rate hit a fifteen-year low. During the halcyon days of the housing bubble that preceded the current crash, Americans turned out in droves to buy houses. At one point in the Oughts, homeownership actually jumped up to almost seventy percent. All those gains have been lost, however, thanks to millions of foreclosures. Because of the combination of very low housing prices and low interest rates that have not yet bottomed out (thank the Federal Reserve), this has become a really good time to purchase a house. Unfortunately, because more people are not doing so, rents have been going up from coast to coast. What this seems to indicate is that there are probably lots of people out there renting a house, apartment, or condo who would like to buy a home.

Seminole County Chief Circuit Judge Alan Dickey is going to have a busy week come next Tuesday. For three days in a row, the judge will process three hundred straight foreclosure cases per day. If everyone shows up, he told the Orlando Sentinel, he will have a whopping thirty seconds per case. Dickey told the newspaper that he is disappointed with the Florida Legislature’s decision to stop paying retired judges to assist with the mounting backlog of judicial foreclosure cases. Dickey’ assistant says that many foreclosure cases that come across his desk are either dismissed or continued, making for quick work. She volunteered that, one day last October, Dickey processed one hundred twenty-five foreclosure cases per hour all day long.

Pop quiz time! You are an American retiree trying to decide where to buy a home in which to spend your golden years. Where, oh snowbird, do you fly? If you answered “south,” you would have gone with the answer that many seniors do. There’s a reason that retiring in Florida is such a cliché: the elderly love the warm weather and tend to flock down here in droves when they are done working and are ready to settle into a retirement nest. The heat is good for old bones that might be sensitive to cold, and the presence of lots of other elderly folks means that retirees and pretty much guaranteed a social life, housing/amenities/healthcare that is suited to their stage in life, and a living situation that will make them happy.

If you are now thinking or have ever thought about buying an investment property, signs are positive that 2012 could be your year to dive into the market. With home values having dropped by a lot, America’s median list price has also dropped. When you couple this fact that interest rates are currently lower than they have ever been historically, you start to realize that opportunity is a’ knocking for anyone wanting to buy a house, and especially if you would like to buy the home to rent out.

You may have heard of a home away from home, but what about a home inside of a home? Catering to the growing demand for houses large enough to accommodate members of the extended family, builders are tinkering with American home designs en masse. Throughout the Great Recession there has been an increasing trend towards so-called multi-generational households. Let’s face it: for many, living on one’s own is just not feasible in this day and age. Some of these families consist of baby boomers and their adult children, dubbed “boomerang kids” who have been hit hard by job losses during the economic crash who have returned to the next.

Have you been riding out the recession as one of untold thousands of “foreclosure squatters” living in a house you haven’t paid for, because you know the bank will take years to evict you? Better start packing those bags. According to CNN Money, the signing of the $26 million mortgage settlement could mean that the foreclosure process is going to pick up some serious steam, since banks will be following a stricter set of guidelines when it comes to repossessing homes. The nation’s biggest five mortgage lenders – Ally Financial, Bank of America, Citibank, JPMorgan Chase, and Wells Fargo – agreed to the settlement to finally close the chapter of the “robo-signing” scandal that rocked the housing market, through which these banks allowed employees to sign off on thousands of foreclosure documents a month with little verification.