Buying a home has been tougher due to the mortgage crisis and the resulting credit crunch. This article describes some of the consequences of the crisis including the discontinuance and temporary appearance of some loans.The severe losses suffered by Government Sponsored Enterprises (GSE's), Wall Street firms, and other investors across the U.S. resulted in credit tightening and the disappearance of the loan products that caused these losses. The foremost of these loan types was the high-risk, 100% CLTV 2nd mortgages on investment properties, most of which were transacted with Stated Income and Stated Income Stated Asset (SISA) documentation. This type of loan started disappearing two to two and a half years ago with credit tightening or discontinuance occurring rapidly. Additional high-risk loan programs that caused much damage were the Owner Occupied SISA and No Doc loans. Such mortgages are no longer available from most mortgage lenders.
The struggle to correct the plight of high losses was so severe that maximum loan-to-value (LTV) percentages were decreased for conforming full-documentation mortgages for houses located in declining markets (areas where home values have decreased). The reduction was instituted to ameliorate default rates, and is expected to be lifted by the end of June 2008 under certain circumstances.
FHA-insured mortgages and conventional/conforming loans (non-governmental loans equal to or less than $417,000) and have been popular thus far in 2008. Both types of loans can be obtained by borrowers with low credit scores, but FHA mortgages may not be available if the borrower has a credit score below 580. However, a slightly lower down payment (higher LTV) is possible with FHA mortgages.
Here are three new (and temporary) mortgage programs:
FHASecure - this is a refinance loan insured by the Federal Housing Administration and is available for homeowners with a non-FHA adjustable rate mortgage (ARM). Originally intended for people who had defaulted on their ARM, or would likely default when the rate reset, it is now available to a wider demographic.
FHA High Balance - HUD (the U.S. Department of Housing and Urban Development) has established limits for its FHA-insured loans that vary by county. It has temporarily increased the allowable size of the loans that it insures. These higher balance loans may actually have better rates than smaller FHA loans.
Agency/Conforming Jumbos - Mortgages greater than $417,000 are considered "Jumbo" loans. Loans for amounts equal to or smaller than this are called "Conforming" loans and have different guidelines than Jumbo loans that must be met in order to qualify for the loan. Agency/Conforming loans are mortgages starting at $417,001 that can go up to $729,750 and that qualify under the regular Fannie Mae and Freddie Mac conforming loan guidelines -- with some additional underwriting restrictions. As with FHA High Balance loans, the actual maximum loan amount is determined by the HUD county limits is valid only for 1-unit purchases (i.e., the maximum does not apply to duplexes).
Look up HUD's loan limits by county at: https://entp.hud.gov/idapp/html/hicostlook.cfm
If you're buying a home and want a Jumbo Loan or High Balance FHA loan, visit Direct Mortgage.
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