Inside Loans

Insider's Guide To The Latest Home-Loan Opportunities

FHA Changes Mean Help For More Buyers

Recent changes to the Federal Housing Administration's (FHA) mortgage program will open FHA up to many more potential home buyers. Home buyers with an FHA-insured single-family home loan can now finance 100% of the closing costs on the loan. The new law repeals a rule which allowed home buyers to finance only 57% of the closing costs, which added hundreds of dollars to the up-front cash home buyers need for settlement. A second important change to FHA was raising the maximum loan amount in high-cost areas and linking the maximum to local housing costs. FHA's mortgage limit is now 95% of an area's median home price, or 75% of the maximum loan amount allowed by Fannie Mae and Freddie Mac, whichever is lower. Now borrowers will have to put down 3% of the first $25,000 of the loan amount; 5% of the loan amount between $25,001 and $125,000; and 10% of the loan amount above $125,000. These changes will interest higher-end buyers in FHA loans and make FHA more accessible to those whom the program is primarily intended to serve -- prospective buyers who do not qualify for conventional financing. additionally, FHA has served buyers who have lower incomes, make smaller down payments, and purchase less expensive homes.

More Good News For Loan Shoppers A new federal regulation mandates that mortgage brokers itemize all fees they receive to originate or close a loan. Prior to this legislation, brokers were allowed to lump miscellaneous charges and premiums into a general fees category, which made it nearly impossible to comparison-shop lender fees. The new law applies only to mortgage brokers, not mortgage bankers. Fees really do add up, so when loan shopping, ask up-front for an itemized breakdown of lender fees.

Mortgage Help For First-Time Buyers An exciting Federal National Mortgage Association (Fannie Mae) program may help open the door to home ownership for low- and moderate-income buyers. The Community Home Buyers Program allows for slightly more debt when qualifying for a loan than standard mortgage plans. It raises the percentage of the gross monthly income borrowers may spend on housing payments (mortgage, taxes, insurance, and condominium fees) to 33%, compared to 28% under standard mortgage plans. Total debt payments are increased to 38% under the program, up from 36% in standard mortgage plans. In addition, the Community Home Buyers Program waives the common requirement that borrowers have two months' worth of mortgage payments in savings after closing. There are special requirements to qualify: Borrowers must attend a series of home-buyer education classes and the borrower's income must not exceed 115% of the median income in the area. For more information: Fannie Mae, Public Information Office, 3900 Wisconsin Avenue, NW, Washington, DC 20016 or call (800) 732-6643.

Lenders Welcome Borrowers With Open Arms Affordable interest rates mean more people can qualify to buy a first home or move to a bigger house, and lenders are reaching out to make mortgages more attractive. Many lenders are sweetening the pot with low (or even no) closing costs. Also, the Federal Housing Administration has eased some of its restrictions and qualification requirements for FHA-backed loans. Recently, best buys have been 15-year and 30-year fixed-rate mortgages. In many cases, the rates for these loans have been just above adjustable rate mortgage initial rates, which are low for a short period of time, then rise with the market.

Computer Programs Rate Borrowers There's a relatively new twist in mortgage lending. Recently, lenders have started to replace additional underwriter's judgments on an applicant's creditworthiness with a computerized credit rating called "credit scoring." Both ways of assessing a potential borrower's ability to pay back the loan -- the underwriter's judgments and credit scoring -- rely on much the same information: salary history, credit history from credit reporting companies, ratio of debts-to-income, etc. But credit scoring uses a computer program designed to predict who will default on a loan. It assigns a numerical score to each factor and then adds them up. Credit scoring is objective and designed to uncover hidden problems. For this reason, credit-scoring programs may assign more importance to some factors that the underwriters might overlook.