As printed in the OC Register / Saddleback Valley News
Written by Jim E. Flynn, Century 21 Beachside Realtors, Lake Mission
Viejo
Jan. 22, 2010
Several Rule Changes For Mortgage Loans
Q. David from Mission Viejo asked: I have heard that there have been several rule
changes for Mortgage loans so what is the first type of loan we should consider now?
A. Certainly the best loan is the one that fits your guidelines Dave, but generally
FHA loans are considered the foundation for the current market. Most FHA loans
offer the most flexible combination of down payment and credit requirements. With loan
limits as high as $729,750, the majority of transactions can be handled using FHA financing.
FHA purchase loan originations were the only sector of the market that grew last quarter.
However, it is always important to understanding the limitations. We always suggest working
with an expert who can help navigate you through the potholes in the road. So if you need a
loan with a low down payment but have a high –expense ratio FHA still does them.
Recently, private mortgage insurance tightened their guidelines significantly. In many
situations, like with a 705 FICO score or a 50% expense ratio, private mortgage insurance is
no longer available in CA--AT ALL. This means if we have a client/ borrower on the edge they
must either do 20% down conventional however, anyone in this situation can do a 3.5% down
FHA loan so, that is why currently, it is usually the best fit for most borrowers.
Doing an FHA loan, most borrowers get approved up to about a 55% expense ratio and
sometimes as high as 65%. This allows someone showing about $5,500 p/month income to
purchase a home for $440,000 home with only about $15,000 down. The seller can cover all
transaction costs, including prepaid expenses like taxes and interest paid in escrow.
Another possibility if your income is shallow you may be able to add a co-borrower's income
to help qualify. So, David, each loan situation is unique and requires a specialized
expertise. Please just carefully check out your chosen lender. Rates have been at about
5.25% for a 30 year fixed. 5/1 ARMs have been offering exceptional terms at around 4.375%.
Another bit of information you may already know is that a Tax Credit towards down
payments is probably no. FHA now allows the tax credit to be used towards closing costs, not
down payment. To do this, it requires a 3rd party to advance the funds into the transaction,
and then be reimbursed. Other states have stepped up to fill that role, but CA will not
likely be able to do that. Instead there are a couple of considerations to lower your
borrower contributions Consider these options to lower borrower contributions-- Get a seller
credit for closing costs. usually, 3.0% is adequate to absorb costs including prepaid
expenses or, have down payment funds gifted.
Equity Properties vs. Bank Owned
Q. Donna, from Lake Forest asked: Jim, are more properties coming on the market
that are not short sale or Bank owned that can bought without waiting four to six months.
A. Yes, Donna, there certainly is. My Broker Associate Partner Mike and I just listed
a nice lake View Condo that our Seller/Client can close Escrow on it 3 or 4 weeks.
We also will be listing one out of the area in La Jollla Village soon and it will be by an
Equity Seller. In the next few weeks you will see more and more of these listings and
it is a good time to find that special property if you do not want to play the waiting game
which often is disappointing.
Jim is an Award Winning Realtor with more than 30 years experience in Real Estate Sales
and currently with Century 21 Beachside in Mission Viejo.
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