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Ask The Realtor

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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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Jim E. Flynn
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