The upheaval in the credit industry is resulting in changing qualifications in the mortgage market. While each lender has different qualifying guidelines, here is an outline of some changes we are experiencing.
The biggest change we have seen in the last week is a rise in interest rates because the government agencies, Freddie Mac and Fannie Mae have changed their fee policy.
In the past, their fees have typically been rolled into the interest rate and paid over time by the homeowner. With the credit crunch, they now want their fees upfront. Usually, clients have not wanted to buy down their interest rates through upfront payments called “points,” however, that thinking may want to be reexamined by a home purchaser.
A “point” is 1 percent of the loan amount paid upfront by the borrower. For example, 1 point on a $100,000 loan would be $1,000. The difference today is in the “spread.” This is the difference in the interest rate by paying a “point.”
For example, a conventional loan with no points may be priced at a 6.875 interest rate; however, if you were to pay one “point,” your interest rate would be reduced to 6.375 percent. The “spread” would be .5 percent, which is equal to the difference between 6.875 percent and the reduced interest rate of 6.375 percent that could be obtained by paying a “point.”
Today, in the Rim Country, the minimum down payment for a conventional loan on a primary residence is 10 percent. This is a far cry from 0 percent down loans we saw in the recent past. The maximum amount allowed for a conforming loan (non-jumbo) is $417,000.
FHA loans are available with a minimum of 3 percent down. This will increase to 3.5 percent next year. The maximum loan amount currently is $325,000 in Gila County and is subject to change. FHA mortgages are helpful for first-time homebuyers and those who do not have the required down payment for a conventional loan, however, an FHA loan may expose you to more costs than a conventional loan.
One of the biggest hits we have seen that greatly affects our market is the mortgage requirements for secondary or vacation homes. A far cry from the 0 percent downs of the recent past, the minimum down payment is now 20 percent. You may qualify for 15 percent down if your FICO (credit score) is above 680.
The above are general guidelines for today’s mortgage market, however, different lenders may have different policies and requirements.