Tuesday, April 30, 2013

How the New Mortgage Eligibility Requirements Affect You...


 
I am proud to present the article below that has been written specifically for Mortgage Notion by guest blogger ANGIE PICARDO with NerdWallet.  I appreciate her contribution...
 
Now that the housing market has bottomed out, many lenders are easing borrowing restrictions in order to get more people into homes. There are several programs that the federal government initiated in order to facilitate qualifying more people for mortgages, including the Making Home Affordable Program (MHA). Additionally, banks and credit unions are working with borrowers to make it possible for a larger number of people to qualify for mortgages.

New borrowers are, of course, seeing challenges in securing a home in the first place. Even though there are many houses available and reasonably affordable—especially in distressed markets—borrowers still must secure a loan before they can move forward. To this end, lenders are being more lax about borrowers’ credit history or down payments.

One way that new borrowers are able to afford homes is via “Piggyback loans,” which is the practice of taking out two mortgages at once in order to avoid paying for private mortgage insurance. Some lenders are offering 100% financing with no down payment at all, which makes it possible, for example, for young people who have been paying off student loans to get into a home sooner than if they had needed to save up 20% or more for a down payment.

In general, lenders are showing that they are willing to make exceptions for borrowers when the borrower has at least one thing going for them. Although a borrower may have a low credit score, if she or he can offer a large down payment, the credit score could be overlooked. Inversely, if the borrower has a great credit score but a small down payment, banks are willing to work with that as well. Even though banks are making exceptions, they are not handing out loans left and right; they are giving loans to people who will actually be able to maintain their monthly payments, but who would not have been able to get through the process of making a large down payment, etc.

Credit unions, in particular have been willing to offer good deals to new borrowers because the credit union is then able to keep the loan in their own portfolio. Some credit unions have been offering 100% financing with a slightly higher interest rate. As to traditional banks, most are offering up to 95% financing in certain regions, provided that the borrower has mortgage insurance.

People who have existing mortgages but who are underwater or who have lost equity in their homes are able to get relief from a variety of programs under the Making Homes Available service, which was brought forth by the Obama Administration in order to help homeowners avoid foreclosures and stabilize the country’s housing market. One popular piece of MHA is the Home Affordable Refinance Program (HARP).

HARP is a way for people who make timely payments, but who have very little home equity, to refinance at rates that may be lower. It is a program for homeowners who have been unable to refinance because the value of their home has declined so significantly. To qualify for HARP, borrowers must have a mortgage backed by Fannie Mae or Freddie Mac and the mortgage needs to have a securitization date before 1 June 2009.

HARP has no loan-to-value upper limit, so even people far underwater on their mortgage can benefit from it. One of its main benefits is that if a borrower refinances under HARP, he or she does not have to pay mortgage insurance. Yet, if a borrow already has mortgage insurance prior to refinancing through HARP, then their mortgage insurance carries over to the new loan.

In most cities the conforming loan limit for HARP is $417,000, but in some cities it may be higher. Borrowers can look up the conforming loan limit for their cities readily online. Finally, to qualify for HARP borrowers do not have to be fully employed for HARP and there is no minimum credit score.

The Making Home Affordable Program has a number of other programs that can help people with existing mortgages, including the Home Affordable Modification Program, the Second Lien Modification Program, the Home Affordable Unemployment Program, and the Home Affordable Foreclosure Alternatives Program. Help from these programs is free as the programs are all government-sponsored.

The Federal Government, banks, and credit unions are all working to make sure that more people can get and keep their homes. Research to see if you qualify for these easements.

Angie Picardo is a writer at NerdWallet, a site with a mission to increase financial literacy on topics ranging from mortgage eligibility to selecting New Orleans Airport Parking.


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