July 29, 2010 (FreeRateUpdate.com) – FHA mortgages are loans that are insured by the Federal Housing Administration and were designed to help borrowers who do not meet the strict guidelines of conventional loans. Required down payments for FHA mortgages are lower, as well as the interest rates, making them very desirable especially for first time home buyers. Although the easiest of all loans, borrowers still must consider the guidelines when qualifying for an FHA mortgage.

Income-Borrowers must demonstrate a steady employment history with at least 2 years at the same employer. Income must be steady or increasing over the 2 year period. If there is a change of employment, it must be in the same line of business.-In order to verify employment and income, the lender will require 2 years of W2′s, pay stubs covering the most recent 30 days which show year to date income and tax returns. In addition, the lender will also get a verbal verification of employment.

Credit

-A borrower’s credit must be in good standing with less than two 30 day late payments within the last 2 years. Currently, the desired credit score is 620 with a minimum credit score of 580.

-Credit will be considered for a Chapter 13 bankruptcy after one year and after 2 years for a Chapter 7 bankruptcy. In both cases, good credit must have been established after the date of the bankruptcy. Many times, the lender will also require a copy of the bankruptcy discharge papers.

-If a borrower has a foreclosure on their credit, the foreclosure must be at least 3 years old with good credit established after the foreclosure.

-Any civilian judgments must be paid off prior to closing. If there is a delinquency on any federal debts such as taxes and student loans, the borrower will be disqualified for an FHA loan.

-Proof of residency history is also required or canceled rent checks for 1 to 2 years, depending on the lender and the loan application.

-If alimony and/or child support is be paid out by the borrower, this will be included in debt ratios and will need to be documented with legal, court reported papers.

Assets

-Borrowers must have evidence of sufficient funds to close on an FHA mortgage. In order to verify assets, lenders require 2 months of the most recent bank statements or a verification of deposit and a 30 day most recent bank statement. In addition, any 401k or pension statements and investment statements will be required.

-Any financial gifts that are being used for the down payment or to qualify for the mortgage will also have to be documented by the donor.

Additional Information

-Alimony, child support and disability will all need to be documented. If these are used as additional sources of income, there must be proof that this income will continue for at least 3 years.

-Borrowers must have a valid driver’s license or identification, social security card, green card or work permit. Any expired identifications will not be accepted.

-To qualify for an FHA mortgage, a borrower must have a minimum down payment of 3.5%. There are also qualifying ratios to consider. The total monthly debt which includes the mortgage payment, credit cards, auto loans, student loans, etc. must not exceed 43% of the total monthly income. The PITI (principal, interest, taxes, insurance) cannot exceed 33% of the total monthly income.

Many FHA mortgages are approved with automatic underwriting, but all FHA files are examined by an FHA underwriter who may request additional information and documentation depending on the integrity of the file. Because of this, many FHA mortgages are approved by the FHA underwriter as they consider various compensating factors. As a rule, there are no longer any documentation waivers with credit scores under 700.  Borrowers must be aware that, in many case, lenders have their own additional requirements of documentation.

Although it may look as though it is difficult to qualify for an FHA loan, it is not. The most difficult part is having all of the required documentation ready and in order when applying for an FHA mortgage. For the borrower, being honest, upfront and proactive with documentation during the application process will simplify qualifying for an FHA mortgage and result in a quicker closing.

July 28, 2010 (FreeRateUpdate.com) – Not so long ago, during the height of the housing boom, roughly 40% of all new mortgages originated were stated income or low doc loans. Then came the financial crisis and the housing crash in 2007 during which time 39% of the sub prime mortgages, which included stated income and low doc loans, defaulted. With thousands and thousands of loans defaulting, lenders quickly discontinued their stated income mortgage programs indefinitely. That is until this year. It is fair to say that stated income (liar loans) loans are still available for some, but not for all.

The stated income loan is a mortgage in which the lender does not verify a borrower’s income with actual pay stubs, tax returns and W2′s.  In many cases, assets are also stated and not verified. Originally, these loans were intended for small business owners and self employed individuals who may have had a difficult time documenting their income over a two year period. They also became popular amongst borrowers with questionable credit histories who had entered the sub prime arena and for investors who did not want to give out their financial information when all they wanted to do was flip the house they were purchasing.  For other borrowers, using a stated income loan was a way to buy a home that they could not qualify for under normal conventional loan terms. As for income, borrowers were simply asked to state their income on their application to the lender although some stated income loans did require a verification of employment or a certification of business.

After the housing crisis, studies showed that most borrowers exaggerated their income by an average of 15% to 19% with some even higher. Thus, the stated income loan inevitably was now labeled the liar loan.

When housing collapsed, most lenders quickly stopped all stated income loan programs. Although there were still some hanging around, as of February, 2010 only 8% of all loans originated were stated income loans. Even today, stated income loans (liar loans) are still available but there is definitely a price to pay for them. They are quietly being offered by smaller community banks and lenders who are keeping them in their own portfolios.

Unlike the past, these loans are not easy to obtain and come with a price.

So who is eligible to be approved for the current stated income loans? Qualifications for stated income loans are credit scores that can be as low as 660 to as high as 720 with down payments from 30% up to 60%, depending on the lender.

Naturally, these loans present a higher risk to lenders and, therefore, carry a higher interest rate than the majority of loans on the market. These are not  your typical requirements that any loan shopping consumer can easily meet.

Yes, stated income (liar loans) are still available for some, but with these stipulations and conditions, a very select few or the wealthiest of borrowers will be the only customers applying and getting approved for this type of loan.

July, 27 2010 (FreeRateUpdate.com) – Finally, things for the mortgage industry are starting to change. As historically low mortgage interest rates have been recently seen in the low to middle priced housing market, the jumbo mortgage is also making a come back. This is a positive sign for those who are shopping for higher priced homes and those that are in need of refinancing. With jumbo mortgage rates at record lows, the jumbo market is thawing.

Jumbo mortgages are those loans that are too large for government assistance through Fannie Mae, Freddie Mac and the FHA which is available for mortgages that don’t exceed $417,000 and $729,750 in more expensive areas of the country. After the financial crisis hit, the jumbo mortgage market basically froze and came to a halt. With the absence of a secondary market and housing prices continuing to drop, lenders had to keep these existing jumbo mortgages on their balance sheets and became unwilling to add any additional risky, jumbo loans to their portfolio which left high end buyers locked out of the market. It literally crippled the jumbo mortgage market for high end home purchases and refinances.

As banks have begun to recover and have more capital on hand, they are now more willing to return to the jumbo mortgage market, although at a cautious pace since the secondary market has not yet returned. As the jumbo mortgage market tends to be more varied, so do the interest rates and terms vary widely. All of this is great news for upscale home shoppers, those who want to refinance and those who want to upgrade to larger homes.

Although the banks are beginning to lend and jumbo mortgage rates are at record lows, lenders are still being very cautious and using tight standards for qualifying. Those applying will need to fully document income and assets for the past several years. Although required credit scores will vary, the average score needs to be at least 720. As far as debt ratios are concerned, monthly mortgage payments must require no more than 36% to 38% of pretax income. Debt payments, including auto loans and credit card payments, cannot take up more than 41% of pretax income. For purchases, the down payment depends on the amount of the loan with some as low as 20% and some as high as 40% down payment.

For anyone who qualifies, the current jumbo mortgage rates are very competitive. Borrowers who are shopping for an adjustable rate can choose from the 5/1 ARM at 3.625%, 7/1 ARM at 4.50% and the 10/1 ARM at 4.90%. For a fixed rate jumbo mortgage, the 15 year fixed is 4.50% and the 30 year fixed is 5.125%. Since these rates vary from lender to lender, borrowers need to shop around. While the short term borrower may opt for the adjustable rate mortgage, the long term borrower might find the fixed rate more attractive since rates are so low and have no where to go but up. The rate spread between the conforming mortgage and the jumbo mortgage has narrowed down to less than a percentage point.

With no secondary market, the jumbo market has not yet completely melted. With jumbo mortgage rates at record lows and the jumbo market thawing, it is wise to remember that it is limited to the amount that the banks are willing and able to keep on their own balance sheets until the return of private outside funding.

July 26, 2010 (FreeRateUpdate.com) – FHA mortgage rates for the most part continue to mirror conforming mortgage interest rates. Today’s FHA 30-year fixed loan rate remains at 4.25% for well-qualified borrowers paying a standard .07 to 1 point origination. Although FHA mortgage rates are at the same level as conforming rates, FHA loan fees including MI make closing costs and APR higher, even at the same origination fee. The minimum down-payment required for most FHA purchase loans remains at 3.5%.

Today’s conforming 30-year fixed-rate is unchanged at 4.25%. Today’s conventional 15-yr fixed rate is 3.625%. Both conventional fixed mortgage rates are at all-time record lows.

Today’s jumbo 30-year fixed-rate is 5.125%, also unchanged.

Wells Fargo continues to advertise a conforming 30-year fixed-rate of 4.5% with an APR of 4.686 on their website.

FreeRateUpdate.com researches over two dozen wholesale mortgage lenders’ rate sheets for brokers to determine the most accurate mortgage rates daily.

July 26, 2010 (FreeRateUpdate.com) – The last time mortgage rates were as low as they are today was in the mid- 1950s, although back then, a long term mortgage rate was 20 or 25 years, rather than today’s typical 30 year fixed rate. A decade ago, most experts would not have believed that rates would ever drop this low. But then a decade ago, experts never thought they would lack for customers as they do today.

Fast forward to 2005 – 2007, the peak of the housing boom. Rates were higher than today’s rates and buyers and refinancers were everywhere. Lending activity in the summer of 2005 was approximately 30% higher than today, despite homeowners and refinancers having to pay almost a full percentage point more than required today. But lending standards were lax. It was not difficult to get a loan, even for people who did not have much of a down payment or not not-so-great credit.

So what happened? The housing bust, that’s what. Millions of people have been slammed by the housing collapse leaving them with insufficient funds for a down payment, little or no home equity, lack of credit and/or steady income required to get or refinance a mortgage in today’s market.

Let’s start with the fact that lending standards were far too lax during the boom. Most experts did not believe that a housing bust would ever occur. But the housing bust did occur; dropping home values and depleting home equity for at least 25% of the American homeowner population. The result: many borrowers with good credit and solid jobs have been rejected when they try to refinance because their homes are worth less than what they owe on their mortgage.

We are in the middle of a financial crisis. Unemployment is high. People who bought during the housing boom with little down payment and not-so-great credit who have since lost their jobs or had to take a pay cut are now under water. Many are behind on their payments and many have had to foreclose on their homes. The result: Mortgage lending standards have made a 180 degree turn. People who do not have stellar credit don’t qualify. Neither do people who do not have stable jobs. And, many people lack the higher down payments now required to buy or the home equity required to refinance in today’s housing market. The fear of risk is climbing to a record high. Dropping home sales and dropping home values have resulted in home buyers and homeowners becoming cautious about borrowing and bankers becoming equally cautious about lending.

In addition to stricter lending policies, the tax credit that was helping to lift home sales ended a few months ago, on April 30, resulting in even fewer people trying to buy homes. Applications in June were down 30% from those in April.

Another issue is that for the past approximately two years, many people have been able to get mortgage rates under 5% at several points over. For homeowners falling into this category, rates would need to drop to 4% for it to be financially worthwhile for them to refinance. Having to spend thousands to refinance now would not save them money.

Want to know more about mortgage rates, refinancing or want to get a quote? Visit us at FreeRateUpdate.com.

July 26, 2010 (FreeRateUpdate.com) – With FHA implementing new rules regarding appraisals, there is considerable discussion on how these rules are affecting appraisers and consumers. These new rules were set up in order to cut down on fraud while, at the same time, raising the quality of the appraisal. The impact that the new appraisal system is having on the FHA mortgage market depends on which group is discussing these changes.

While FHA has always prohibited any appraisal reports to be completed by an appraiser selected by a real estate agent, it was not the case with lenders. With the new appraisal system, the appraiser must have complete independence from the lender. FHA approved lenders can no longer accept appraisals that are received from an appraiser that was selected, retained or compensated by a mortgage broker or a lender’s staff that is compensated by a commission that is attached to the completion of the loan. In addition, no member of the lender’s loan production staff or persons compensated on a commission basis, is allowed communication with an appraiser if it relates to or has an impact on the valuation of the appraisal. This includes ordering of the appraisal or providing the appraiser with information that will affect the value of the property stated by the appraiser. Only the DE certified underwriter is allowed to request clarifications from an appraiser or discuss any parts of the appraisal that affect quality.

This new rule has created a new middle man, the Appraisal Management Company. With FHA’s new appraisal rules, appraisers must be experienced and qualified through training and actual field experience in a particular market area and must certify to these facts. At the same time, AMCs are not regulated and so the quality of the appraisal can be questioned. Many lenders have already used AMCs which are their own subsidiaries while brokers now have to use an outside, independent appraisal management company to complete appraisals that are in compliance with the FHA.

The biggest impact of these new rules is with appraisers who are now collecting smaller fees. Smaller appraisal companies are going out of business due to the bigger appraisal management companies. Although FHA mortgage borrowers are paying more for this service, they are also finding out the real value of the property they are buying as lenders can no longer communicate with the appraiser. Consequently, there is an increase in wait time for the appraisal which translates to a later closing date. Despite these things, the impact the new appraisal system is having on the FHA mortgage market is yet to be seen as the FHA mortgage business continues to boom.

July 23, 2010 (FreeRateUpdate.com) – 30 year fixed mortgage rates remain at 4.25% for well-qualified borrowers paying a standard .07 to 1 point origination. 15-year fixed mortgage rates, driven by the same mortgage-backed securities prices as the 30-year rate, are unchanged at 3.625, both record lows. MBS prices are up today +3/32, negating yesterday’s slippage. Both conventional fixed mortgage rates are at all-time record lows. The same goes for the FHA 30-year fixed loan rate, which is steady also at 4.25%. Despite 30-year fixed FHA mortgages being available at the same note rate and origination as conforming mortgages, APR and closing costs are higher because of MI and other FHA fees.

30-year fixed jumbo mortgage rates, down from last week, remain at a record lows. Today’s jumbo 30-year fixed rate is 5.125%.

Wells Fargo continues to advertise a 30-year conventional fixed-rate of 4.5%, with an APR of 4.686%.

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July 23, 2010 (FreeRateUpdate.com) – Although the mortgage industry is far from being fully recovered, mortgage lending reached a 6 month high during the month of June, 2010. At the same time, the nation’s biggest banks, Wells Fargo, Bank of America and JP Morgan Chase have been the big winners by grabbing over 50% of the loan market and originating the vast majority of the market share. This has, in turn, created a powerful market concentration with tremendous pricing power.

At the same time when breaking the big banks apart was being considered, most regulatory and statutory decisions that were made over the past two years were done in favor of the big banks. Infused with taxpayer capital and takeovers of other failing large institutions, these banks became bigger. Taking over other institutions increased their real estate and presence in communities throughout the nation thereby squeezing out the smaller banks and luring in their customers. They are now able to offer aggressive, competitive and lower mortgage rates than the smaller players due to their lower fund costs. Despite big banks ability to lend at lower rates, most have opted to give out higher rates for bigger profits. As banks reined in their wholesale lending, mortgage brokers were affected and many closed their doors. Increased regulation and licensing for mortgage brokers is keeping this part of the mortgage industry subdued while giving increased business to the big banks.

Servicing mortgage loans also helped to create these big banks. Bank of America became the top loan servicer after taking over Countrywide with Wells Fargo in second place and JP Morgan Chase in third place. While these banks enjoy guaranteed servicing and processing fees, many of these loans being serviced were also modified which ultimately added to their growth.

The latest financial overhaul legislation does not include any halt of the market power and market concentration that the biggest banks currently have. Financial reform includes the return to plain, old fashioned, qualified loans that are easy to be bought and sold on the secondary market. Although not as profitable as sub-prime loans, these old fashioned loans will dominate the mortgage market in the future. By originating these loans and making money in volume and quantity, the big banks will dominate the mortgage industry more than they do today. Concentration of the mortgage industry will lead to fewer players and will lie in the hands of the biggest lenders. Right now, big banks are originating the vast majority of the market share and will continue to do so in the future.

July 22, 2010 (FreeRateUpdate.com) – When applying for a mortgage, most people will hear the terms Conventional mortgage and FHA mortgage, but many will not know the difference between these two types of mortgages. Understanding the basic differences between a Conventional mortgage and an FHA mortgage will help a borrower determine which one is the right one for them. Both types of loans are used to purchase a home or refinance an existing mortgage. Recently, many things have changed in the mortgage industry for all types of loans, but the basic differences remain the same.

A Conventional mortgage includes all loans that are not insured by a government agency. They can be either conforming or non-conforming loans. Conforming conventional loans follow the guidelines and qualifications of Fannie Mae and Freddie Mac while non-conforming loans, such as Jumbo Loans, do not follow the same rules.

FHA (Federal Housing Administration) is a federal government agency that was created to make affordable housing available to low and average income borrowers. They insure private mortgage loans issued for new and existing housing. By insuring these loans, banks are guaranteed repayment if a borrower happens to default. For this reason, FHA mortgages are highly desirable by banks.

Credit

Credit qualifying for an FHA mortgages is not as strict which is why it is widely used. FHA allows a borrower with a few credit issues or no credit history to purchase a home as long as they can provide documentation to support these compensating factors. Conventional mortgages are more rigid when it comes to credit worthiness and requires a higher credit score. While both FHA and Conventional Loans have the same interest rates, conventional loan interest rates can increase depending upon the credit score. The lower the credit score translates into a higher interest rate.

Down Payment

FHA currently requires 3.5% down payment while Conventional mortgages require a 20% down payment with no mortgage insurance. For a Conventional mortgage, a borrower must put at least a 5% down payment. This down payment must come from their own verifiable funds. The borrower will then carry mortgage insurance for the remaining 15%. On the other hand, FHA will allow the entire down payment to be a gift from a family member, a government agency or a non-profit organization. They will also allow the seller to pay part of the closing cost. This is why many state grants and state bonds are used together with FHA Loans.

Mortgage Insurance

FHA mortgage insurance is built into their system while a conventional loan has a separate process for private mortgage insurance which is paid monthly and for which a borrower must be approved separate from the loan approval. FHA charges an annual renewal mortgage insurance premium which is paid monthly. They also charge an upfront mortgage insurance premium when the loan closes.

Appraisals

Appraisals for FHA mortgages and Conventional mortgages are similar in that they are both an opinion of value that represents the market value at the time. Their differences are that an FHA appraisal is more detailed and has additional required forms to be completed by the FHA approved appraiser. As a protection for the borrower’s health and safety, the FHA appraiser will look for things such as broken windows, peeling paint, code violations, smoke detectors and the condition of the roof. Environmental contaminants and hazards can disqualify a home from the FHA program. This is why FHA requires that appraisers must be FHA approved by them.

Today’s mortgages are quite different than what was available several years ago. Economic factors continue to change the fundamentals of the mortgage and real estate markets. What was true and in effect yesterday may not be true for today. For that reason, interest rates, minimum credit scores, down payment requirements and guidelines for both Conventional mortgages and FHA mortgages need to be checked regularly for updated information.

Proceed to the following link for more information on Proposed FHA changes