If your loan is owned by either Fannie Mae or Freddie Mac, you will now be allowed to refinance up to 125% of the current value of your home under the “Making Home Affordable” Plan approved by the Federal Housing and Finance Agency (http://www.fhfa.gov/) beginning on July 1st. The 125% loan to value rule applies to your first mortgage only. Therefore, if you have a second mortgage, you will still be able to refinance as long your second mortgage lender is willing to subordinate to your first lender.

I have many clients who have been waiting for this to happen, and are now excited to take advantage of this opportunity. One client’s specific example is the following: He had put down 20% when he bought his home, but decided to get his second mortgage for home improvement after his purchase. He wanted to refinance the existing adjustable rate mortgage on his first, but could not because the first mortgage was more than 105% of the value of his home under the old rule. This change will now allow him to refinance into a fixed and a more stable mortgage since he has decided to retire in this home and wait for the market to recover.

There are a lot of homeowners that I talk to everyday having the same dilemma, and are now finding relief from this provision. Although this proposal is finally approved, it may take at least 30-days to work out the details of this refinance solution since the mandate has to come from the top down to the lenders. I am seeing that some lender’s responses are ranging from slow to not even mentioning this option at all. I say, let’s be patient and continue to pursue every avenue to maintain homeownership stability in our communities.

New legislation and the current state of the market is giving first time home buyers some economic relief…

According to housingtracker.net, the median listing price for residential homes in Las Vegas is $148,000. This is down 34% from the year prior. Anyone who has lived here over 3 years remembers when it was hard to find anything under $300,000, and that was causing problems for those trying to move here on fixed incomes and average salary incomes! Local school districts and police departments were having major challenges trying to recruit new employees knowing that the recruits had other more affordable options in other markets.

Local Market's Median Prices

It seems every city you read about these days has it’s own share of “issues” it has to deal with, but fortunately the playing field is more level now with the prices rolled-back more than a decade. This new median price is back down to the level that it was during the early 1990’s when I was still selling homes 18-years ago. Even when you compare Las Vegas to other cities, we are one of the most affordable areas to buy a home now that the market has shifted and the economy has turned. Click on the graph at the right to compare local markets and their current median prices. [Source: housingtracker.net]

In addition to better affordability, the interest rates being at their lowest in more than 20-years is the perfect combination most first time home buyers did not have before. These two factors do not usually happen at the same time, and are often mutually exclusive of each other. But the current economic climate and the Making Home Affordable program solution is ripe for most home buyers to take advantage of the situation using FHA financing. The guidelines for FHA loans are more flexible and first time home buyer friendly. For example, as a first time home buyer, you don’t have to have a minimum of 2-years of credit history; credit scores are acceptable as low as 620 for most lenders and the entire down payment can be a gift from a family member. Additionally with FHA, you don’t have to show a rent-history, whereas with Conventional loans you need to show a minimum of 12-months rental history and an established two year credit history with high credit score requirements.

The market is dynamic and even volatile, but knowing that you have options and even benefits to take advantage of right now is a big relief for first time home buyers.