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Thursday, August 09, 2007

The Brave New World of Home Mortgages

After one of the nation's largest home mortgage originator went out of business last week, I started to think of ways borrowers might be able to navigate this brave new world. Essentially the too good to be true mortgages from back in 2004 and 2005 appear to be riskier than everyone thought. Surprise, surprise! In the brave new world we will be living in, “bad credit, no credit, no problem” ads will simply not be heard. The party is over and it’s back to old school. Here is what I mean:

If it sounds too good, it probably is. What I mean by this is that if a lender promises a lower than market interest rate with no income and asset verification then that lender is basically lying. Run. What used to be called stated income loans are now very difficult to obtain and not many lenders offer them anymore. Same goes for the no ratio and no documentation loans.

80/20 what? The days of 100% financing at very competitive rates may be over, at least for a while. There are still programs available but it’s harder to qualify and the rates are much higher. You might as well save some money and use it to get a better interest rate. Some money down will be a lot better than no money down.

Good credit premium. As I said before, the days of “bad credit, no credit, no problem” are over. You will need good credit to get a good loan. The surest way to make sure you’re able to obtain a mortgage product you can live with for a long time is to make sure your credit is in good shape. Follow the seven easy steps to destroying your credit (of course do the opposite) and you’ll be in a good position to buy.

What the market shakeout means for everyone is that lenders will be returning to an old fashioned model of lending. You will need to establish a solid work history with stable income for a reasonable time period. Your credit needs to be in good shape and ideally you’ll need to put some money down. No down will still be available through FHA and certain Fannie Mae and Freddie Mac programs but if you can’t establish income and employment then you’re out of luck. The brave new world kind of looks a lot like the past doesn’t it?

Shailesh & Aimee Ghimire of CTX Mortgage in Arizona - Your Mortgage Team for Life!Shailesh Ghimire
CTX Mortgage Co.
www.aimeeloans.com
www.azmortgageguru.com
(480) 516-1851 / (480) 516-1819
Email me

Posted by Shailesh Ghimire, AZ Mortgage Guru on August 9, 2007 | Permalink

Comments

If the lenders wouldn't have been so lenient they wouldn't be in the mess they're in now.

Posted by: Albuquerque real estate | Aug 11, 2007 2:19:00 PM

Regarding your brave new post article, yes lenders have changed a great deal however I am not sure 100% financing is out of the question. Specifically with some credit repair and some attention to detail, most owner occupied purchases can obtain 100% financing while showing some reserves. I specifically like the FHA program that is available, although only at 97% you can have the seller contribute (legally) the 3% towards the purchase price. If you also include seller paid closing costs then you have a 100% loan. Honestly it isn't that creative, but you still have to think.

I look forward to reading more of your posts and if you or anyone else want to read about day to day activities of a Real Estate Hedge Fund investor please visit me at http://blog.dometri.com

Sincerely
Daniel

Posted by: Daniel Butterfield | Oct 2, 2007 11:54:30 PM

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