are the rumors true?

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The past several years have brought so many changes to the mortgage and real estate industries, it is hard to keep track of everything. With that in mind, it is natural for rumors to get started.. “I heard one of the changes allows…” and you fill in the rest of the sentence.

What I would like to do with this post is discuss three of those “rumors” to see what is real and what is not.

#1. Conventional and FHA loan programs allow for hardship exceptions for individuals out of work in regards to  income requirements. This one is not real. With the ever tightening guidelines for both conventional and (especially) FHA loans,  income must be documented. The income could come from a variety of sources (job, alimony, child support, disability, commission, bonuses, social security, etc.), but it must exist in some form. Hardship exceptions are not allowed.

#2. I can make less than a 20% down payment and not pay mortgage insurance on a monthly basis. This one is true! Conventional loans have a program that allows the lender to make a one time fee payment to waive the monthly mortgage insurance. The catch? The fee is paid “by the lender” when you agree to take a higher interest rate. In short, you are still paying for it through a higher monthly mortgage payment. Bottom line, in most cases it is cheaper to go the lender paid route instead of the monthly route, but the loan still has an increased monthly payment because of the higher rate.

The better alternative – go with an FHA 15 year fixed mortgage. If a borrower puts 10% down OR has 10% equity in a refinance using a 15 year fixed FHA mortgage, there will be no monthly mortgage insurance payment. The catch? There isn’t one! There is no rate adjustment of any kind. The borrower will still be required to pay the 1% up front mortgage insurance premium fee (rolled into the loan amount), but that fee is required on all FHA loans regardless of the down payment amount.

#3. A no doc FHA loan is coming. This one is unknown at this time. These rumors began when some politicians asked the government to allow FHA to issue no doc loans so home owners can take advantage of the historically low interest rates. The catch? If this ever comes to fruition, it will be for refinances only. There would be no appraisal, no income documentation, no assets verified. As currently proposed, the home owner would only need to have owned the home for at least one year and NEVER missed a mortgage payment.

Why would the government consider doing this? Well, there isn’t a ton of risk involved with the loan. I know that sounds crazy, but hear me out. These loans would have an up front mortgage insurance payment, and probably a monthly requirement too. Also, the current home owner would have made at least 12 on time mortgage payments. Theoretically, if the home owner is already making their mortgage payments, wouldn’t they be able to consistently make a smaller monthly payment? Also, the hope is the monthly savings would be put back into the economy through consumer spending – which helps the economy. That is the real motivation… helping the economy.

Again, this is NOT a program that is available today. It may NEVER be available. I’m only writing about it today because some members of Congress have mentioned it, and I’ve received some emails from friends/clients asking about its validity.

Heard any other bits of news on mortgages that you are not sure if it is real or not? Feel free to contact me, and we’ll go through your rumor to find the truth!

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