Wow, there have been a ton things happening in the mortgage side of real estate lately. The big three that I have come across this week are:
1. Most banks have stopped issuing second mortgages and home equity lines of credit (HELOC). Some are even freezing existing lines of credit.
2. Stated income loans are going, going, and all but gone.
3. FHA has raised the upper limit of of loans for single family homes in Maricopa county from $261,500 to $346,250.
There are lots of ways that these things will affect home buyers in the next few months.
Let’s start with the freezing of the HELOCs. It makes sense that banks would want to staunch the flow of money into the hands of the already over-extended public. Those hundreds of thousands of foreclosures we’ve been hearing about all over the national media often come with a mortgage in second position that will get nothing out of the foreclosure process. However, those of us with legitimate plans for our lines of credit may just end up out of luck. My husband and I have a HELOC that we have considered using as a down payment on a larger home so that we can keep our current house as a rental property until the seller’s market gets better. If our HELOC is frozen (it hasn’t been yet), that option pretty much goes out the window. Although, it may be a moot point anyway, as we move on to number 2…
Stated income loans are mortgages that allow self-employed people with decent credit to borrow money based on what they expect to have as income in the next year. My in-house lender, Century 21 Mortgage, announced at our weekly sales meeting Wednesday that they would no longer be offering these loans. In order to get a mortgage, I need to show two years of tax returns at my current career and what I will qualify for will be based on that income. This is all well and good because I have been in real estate for the last three years. However, my grand plan of renting my current house and upgrading to something larger while the prices are good hinges on qualifying to purchase the second home. Rent can count as income (75% of the rent) to offset the mortgage in your debt vs. income ratio, but only if you have a rental agreement in place when you apply for the mortgage. This would require us to have the house on the market for rent while we’re still living in it, which I don’t think my 5 person in a 1750 square foot home family could cope with. A work-around for this would be to go with a stated income loan and inflate my income enough to qualify for the second mortgage without a rental agreement already in place. But without stated loans, this is a problem.
Now on to the FHA increase in cap… this is the only good news (besides the rate-cutting by the feds) we’ve received from the mortgage industry in a long time. This opens the door to lots of buyers who couldn’t otherwise afford to buy right now. 100% financing is long gone, but FHA only requires 3% down (most banks are currently requiring 10%, some still have 5%, but that’s on its way out also). There is also a program called The Ameridream Down-payment Assistance Program that allows sellers to donate 3% of the purchase price of the home to them and they gift it to the buyer (for a $500 flat fee) for down payment. So a desperate seller and a buyer with no cash can come together and make a home sale take place. Now that the cap has dramatically increased, more buyers and more sellers can move forward.
As you can see, times, they are a changing out here in real estate land. Keep your eyes and ears open for how these things can effect you!