Wanted to share with you a quick look at what is happening on the lender side of the real estate market. Beverly Barnes with RTC Mortgage put together a nice review. Good news for the buyers who have held back buying due to being self employed or looking to put down less then 20% down. Take a peek!
Looser Underwriting Guidelines?
It’s taken a while but the pendulum is swinging back to a much
more reasonable happy-medium when it comes to underwriting guidelines. We all
know that it was practically non-existent underwriting criteria that led to the
collapse of the mortgage and financial markets several years ago. Then, the
pendulum swung so far the other way that it seemed almost impossible to get
approved for a mortgage. Now, things have become more reasonable. Some are even
saying it might be too loose again.
Regardless of your opinion, here are some of the more recent
changes that are making it easier to qualify for a mortgage. Keep in mind that
these changes pertain to “conforming” loans originated by lenders and sold to
the Government agencies known as Fannie Mae and Freddie Mac. Therefore, it
pertains to almost all loans originated by any lender with loan limits up to
$636,150 in the highest priced markets such as Orange and Los Angeles counties
and most of the Bay Area counties in California.
Here’s a quick summary of some of the changes:
Less Self-Employment Documentation:
In some instances, self-employed borrowers can now be approved
with just 1-year of tax returns instead of 2 years.
Higher Debt-To-Income (DTI) Ratios
Applicants with compensating factors may now receive approvals
with a Debt-To-Income ratio up to 50%. Previously, the cutoff was 45%.
Lower Down Payments/Higher Loan-To-Value Ratio’s
There are programs allowing as little as 3% down.
Appraisal Waivers:
In certain refinance transaction, the appraisal can be waived altogether,
saving the borrower hundreds of dollars. We will see this apply to
Purchase transactions soon too.
Disputed Tradelines:
If a borrower disputed certain information in their credit report,
we used to have to get those disputes cleared, adding to the time and effort it
took to receive loan approvals. This is no longer the case.
Lower Credit Scores:
Many lenders have lowered their minimum FICO scores for
qualifying. The minimum score allowed by Fannie Mae/Freddie Mac remains 620 but
lenders often impose their own higher limit. Lower limits may be a result of
lender trying to increase their lending volume as the number of refinance and
purchase loans have slowed down this year.
Keep in mind that these changes do not pertain to all loans and
all lenders. Each lender has the right to create their own stricter guidelines
than what The Government Agencies permit. But, these changes do apply to most
of the lenders that we work with.
If you are thinking about buying the first step in the process is to get pre-approved. It is also important that your Realtor and Lender work together on that pre-approval. Your agent is going to advise your lender several pieces of information needed for taxes, etc. Don't hesitate to reach out to our team for assistance.