In tougher new mortgage reality, preparation is key

In tougher new mortgage reality, preparation is key

WASHINGTON – May 16, 2011 – All you needed was a pulse. In the not-so-distant past, that’s practically all it took to qualify for a mortgage. Now an exhaustive array of paperwork awaits potential borrowers.

Call it the new mortgage reality. Lenders that got burned when the housing market collapsed are taking extra steps to protect themselves and are requiring more financial documents than ever.

But these tougher requirements don’t mean getting a mortgage has to be too stressful, as long as you’re prepared.

Here are five ways to cut down on the hassles and help you anticipate the records you may need:

1. Start by requesting your free credit report.

You won’t receive a copy of your credit score, but it’s important to review a report from the three credit reporting agencies: Experian, TransUnion and Equifax. Make sure the information on each is correct.

If you have any late payments or recent inquiries on your report, prepare to explain the circumstances to a lender in writing. You’ll have to settle any open collections, tax liens or judgments before you close the mortgage.

“There is such a thing as not enough credit,” says John Stearns, a broker at American Fidelity Mortgage in Wisconsin. He says some borrowers only have one credit card and no other credit accounts such as car loans, cell phone bills or student loans. Ideally, lenders like to see borrowers manage at least three accounts to show they can handle credit responsibly.

2. Organize all your financial documents.

Lenders will ask for at least two months’ worth of pay stubs and bank statements. Pull out 2009 and 2010 federal tax returns, W-2’s and 401(k) statements.

If you receive alimony or child support, request up-to-date records from the court, which can take up to 90 days.

Make sure your name, address and account numbers are correct on all statements. If you recently changed your name because of marriage or divorce, make sure the update is reflected on all financial documents and that they match your identification cards. The same guidelines apply for your address if you recently moved.

3. Keep your finances simple for at least two months.

“Don’t do anything funny with your money, or it could cost you,’ “ says Pava Leyrer, president of Heritage National Mortgage in Michigan.

That means don’t make any out-of-the-ordinary deposits into your checking account, whether it’s gift money, cash from selling a car or payments from giving piano lessons. If you do, make sure to have receipts and copies of checks to give to the lender to show the source of the funds.

One of Leyrer’s recent borrowers had to write a letter to a lender explaining that a $55 bank deposit was birthday money from grandma. Another had to prove that paintings she sold at a yard sale would sell for a similar amount on eBay or Craigslist.

Another pitfall: paying off a large debt ahead of applying for a mortgage. A lender will want to know where that big sum of money came from.

Lastly, don’t overdraw your checking account for at least two months. Even if you have overdraft protection, the lender will think you have cash flow problems.

4. Document your downpayment.

That means if you received a large amount from an inheritance, request the documents from the estate trustee to prove you rightfully were given the money. A downpayment that taps money from a money market fund or other account requires a statement showing the transfer into your checking account. A 401(k) loan also must be documented.

If you receive all or part of the downpayment as a gift from a relative, you’ll be asked to produce a letter that outlines your relationship to the gift giver, the address of the property, the amount of the gift, where the giver got the funds, and a statement that the gift is not a loan.

A good rule of thumb: Any money going toward the downpayment should be in your account at least two weeks before closing, including paychecks and bonuses.

5. Show a stable work history for the past two years.

Coming out of a recession, many borrowers might need to explain any employment gaps in writing. Also, those who took temp jobs or switched careers to deal with the hard times may have to field questions from the lender and may want to wait an additional year to apply. Another red flag for lenders: a wage cut or a change in compensation from, say a salaried position to one where you earn commissions.

Copyright 2011 © www.washingtonpost.com, Janna Herron

 Reprinted with permission. Florida Realtors®. All rights reserved. 

Banks want higher downpayments from buyers

WASHINGTON – Feb. 17, 2011 – Banks increasingly tell borrowers that if they want to buy a home, they need to come with a higher downpayment. The reason: Banks hope to minimize the risk they’re taking on should home prices continue to fall. Plus, banks say larger downpayments discourage delinquencies.

The Obama administration last week called for gradually increasing downpayments to a minimum of 10 percent on conventional loans that can be bought or guaranteed by Fannie Mae and Freddie Mac.

The median downpayment in nine major U.S. cities rose to 22 percent in the fourth quarter of 2010 on properties purchased through conventional mortgages – the highest in median downpayment since the data started being tracked in 1997, according to a Wall Street Journal and Zillow.com analysis.

In the late 1990s, median downpayments once averaged 20 percent in the nine metro cities Zillow analyzed, but in 2001 they started inching downward as banks began requiring little or no down payment in some cases during the housing boom.

Now banks want more, believing that the more a buyer has invested, the less likely they are to default.

Borrowers who can’t afford the higher downpayments are seeking assistance elsewhere, such as loans for veterans or those backed by the Federal Housing Administration that requires a 3.5 percent downpayment, or loans by the United States Department of Agriculture for rural areas.

Source: “Banks push home buyer to put down more cash,” The Wall Street Journal (Feb. 16, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

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Freddie Mac: Mortgage rates hit low for year

WASHINGTON – June 11, 2010 – Rates on 30-year fixed mortgages fell this week to the lowest level of the year and barely shy of the all-time low.

Mortgage finance company Freddie Mac says the average rate sank to 4.72 percent, down from 4.79 percent last week. It was just above the record of 4.71 set last December.

The average rate on a 15-year fixed-rate mortgage hit 4.17 percent, down from 4.2 percent last week and the lowest on records dating back to August 1991.

Though mortgage rates are at attractive levels, the housing market hasn’t benefited. The number of customers applying for a mortgage to purchase a property fell to the lowest level in 13 years last week and was down 35 percent from a month ago, according to the Mortgage Bankers Association.

That’s a sign the market is struggling without a tax credit of up to $8,000 for first-time buyers, which expired at the end of April.

The government has taken massive steps to help the housing market recover. A campaign by the Federal Reserve to reduce borrowing costs for consumers pushed rates down to extraordinarily low levels last year. Rates were expected to rise after the program ended this spring, but have fallen instead over the past two months.

Investors, wary of the European debt crisis and the turbulent stock market, have shifted money into the safety of U.S. Treasury bonds. That has pushed down the interest rate, or yield, on U.S. Treasury debt. Fixed mortgage rates tend to track that yield.

More recently, the latest report on the U.S. employment picture showed that few private-sector jobs are being created. That made investors nervous about the stock market and pushed up bond prices, which pulls down rates.

“Following a relatively weak employment report, bond yields fell this week and mortgage rates followed,” said Frank Nothaft, Freddie Mac’s chief economist.

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.

Rates on five-year, adjustable-rate mortgages averaged 3.92 percent, down from 3.94 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 3.91 percent from 3.95 percent. That was the lowest average since May 2004.

The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount.

The nationwide fee for loans in Freddie Mac’s survey averaged 0.7 a point for 30-year, 15-year and 5-year loans. The average fee for 1-year loans was 0.6 of a point.

Copyright 2010 The Associated Press, Alan Zibel (AP Real Estate Writer). All rights reserved. Reprinted with permission. Florida Realtors®. All rights reserved. 

Fed officials conflicted on mortgage program

WASHINGTON – Jan. 7, 2010 – Some Federal Reserve policymakers last month were conflicted over whether to expand or cut back a program intended to drive down mortgage rates and bolster the housing market, according to a document released Wednesday. 

Minutes of the Fed’s closed-door meeting on Dec. 15-16 revealed that a “few members” thought that the Fed’s $1.25 trillion program to buy mortgage securities from Fannie Mae and Freddie Mac might need to be expanded and extended beyond its current end date of March 31. Such an additional dose of stimulus would be especially needed if the economic recovery were to weaken, they argued. 

However, one member thought the program could be “scaled back” given the improvement in economic and financial conditions. 

The debate over the future of the program comes amid uncertainties about the vigor of the budding economic recovery. 

At the December meeting, Fed policymakers decided not to make any changes to the program. At their September meeting, they opted to slow the pace of the purchases, wrapping them up by the end of March, rather than the end of 2009. 

The minutes don’t identify speakers by name but seeks to provide a more detailed account of the Fed’s private discussions. 

Some Fed officials remained concerned about the economy’s ability to mount a self-sustaining recovery once government supports are removed. To that end, those officials worried that improvements seen in the housing market might be “undercut” this year as the Fed’s mortgage-buying program winds down, the government’s home buyer tax credits expire at the end of April and home foreclosures grow. 

Getting the housing market back on firm footing is a key ingredient to a lasting recovery. The collapse of the housing market, which dragged down home prices with it, was the catalyst for the longest and worst recession to hit the country since the 1930s. 

“Generally the outlook was for gains in housing activity to continue. However, some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness,” the minutes said. 

To nurture the recovery, the Fed at the December meeting kept its key bank lending rate at a record low near zero and pledged to hold it there for an “extended period.” The goal: low interest rates will entice people and businesses to boost spending, which will fuel economic growth. 

Economists said the Fed is all but certain to leave rates at record lows at its next meeting on Jan. 26-27 and probably for a good chunk of this year. 

“Overall, there is nothing here to suggest that interest rates will rise for quite some time,” Paul Ashworth, economist at Capital Economics Ltd., said of the Fed minutes. Ashworth is among the economists predicting economic growth will slow in the second half of this year as President Barack Obama’s $787 billion stimulus package of tax cuts and increased government spending fades. 

Most Fed officials don’t currently see inflation as a problem because companies have “little ability to raise their prices” in the fragile economic environment. But they had mixed views about inflation risks. 

Some noted that rising prices of oil and other commodities could boost inflation pressures down the road. Others thought investors’ expectations of inflation could edge up because of large federal government budget deficits and vast sums of money the Fed pumped into the economy to fight the financial crisis. 

However, others predicted that the sluggish recovery and “slack” in the economy – meaning factories operating well below capacity and the weak labor market – would keep inflation under wraps. 

At the December meeting, Fed staff gave several presentations on research into “inflation dynamics.” 

The biggest challenge facing Fed Chairman Ben Bernanke and his colleagues is to decide when to start boosting interest rates. Moving too soon could short-circuit the recovery. Waiting too long could unleash inflation. 

Copyright © 2009 The Associated Press, Jeannine Aversa, AP economics writer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.




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