FHA to the Rescue?

Another area of government-led financing that has been garnering attention as of late is the Federal Housing Administration (FHA), which has played an increasingly pivotal role in the home financing landscape since the downturn; according to the Department of Housing and Urban Development, the FHA financed more than 15 percent of all home purchases through July 2012, up from just 3.77 percent in 2006.

The MID is a large benefit to those who own a home, and it’s one of the major benefits of buying a home.”

Christin Luckman
Guaranteed Rate

That being said, the FHA has also been grappling with some financial losses, and has tightened its underwriting standards and increased its insurance premiums in response – and much to the chagrin of Boden, who says he has “definitely” had clients on both the refinancing and purchasing side impacted by the FHA’s changing standards, which could undergo further changes in 2013, including even tighter underwriting.

“It is tough for people to understand why the rules keep changing, especially when they were approved for a mortgage five or six month ago,” Boden says.

As with his attitudes towards MID, Lopatin says he is unconvinced that the FHA’s changes will have a major impact on the housing market. For one, with Chicago’s rents increasing as much as they are (and according to the latest Trulia Price Monitor, asking rents in Chicago were up 6.5 percent year-over-year in December), owning will still be a better value than renting in the City of the Big Shoulders, even with higher insurance premiums on FHA mortgages; and two, homebuyers seeking FHA financing, Lopatin says, are doing so for the agency’s low down payment requirements and flexible credit requirements, so therefore, an increase to insurance premiums would not deter those homebuyers from utilizing FHA financing.

Finding the Right Narrative

For Boden, the biggest development in financing that he’s been focusing on has been the changes to Fannie Mae and Freddie Mac’s “limited review” condo approval. Previously, Boden says, homebuyers were able to put down 10 percent on a condo and earn a “limited review” from Fannie and Freddie, which would greatly expedite the homebuying process and avoid any unnecessary red tape; now, though, Fannie and Freddie have changed that requirement to 20 percent, and any homebuyer without that down payment must undergo a “full” condo review. Boden says the stringent requirements of the full review have hindered people from getting a loan in some condo buildings with smaller down payments, and he thinks, going forward, that the 20-percent requirement will be the new standard for Fannie/Freddie-guaranteed condo loans.

Homebuying standards are also a focus of Lopatin’s business, though what he focuses on is how, in his view, mortgage guidelines are more lenient than media outlets have led consumers to believe.

The typical media narrative, Lopatin says, is that mortgage standards today are very strict. That narrative, incorrect as it may be, has nonetheless made some potential homebuyers assume that they cannot qualify for a mortgage, although in reality, there are more opportunities available to attain home financing than many people realize.

Currently, for mortgages less than $417,000, Lopatin says he is able to secure conventional financing for his clients with credit ratings as low 660, and with down payment options as low as 5 percent; even jumbo financing standards, he says, are loosening up, with some jumbo loan mortgages for single-family properties available for as little as 10 percent down.

“You don’t need to have perfect credit and 20 percent down to buy a home,” he says.

That narrative, one of a thorough, but fair and transparent, mortgage process, is also key to Luckman’s business, where pay stubs, W-2 forms and tax returns are all required documentation to secure home financing.

“I think lending now is how it should be,” she says, disagreeing with the notion that today’s lending environment is overly difficult. “I don’t think someone should get a $150,000 loan if they don’t want to offer the required documents, but everyone should get a consultation to see what can be done in every situation.” C.A.

Christin Luckman
Guaranteed Rate
773.290.0522
luckman@guaranteedrate.com

Brad Boden
A&N Mortgage
773.305.5626
bradb@aandnmortgage.com

Justin Lopatin
PERL Mortgage, Inc.
312.376.2209
jlopatin@perlmortgage.com