Mortgage Mayhem: From Chaos, Emerges Order

Date October 5, 2012

The word “mayhem” has several synonyms including “chaos” and “confusion. I could not think of a better topic to begin with than addressing the mayhem that seems to exist about all things mortgage related.  Mortgage loans have always been a bit confusing, but as we are all aware by now, the entire mortgage industry has been in a period of utter chaos for several years.

Let us try to clear up one of the most prevalent confusing issues when it comes to your real estate financing.  Bar none, the question I hear most from friends, family and clients is this:  What is the current state of the mortgage and real estate market?

While the question is simple, the answer is not quite as clear-cut.  That is because the current status is changing.  Monthly, weekly and sometimes even daily, things are changing but most of that should not concern you. Sure, regulations, restrictions and guidelines for obtaining a loan are changing but leave that to your mortgage professional to worry about.

What you should know about the current status of the mortgage and real estate markets is that home values, while they had been falling, have appeared to level off in most price ranges.  Of course, prices may dip or increase marginally for the foreseeable future but the huge swings we’ve seen in the past should be for the record books. Therefore, if you are considering buying or selling, you can rest easier knowing that you are not going to win big or lose big right now.  (A home is not going to leap 10% in value nor is it likely to lose 10% of its value in the next few months).

Your ability to obtain a loan will not be changing drastically in the near future either.  After several years of major regulation changes, the guideline swings have settled down.  What you can expect is that you need a down payment with VA loans being the only exception. Some loans, such as FHA loans, will require as little as 3.5% down. By contrast, in order to obtain a Jumbo loan ($729,750K or more), you may need 20%-30% for a down payment.  However, one thing is certain; the days of $0 down payment loans are gone unless you have earned a VA loan.

Credit scores count.  Your ability to obtain a mortgage loan will be contingent upon your credit score.  If you have poor credit, you will have a difficult time obtaining a loan and I suspect this will be the case for many years to come.  Check out your free credit report at www.annualcreditreport.com.

Proof of income and employment are mandatory.  Stated income loans are no longer a viable option so be aware that you must be able to prove your income and employment status before applying for a mortgage loan (that includes a refinance loan).

I would be negligent if I said that this information was all you needed to know to make sense of the mortgage and real estate markets but it is a start.  Understanding these basic truths about the current state of the industry should at least clear up some confusion though I know we have a long way to go.

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Fred Kreger, CMC is the State President of the California Association of Mortgage Professionals (CAMP) and Branch Manager at American Family Funding in Southern California. Fred is an advocate for the mortgage industry, speaking at the Federal and State levels regularly on government affairs on the current state of mortgage lending as well as to other mortgage professionals and credit unions. Fred also writes articles regularly on these issues. He can be reached at Fred.Kreger@affloans.com or via phone at 661 505-4311. 

 

 

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