In a mortgage market that changes as quickly as this one, today’s fact is tomorrow’s fiction. For buyers,
misinformation can be the difference between qualifying for a home loan
or not. Sellers and owners, knowledge is foreclosure-preventing, smart decision-making power! Without further ado, let’s
correct some common mortgage misconceptions.1. Myth: Buyers with bad
credit can’t qualify for home loans.
Obviously, mortgage guidelines have tightened up, big time, since the
housing bubble burst, and they seem likely to tighten even further over the long-term. But just this moment, they have relaxed
a bit. In the last couple of weeks, two of the nation’s largest lenders of FHA loans announced that they’ve
dropped the minimum FICO score
guideline from 620 (which allows for some credit imperfections) to 580, which is actually a fairly low score.
a FICO score of 620, buyers can qualify for FHA loans at many lenders with only 3.5 percent down. With a score of 580, the
lenders are looking for more like 5 to 10 percent down – they want to see you put more of your own skin in the game,
and the higher down payment lowers the risk that you’ll default. However, if your credit has taken a recessionary
hit, like that of so many Americans, this might create a glimmer of hope that you’ll be able to take advantage of low
prices and interest rates without needing years of credit repair.2. Myth: The
Mortgage Interest Deduction isn’t long for this world.
Homeowners saved over $85 billion in 2008 by deducting
their mortgage interest on their income tax returns. A few months ago, the National Commission on Fiscal Responsibility and
Reform caused a massive wave of fear to ripple throughout the world of real estate consumers and professionals when they recommended
Mortgage Interest Deduction
(MID) reform, which would dramatically reduce the size of the deduction.
Fact is, the Commission made a sweeping
set of deficit-busting recommendations to Congress, a few of which are likely to be adopted. Fortunately for buyers
and sellers, MID reform is not one of them. Very powerful industry groups and economists have been working with Congress
to plead the case that MID reform any time in the near future would only handicap the housing recovery. Congress-folk
aren’t interested in stopping the stabilization of the real estate market. As such, the MID is nearly universally
thought of as safe – even by those who disagree that it should be.
Myth: It’s just a matter of time before loan guidelines loosen up.
The US Treasury Department recently
recommended the elimination of mortgage industry giants Fannie Mae and Freddie Mac
. I won’t get into the eye-glazing details of it here, but the long and the short is that (a) this is highly likely
to happen, and (b) it will make mortgage loans
much harder and costlier to get, for both buyers and homeowners. It’s possible that loans are as easy to
get as they’re going to get. So don’t expect that if you hold out, zero-down mortgages will come back into
vogue anytime soon. Fortunately, Fannie and Freddie aren't likely to disappear for another 5-7 years, so you have a little
time to pull your down payment and credit together. If you want to get into the market, the time to get yourself ready is
now!4. Myth: If you don’t have equity, you can’t refi.
Much ado is being made about how stuck so many people are in their bad loans, because they don’t have the equity
their way out of them. If you’re severely upside down (meaning you own much, much more than your home is worth),
stuck may be the situation. But there are actually a couple of ways homeowners can refi their underwater home loans.
If your loan is held by Fannie or Freddie (which you can find out, here
), they will actually refinance it up to 125% of its current value, assuming you otherwise qualify for the loan. That
means, if your home is worth $100,000, you could refinance a loan up to $125,000, despite the fact that your home can’t
secure the full amount of the loan.
If your loan is not owned by Fannie or Freddie, you might be a candidate for
the FHA “Short Refi” program. While most mortgage workout plans are only available to people who are behind on
their loans, the Short Refi program is only available to homeowners who are current on their mortgages and need to refinance
up to 115 percent of their homes’ value. So, if you owe $250,000 on your home, you can refinance via an FHA Short
Refi even if your home’s value is as low as $217,000. If you think you’re a good candidate for a short refi, contact
your mortgage broker, stat – there are some in Congress who think that this program is so underutilized (only 245 applications
have been submitted since it rolled out in September – no typo!) that its funding should be diverted to other needy
If you’ve lost your job and
can’t make your mortgage payment, you might as well mail your keys in. Until recently, this was essentially true
– virtually every loan modification and refinancing opportunity required that your economic hardship be over before
you could qualify. And documenting income has always been high on the requirements checklist. But there are some new funds
available in the states with the hardest hit housing and job markets, which have been designated specifically for out-of-work