Making Your Way Through The Mortgage Market

The US mortgage market has taken a leap back in time. The flavor of the day is a 30-year fixed loan. Down payments are back in vogue. Good credit counts.

“A lot of people think that mortgage money is very hard to get—not at all,” says Jim Gillespie, president and CEO of Coldwell Banker Real Estate. “But it’s back to the way it used to be.”

Sounds simple, but navigating the changes that have occurred over the last few years? Not so much. Throw out everything you know from 2006—here’s the information you need now to get a home loan.

More Money Down

Needless to say, the days of no down payments are behind us. Lenders have returned to the “gold standard” of requiring 20 percent down for non-FHA loans, says Dr. Richard Green, director of USC’s Lusk Center for Real Estate. But at times they are even demanding more. "We are seeing some lenders asking for 25 percent down,” he says.

Melissa Cohn, president of the Manhattan Mortgage Company, is seeing more and more banks asking for 30-percent down payments.

Jumbo is Bigger

Until last year, Fannie Mae and Freddie Mac could only purchase loans that were under $417,000. Anything bigger was considered to be a riskier “jumbo,” and borrowers paid higher rates on them.

To juice up the housing market, that cap has been raised—the Bush Administration pushed it up to $729,000 for 2008, and President Obama’s stimulus bill extended that cap for high-priced areas in 2009. For borrowers, that means it shouldn’t be harder or more expensive to get a loan for several hundred thousand dollars. “If you need one that’s bigger than that you’re going to have a hard time,” Green says. And you'll pay a premium for it.

From Great to Good

“It used to be, if you had a FICO score of 680 or above you were considered very good quality credit, and you’d get the best pricing,” Green says. But as lenders have gotten more careful, the bar for that top tier is higher. “Now you’ll pay 1 percent more than someone with a 760.” To qualify for the lowest rates today, you need a credit score in the mid-700s.

Patience Required

The housing crash and the economy in general mean there are fewer people working in the mortgage business, which in turn means the process can be more drawn out. For example, after Washington state started licensing loan originators in early 2006, nearly 14,000 people received licenses. Now, their numbers are down to about 4,000.

“I have to explain, especially with refis, that clients have to be really patient because there are only so many of us to handle business,” say Rhonda Porter, a mortgage originator in greater Seattle.

Redefined Refi

If you’re considering a refinancing to get cash out of your house, you may want to do it sooner rather than later. Late last week, the FHA announced that starting in April, it would limit the loan-to-value ratio for the cash-out refinances it insures to 85 percent of lower, and that change could become permanent.

“Where I think this is going to hurt a lot of people is when someone has a second mortgage on the home and they want to pay it off by refinancing,” Porter says. “Let’s say the second mortgage is not from when they purchased the hone, it’s treated as a cash-out refi.”

Calculators and Advice from


No Bonus Round

Bonuses are a hot topic these days, and not just for companies who take TARP money. Mortgage lenders are taking a harder look at people’s incomes—and as a result, people who get paid primarily in commissions or bonuses are having a more difficult time qualifying for loans.

“Some banks are giving no credit for bonus income,” Cohn says. They’re also demanding more post-closing liquidity, with some requiring borrowers to have as much as six months of carrying costs.

Think Loans, Not Pricing

There is good news, says Cohn. Every lender has a different set of guidelines, which means that eventually you can find someone to give you a mortgage, though it may come at a higher price.

“Buyers today need to be less rate sensitive and more loan sensitive,” she argues. They should review their financial situation, and apply to lenders that are going to give them the loan, not just the ones advertising the lowest rates. Getting rejected wastes time and money.

“You should be more focused on getting the mortgage approved,” she says. “It’s important to do all your due diligence up front.”

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