Housing Resources Guide
Business Directory
Published April 2010

For local homebuyers, the days of easy mortgages may be over

By Starrla Cray

When it comes to getting a mortgage, it looks like the easy breezy days at the start of the 21st century are over.

“Back then, it was easier, even though rates were a little higher,” said loan officer Amy Gatz of Flagship Bank in Winsted. “People maybe got used to it being a little too easy.”

“Underwriting standards were easier then, than they are now,” Gatz added. “They used to go 100 percent loan-to-value – sometimes higher.”

In the housing market heyday, she said it wasn’t uncommon for mortgage companies to lend 105-110 percent loan to value.

“They just don’t do that anymore,” she said. “Five to 10 years ago, it was pretty much zero money down.”

Gatz said she does, however, still see mortgage companies giving loan-to-value ratios of around 90 percent.

A typical bank loan that meets Fannie Mae and Freddie Mac underwriting guidelines is limited to a loan-to-value ratio that is less than or equal to 80 percent, however.

Loans backed by the Federal Housing Administration (FHA), for instance, come with minimum down payments of 3.5 percent, according to an article from US News and World Report.

At the end of 2009, the FHA guaranteed nearly 30 percent of new home mortgages, according to the article.

“Most people don’t have that 20 percent down,” Gatz said, which is why some choose to go through the FHA.

People who get a loan through a mortgage company above 80 percent need to have private mortgage insurance.

This type of insurance offsets losses if a person isn’t able to repay the loan, and the mortgage company isn’t able to recover the losses from foreclosure and sale of the property.

Low interest rates

Interest rates are still much lower than they were a few years ago. According to MonitorBankRates.com, the average rate for a 30-year fixed mortgage was 4.94 percent in March 2010.

In 2000, the annual average was 8.05 percent, according to the Freddie Mac web site.

“I see interest rates going back up,” Gatz said. “They are so low right now.”

Housing prices are also low right now.

“The appraisals have come in fairly low lately,” said Dale Mensing, a loan officer at First Community Bank in Lester Prairie.

“Appraisals are a lot stricter than they were in the past,” Gatz said. “With so many foreclosures, comps are harder to find.”

According to an article from CNNMoney.com, 11.3 million US homeowners –nearly 25 percent of all residential-mortgage holders – owe more on their loans than their houses are worth.

Mortgage resources

People who would like more information about government assistance regarding home mortgages can go to makinghomeaffordable.gov.

The site offers a quiz homeowners can take to determine their eligibility for government refinancing.

According to the web site, the Obama administration’s “Making Home Affordable” plan is projected to help up to 7 to 9 million Americans reduce their monthly mortgage payments to more affordable levels.

The government’s plan commits $75 billion to keep up to 3 to 4 million Americans in their homes by preventing foreclosures.

Another resource is www.usa.gov/shopping/realestate/mortgages, a site that provides links to various educational and financial opportunities regarding home mortgages.

The US Department of Housing and Urban Development’s web site, www.hud.gov, also offers help for homeowners and renters, with a “buy vs. rent” calculator, an affordable apartment search, and a home ownership mortgage calculator.

First-time homebuyers who made a purchase on or after January 1, 2009, and on or before April 1, 2010, may be eligible for an $8,000 tax credit. According to the National Association of Home Builders, the tax credit applies to homes priced at $800,000 or less. Single taxpayers with incomes up to $125,000, and married couples with incomes up to $225,000 qualify for the full tax credit.

The IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.

Homebuyers who have owned and lived in their previous home for five consecutive years out of the last eight years may also be eligible for a tax credit. The “move-up” repeat home buyer tax credit is equal to 10 percent of the home’s purchase price, up to a maximum of $6,500.

For more information about these programs, go to www.federalhousingtaxcredit.com.

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