New Rules: No More Funny Money, Credit is King
March 28th, 2008 Categories: Mortgage Loans, RE Week in Review, Real Estate News
We’ve been waiting for it - here it is! The new economic stimulus package has reached the mortgage product market - and we have the new “conforming jumbos”.
New loan limits are 125% of the median house price - $580,000 for a Davis jumbo.
The days of the computer generated approval are over! You will need to provide full documentation - income verification, asset statements, credit scores - to qualify for a loan approval. Maximum seller contribution is 3% for a single family home. Non-traditional credit is no longer allowed, and the maximum debt-to-income ratio has been lowered to 45%.
Credit is king - you will be rewarded for your good credit, but if your FICO is less than 640, well, how do you feel about renting? For an 85% loan, plan on having a credit score of 700. To get cash out, look for a 720 FICO. For second homes, loans are based on a 60/40 loan to value ratio, and dependent on a 660 FICO.
Loans will be risk based. For the same loan (with one point), someone with a FICO of 720 or higher may get a 5.75%, while the person with a 659 FICO will pay 6.375% for the same loan.
Additionally, the FHA reform bill is pending to make FHA changes permanent. In Yolo County, the loan limit is $580,000, with a minimum FICO score of 660 and a minimum of 3% cash. For example:
Sales price: $575,000
Cash required: $ 27,359
Loan @ 6.75%: $566,991
Payment: $3677 Principal and Interest
Insurance: $100
Tax: $599
MMI: $233
Total Payment: $4609/ month
Is this all a good thing? Yes, it is. The loan practices of the past decade have defrauded us all, and most of all, they have not been good for the people who have signed up for interest only 5 year ARMs. Well-intentioned people were finally able to buy a house. Inexperienced and often poorly informed, they instead entered in to a loan obligation that they could not sustain. Perhaps if the traditional loan practices had been in place they never would have been buying a home in the first place.
And for those who do have good credit and the ability to sustain a loan, the new jumbo limits are now aligned with the very real price of homes here in Davis.
Find out more details about how the new loans will work in Davis by calling Vicki, Greg or Cara Mengali at Mortgage Resource Network.
