New Loan Trends

So, you're scared that your home will get foreclosed on? What if your mortgage company goes belly up, does that mean you'll lose your home? I've had clients ask me these things and it might sound silly, but these are things that sometimes prevent people from buying or selling a home. Let me say this, if you're a financially responsible person and you stay current on your mortgage payments, then you don't have to worry. Most of the foreclosures that are plaguing the current real estate market are because of two things: 1. Buyers over extended themselves when they purchased and now cannot afford the payments or 2. The loan program that the buyer chose, or was offered by the lender, has "adjusted" and now the payments are out of reach for the home owner. Either situation is very disheartening and pointing the finger doesn't change the circumstances.

There really isn't any point in going over the numerous loan programs that were created to get under-qualified buyers into over-priced homes. Sounds blunt, but that is the reality. The best thing to do is to consult with a trusted, reputable lender. Now lenders have come down from the euphoria of the not so distant market of 4% interest rates and 100% interest only loans and buyers are much more conservative when considering the amount they'd like to mortgage. Currently lenders are facing stricter guideline by the underwriters and investors who approve the loans and buyers who are applying for them. Conventional loans have recently required buyers to put 10% down on a property purchased! Wow, that's much different to the $0 down days of the last 2-4 years. With the average price of a home in Harford County being at $350,000, this means that a buyer would need $35,000 plus closing costs. That could push the total cash required to $45,000-$50,000! That's a lot of cash for a buyer to have on hand. Now, a first time buyer will more than likely be looking at a less expensive townhouse or condo($200K+), but that is still a lot of money, especially for a person who is more than likely just finishing school or just starting a family. Luckily there are alternative to conventional loans.


FHA is a very reasonable alternative to the conventional mortgage. FHA, or Federal Housing Administration, is a government entity that provides backing/insurance to FHA approved lenders. Also, the guidelines for FHA loans are less restrictive than those of other types of loans. There is much more flexibility in calculating a potential buyers household income or payment ratios. Most importantly, FHA requires much less than 10% down to close a loan. They only require 3% down.! Now, on a $350,000 home, which sounds easier, having $45,000 or $27,500? I still know what you're thinking, that is much better, but $27,000 is still a lot of money. Yes, I know, it still is a lot of cash, but think about it from the banks point of view. Why would a bank lend you close to a half of a million dollars if you haven't invested hard earned income into a property?

There is yet one more option to those who still can't seem to get the funds they need to purchase. FHA limits the amount of "help" a seller can contribute to a buyers purchase to 3% of the purchase price, so even if a buyer gave the maximum allowable contribution, the buyer would still have several thousand dollars of closing costs due. Well, there is a loophole of sorts available. There are two programs, that I know of, which allow the seller to contribute much more than the standard 3%. These programs are the NEHEMIAH PROGRAM and GENESIS PROGRAM. Both of these programs allow sellers to contribute either a percentage of the sales price or a flat dollar limit. Not only are these programs great for buyers, but advertising a sellers willingness to participate might just get a property to sell quicker! As always, check first with a trusted lender for full details of any loan program. And lastly, if it sounds too good to be true........