Mortgage Lending Tips for Home Buyers

In today's volatile market, borrowers need to be aware of what is considered when they shop for a mortgage loan.  Information can change from one day to the next.  Following are some current tips:

 

1.  Mortgage Interest Deduction

There has been some controversy over the mortgage interest deduction (MID) that can currently be taken on homeowner income tax returns.  Recently, the National Commission on Fiscal Responsibility and Reform recommended changes that would have drastically reduced the size of these deductions.  However, while other parts of the this proposed reform will likely be adopted, lucky for borrowers, this part wasn't.  For now, housing recovery is crucial to the economy so it is unlikely that Congress will reform MID because that would only serve to weaken the already struggling housing market. 

2.  FICO Score

FICO stands for Fair Isaac Corporation, a public company that provides analytics and decision making services including credit scoring.  Your credit bureau (FICO) score is very important to lenders when you apply for a loan because it reflects numerous aspects of your credit history such as how established your credit is (i.e. how long your credit history is), how timely you pay your debts, and what your debt ratio is (this tells lenders how strong your ability is to pay your debts with your current income).  The higher  your credit score the better.  Typically lenders want to see a credit score of 650 or above.  With a lower credit score, the lender will want more of a down payment because with a higher down payment there is less risk of default. 

3.  Unemployment

Lenders will typically want to see a strong employment history to lend.  In the current economy, a lot of people are out of work and believe that this automatically prevents them from lending opportunities.  In fact, in the past you could not get lending until you had recovered from an economic hardship (i.e. gained new employment, recovered from illness, etc.).  Now however, the U.S. Treasury Department has established a Hardest Hit Fund in which they've allocated $7.6 billion to specific states for unemployed homeowners.  These funds offer up to $3,000.00 per month for up to 36 months in mortgage payment assistance to help unemployed homeowners avoid foreclosure. 

4.  Loan Guidelines

Many are under the impression that loan guidelines will become less stringent over time.  However, the U.S. Treasury Department recently recommended that Fannie Mae and Freddie Mac, the two mortgage industry giant investors of our nation, be eliminated.  What this would mean for you and me is that loans will become harder to attain and cost more.  If this change occurs, it isn't likely to happen for 5 - 7 years so the truth is, now is actually the time to get funding to lower payments or buy a home.

If you're considering buying a home or refinancing your current loan, be sure to educate yourself on what is going on in the market today.  There have been  lot of changes and there may be many more to come before this is all over.

 

Author:

Michelle Trimmell, RA, MBA