If you’ve decided to buy a house, you know that it’s not just about securing the best rates on a mortgage; the challenge for many people is securing the funds necessary for a down-payment. And it can seem daunting!

But with some discipline and, yes, creativity, it’s not actually that difficult.

You’ve probably noticed one source of funding absent from this list: the use of credit cards. And for good reason! It is never a good idea to use your cash-advance line for a down-payment. The rate of this “loan” is the highest  in the lending business, and borrowing from your credit cards will push up your debt load—possibly disqualifying you from the mortgage itself.

There are many ways to find the down-payment you need when you’re applying for a mortgage. As your mortgage consultant how!

If you’ve ever applied for a mortgage, chances are good that you’ve heard of Fannie Mae and Freddie Mac; but with some significant recent changes going on, a little review is in order:

These entities were both very good ideas when they were founded, but grew into powerful corporations that were solely profit-driven during the housing market crisis. When the solvency of the two giants was threatened in 2008, the federal government seized them and bailed them out with unlimited taxpayer support. It was never meant to be a permanent solution, but the government regulation has kept the two companies solvent through a tremendous mortgage crisis.

That’s soon to end; a recent Reuter’s report notes that “after December 31, Fannie Mae's bailout funds will be capped at $125 billion and Freddie Mac will have a limit of $149 billion.”

It still sounds like a lot of money—to most people. But there’s concern in the investment community that the Treasury capital will soon run out and Fannie Mae and Freddie Mac will default on bond payments.

The Reuters report quotes the Treasury as saying that the new terms will ensure that “every dollar of earnings that Fannie Mae and Freddie Mac generate will be used to benefit taxpayers for their investment in those firms.”

“We are taking the next step toward responsibly winding down Fannie Mae and Freddie Mac, while continuing to support the necessary process of repair and recovery in the housing market,” Michael Stegman, counselor to the secretary of the Treasury for housing finance policy, said in a statement. Neither Fannie Mae nor FreddieMac will be allowed to retain profits, and both must reduce their massive portfolio holdings at an annual rate of 15%.

What does this mean for you?

The reality is that it may become more difficult to obtain a 30-year fixed-rate mortgage. Locking in the same rate for a long period of time was easy when the investment was insured; it may be a different story in 2013.

A New York Times article noted that “the much more divisive question is whether the government should preserve the benefits that the companies provide to middle-class borrowers, including lower interest rates, lenient terms and the ability to get a mortgage even when banks are not making other kinds of loans.”

The lower rates available because of Fannie Mae and Freddie Mac’s insurance are essentially available because of investors eager to put money into the companies—precisely because of the government guarantee against default.

Would another government entity be able to do the same thing—insure against default and attract the investors necessary to provide favorable terms to borrowers? It’s unclear, even to lawmakers: the same NYT article quoted Representative Barney Frank as saying that “I myself am eager to see whether there needs to be a guarantee.”

 

It’s always a good idea to be prepared for whatever might happen during your mortgage loan application process. Knowing what can be problematic can help you avoid these pitfalls!

So what problems have we seen?

Too much debt. This is a major issue for a number of different reasons. Your debt-to-income ratio is one of the most important issues in your mortgage loan application, as well it should be, as it says a lot about the state of your financial health. If you have a low debt-to-income ratio, then you have less debt—and if you don’t have a lot of debt, you can use the money for other things!

A 41% DTI is the most common limit. The DTI is calculated by dividing all (credit reporting) monthly payments by the gross monthly income.

Not enough income. The other side of the debt-to-income ratio needs to be a higher number, and you must supply some proof of your income to qualify for a mortgage loan. Your income plays into the debt-to-income ratio, but it also gets examined in terms of a monthly budget ratio.

What’s the difference? Just because you qualify for a loan with a 40% DTI, for example, your actual living costs may be significantly higher due to expenses that didn’t make it into your credit report (groceries, entertainment, utilities, hobbies, daycare, etc.).

           There’s no question but that the single most important determiner of whether or not you’re approved for a mortgage is your credit score. A lot of people think they’ll just go in and apply and “see what happens.” Don’t do it! Every time your credit score is requested, it goes down; so you want to wait until it’s at an optimal high before you go through the actual mortgage application.

So what can you do right now to improve your score?

Want help? Avrus Financial Services are here to guide you through the processes of repairing your credit, obtaining a mortgage, and planning for your financial future. Just ask us how!

FHA-backed loans aren’t just for first-time home buyers or those recovering from a foreclosure. If you already have a FHA mortgage loan, you can now save money through a refinance. And it’s getting easier!

The FHA recently announced that it’s lowering the FHA MIP (mortgage insurance premium) on FHA mortgages from the current rate.

What this means for you is that you can significantly lower your monthly payments. This, along with the historically low interest rates, can really benefit some homeowners who currently have an FHA mortgage on their home.

What is the FHA streamline refinance?

It’s a special mortgage product reserved for homeowners with existing FHA mortgages. (What this means is that homeowners with conventional mortgages via Fannie Mae or Freddie Mac can't use it.)

What’s so special about the FHA streamline refinance?

What is particularly special is that the program doesn’t a home appraisal. Instead, you can use your original purchase price as your home's current value, no matter what your home is actually worth today. This is a seriously big deal: many homeowners are “underwater” on their mortgages—in other words, they owe more than the house is currently worth. This program doesn’t care; even if you owe far more than your home is currently worth, you can still refinance.

Another big plus is that FHA mortgage rates are as low with the Streamline Refinance program as with "regular" FHA loans. A reminder that these loans include:

What other advantages does the streamline offer?

It’s reasonably easy to qualify for the FHA streamline refinance. In fact, the reality is that you can be out-of-work, without income, carry a terrible credit rating and have no home equity, and still be approved. This is because there’s no credit check, no need for income verification, no home appraisal, and no income verification.

Why is the FHA offering this program?

The FHA is not in the mortgage business; it’s in the business of insuring mortgages. It’s therefore in the FHA’s best interest to make sure that everyone has the best possible mortgage product with the lowest possible interest rates, which in turn leads to fewer mortgage defaults.