Information regarding qualifying for mortgages under 2009 guidelines. The information below discusses the minimum’s to qualify for a mortgage and I am happy to discuss how to fix, address, or how to make better any section. There are 4 primary qualifications and generally speaking you have to make each segment in order to qualify for a mortgage, every mortgage has exceptions and it’s own scenario specific questions, please take the information below as a general outline and feel free to ask questions

1. HISTORY

History is primarily two fold, work history and rent/mortgage payment history. In terms of work history you must be able to document two years of employment. In terms of payment, you can not show any late mortgage payments in the last two years, rental payment history takes a letter from the landlord stating rent payments are made on time.

2. CREDIT

FHA has the lowest credit requirements, as a general statement 620 will be the minimum allowed credit score, no bankruptcy’s or foreclosures in the last 2-3 years. Any outstanding judgments, collections, non-current items will need to be addressed and often paid.

3. DOWN PAYMENT, ASSETS, RESERVES

Outside of the VA loan programs every loan requires a contribution from the buyer, FHA has the minimum at 3.5%. But in addition to down payment for purchasing a home, there are other costs, property taxes, insurance, title, appraisal, bank fees, etc, thus increasing the needed money. These additional costs can be larger than the actual 3.5% down payment The FHA does allow for up to 6% concessions that can help pay for some or all of these additional costs, but you will still have to contribute the minimum 3.5% from your own funds, or family member gift funds.

4. DEBT TO INCOME RATIO

This is a factor of the amount of documentable qualifying income verses the amount of existing monthly minimum payments plus the new house payment including taxes and insurances. In general the goal is less than a 45% debt to income ratio. A very general example would be as follows. Gross annual income $48,000, as a monthly number $4,000/month. 45% of this number is $1,800. If you were to subtract minimum payments for credit cards at $100, a car payment of $400, and student loans at $200, this would leave $1,100 left over for the new PITI payment on the house.

I have been doing some preliminary research on President Obama’s plan and relief efforts that are targeted specifically to mortgages, foreclosures, and home buyers. As always if I can answer questions about a specific scenario, help you with information on a refinance, or advise on purchase programs I am happy to help!

Initially there are two distinctly different focuses, a refinance and modification option. I would advise that this is still only a proposal and needs to go through it’s course of approvals to become law, and through that it may change drastically. I do think this is valuable information as the President was able to push through his first bill with no earmarks and minimal changes. The Financial Stability Plan should stay in the headlines and become law relatively quickly.

It is also important to know that the government has already taken some steps that are in place now, before getting into the proposal this information may be helpful.

On the interest rate front the government, a few months ago, started buying mortgage backed securities, before the announcement and with the skepticism in the mortgage market rates were approaching 7% for well qualified borrowers. When the announcement broke rates moved down to the low 5’s for well qualified borrowers. The government is continuing to buy mortgage backed securities that should keep rates at this level, a key question is for how long, at the moment this is unknown, past policy would say that the government does not want to manipulate an open market for too long, on the other side the economic concerns may have new policy maker’s making new policies. Conventional Fixed rate mortgages, for well qualified buyers have been between 5-5.5% with out points, FHA loans have been between 5.5-6%.

On the purchase front; the government has made the tax credit/loan for new home buyers a true tax credit. There are some qualifiers for income, home purchase price, etc. To determine your impact it is scenario specific, if you have a question I am happy to try and answer it, but this may be best directed to your accountant.

The Financial Stability Plan in conjunction with the above items are hopefully going to help us find the bottom of the real estate values, keep some families in their homes, and create stability in the mortgage market, thus hopefully creating an ease to lending guidelines and helping reduce payments for those that can benefit from it.

The actual fact sheet from the government can be found here http://www.treas.gov/press/releases/reports/housing_fact_sheet.pdf

Below I have tried to summarize this proposal and hit some of the highlights.

For either the refinance or modification program your loan must be serviced by Fannie Mae or Freddie MAC, to identify if your loan is with either agency please review at www.financialstability.gov. Also the home must be your primary residence, and for the refinance scenario you must be current with your loan.

Home Affordable Refinance Program for Responsible Homeowners Suffering From Falling Home Prices
This is the refinance portion of the plan, again your home must be your primary residence and you must be current with your mortgage which is serviced by Fannie Mae or Freddie Mac. The program is designed to allow lenders to make loans on homes that are “under water” or near to it. Currently the home’s value verse the loan amount is one of the primary factors in determining the interest rate and closing costs. If the government can make the lenders feel comfortable that they have their back if a home owner fails the banks can feel comfortable extending the lower rates that previously only home owners with equity received. There will still be credit and income qualifications, and this portion of the plan is designed only to help those home owner’s that have remained current and want to benefit from the low rates that are currently available but are unable to get due to appraisal. There is very little guidance at the moment as to will these loans carry private mortgage insurance or not, this will be key because; if the mortgage carries PMI this will of course cut into the monthly savings. There will be more information on this as lenders provide feedback to the government. You will be able to shop for this mortgage with any mortgage provider.

A Comprehensive $75 Billion Home Affordable Modification Program

For the details of this plan I would encourage you to review the above links and the fact sheet, but the idea is to help those that are on the verge of foreclosure. Again to qualify it must be your primary residence and be serviced by Fannie Mar or Freddie Mac, there will be FHA and VA workouts as well. The government will subsidize lenders to work with there existing mortgage clients, for you; this means if you need to use this program you must work with your current lender, and if you have a second mortgage this could further complicate things. The goal will to be bring your housing expense/monthly payment to a certain percentage of current income. The mortgage companies can lower your rate to as low as 2%, if this still will not get the payment to the set monthly percentage the loan can be extended to as long as 40 years. This is meant only as temporary relief, 5 years, afterwards your rate will grow slowly back to the prevailing rate at the time of modification. You can be current or behind to use this program, you will be required to provide financial and income statements and it will be the primary factor to determine payment. On the lender’s side they are offered compensation to complete these programs, hopefully this will encourage the banks and services to work with you. As many of you read the headlines and keep your eye on the news it seems everyone has a different experience with their lender, this is another focus of the program, to make all lenders conform to a standard modification practice that is applied to each borrower the same.

Thank you,

Donald F. Bleuenstein
Kaye Financial
Branch Manager - Mortgage
Senior Loan Officer
phone 248.318.2394
fax 248.575.4144
www.detroitmortgagefinancing.com