Borrowing money to finance a real estate purchase is about to become more expensive for some homeowners. Fannie Mae and Freddie Mac will charge higher fees on loans to borrowers who don't put down at least 20 percent or who have credit scores of 680 to 760. The Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie, is imposing the new fees in order to level the playing field between the government-owned companies and private providers of capital. Separately, the FHFA said it would study reducing the loan amounts that Fannie and Freddie guarantee by to $400,000 from the current level of $417,000. Those changes would not take effect before October 2014.
Meanwhile, the Federal Housing Authority loan limits are set to change. Loan limits currently can’t exceed 125 percent of the median home price for a given county, with a national ceiling of $729,750. Those limits, which were enacted by Congress five years ago and extended repeatedly, expire at the end of the year. Beginning next year, the FHA will only be able to guarantee loans up to 115 percent of the median home price, ranging between $271,050 and $625,500.
The real estate industry is going to fight these changes, claiming that they will kill the housing recovery. The anti-bailout crowd will respond by saying that the country needs to reduce the government's role in housing. Regardless, if you are in the market for a mortgage or a re-fi right now, it would be prudent to move the process along!
What do you need to know about attaining a mortgage now? “The process has improved from a year ago, but it is still labor intensive. Borrowers need patience and perseverance” according to Mike Raimi, President of WCS Lending. Mortgages for new home purchases can take about three weeks to close, while refinancing can take longer – “anywhere from 45 to 90 days.”
If you are looking for a 30-year conventional mortgage with 20 percent down, the best rates are available for those with credit scores above 740. For every 20-point drop in score, the mortgage rate jumps by a quarter of a percent. If your credit score is below 620, it’s tough to get a loan closed, unless you qualify for the government’s HARP plan. (Credit scores do not have nearly as much impact on loans of 15 years and shorter.)
Whether you are trying to refinance or buy a home with a mortgage, here's what you need:
- W-2 (2 years)
- Tax Returns (2 years)
- Pay Stubs (2 months)
- Bank statements – all pages (2 months): You may also need to provide the lender with an explanation for any large deposits that have been made into bank accounts. This has more to do with beefed up anti-money laundering efforts than the mortgage process itself.
- 6 months of mortgage payments in cash reserves (sometimes less, but this is a good rule of thumb)
- Investment accounts: If bank accounts do not show adequate assets, lenders may ask for investment account statements.
- Donor letter: If a family member or friend is helping you with your down payment or providing cash for the re-fi, he or she may be required to provide a letter and may also have to present his or her account statements.
- Self-employed applicants: Must have 2 years of proof of self-employment and 2 years of tax returns. Gone are the days when self-employed borrowers can "add-back" tax preference items. While you may have used the tax code to your advantage, the bank will not cut you any slack - the numbers on the return are set in stone.