FHA Changes, Jumbo Loans and Credit Crunches: A Lending Update

by Natalie Terchek

Steven McGilbray, Guaranteed Rate

Steven McGilbray, Guaranteed Rate

Vice President of Mortgage Lending
Guaranteed Rate

What new products are available this year?

I share information with people at a Realtor breakfast that I do twice a month in one of the largest real estate school campuses in Texas, and I’ve seen many people do a 3 percent down payment conventional in lieu of doing a FHA loan of 3.5 percent. Now the FHA has a 1.75 percent upfront mortgage insurance, so to combat that, the option with folks that don’t have as much money to put down, the 3 percent down payment conventional works perfectly.

Also, Guaranteed Rate has a 10 percent down conventional with no escrow account, which is great for buyers that prefer to handle tax insurance personally. The option can also be coupled with a one-time MI payment to avoid having a second loan above the mortgage insurance. In the past, people would have to have at least 20 percent down payment to avoid an escrow account in mortgage insurance or second loan. But this particular product again is a 10 percent down payment and allows you to handle your taxes and insurance yourself. As I mentioned, there’s a fee that can be paid to avoid the monthly mortgage insurance, so these are great products that I even take advantage of personally.

What products are most homebuyers after?

Conventional loans I think are still the most popular, in terms of purchase. I’ve also been seeing a lot of refinance loans for first-time homebuyers. I still have a lot who will put anywhere from that 3 percent to 20 percent down.

I haven’t done as many FHA loans this year, though I did close one last month. Now with the FHA, you’re required to pay that mortgage insurance for the duration of the loan for 30 years for a 30-year loan. The only way to avoid that is if you were able to refinance. The upfront mortgage insurance has gone up from 1.5 percent to 1.75 percent. Again, the fact that you can no longer avoid having the mortgage insurance cut off once it gets to 78 percent loan-to-value, consumers will have to refinance in order to drop that into a conventional loan, otherwise they’re stuck with the monthly mortgage insurance until that loan is paid off.

There are plenty of FHA buildings or homes still available, and in reality, it doesn’t have to specifically be an FHA “home”– you can pretty much find any home in any subdivision or neighborhood that would be able to qualify for FHA financing. I’m speaking more for single-family residents, and I still see a lot of those. I just did one again last month, with a $306,000 purchase price.

How have jumbo loans have changed, if at all?

Guaranteed Rate is actually the largest independent jumbo lender in the country, and we have many options. One of my favorites is the 10 percent down payment up to $850,000 on a new loan amount without an escrow account or monthly mortgage insurance. Someone who is purchasing a home could indeed avoid having the monthly mortgage insurance, as long as the loan amount is $850,000 with 10 percent down. We can also do 20 percent down payment with an 80 percent loan to-value up to $2 million on a single-family residence and 70 percent loan-to-value on condos. We offer an additional program with the 50 percent loan-to-value up to $5 million with the FICO score as low as 680.

What are some of the biggest trends you are seeing?

One of the things that I’m seeing with Houston, as an example, specifically, as it being the oil and gas capital of the world, is a lot of foreign nationals coming in from other parts of the world. These programs are really gaining in popularity. I think we have one of the best options out there for financing – up to an 80 percent loan-to-value without a social security card or U.S. credit. Foreign nationals are definitely taking advantage of that program. For many of them, you’re putting down more than 50 percent to get financing. But in one of the programs we offer, I can get a foreign national buyer financing with 20 percent down with no social security card or U.S. credit required. Some programs will require it, but I think the Foreign National program is really a big one that I’m seeing quite a bit of.

Are you seeing many buyers who have lost homes to short sales/foreclosures coming back to the market for loans? What is the process when they have a foreclosure on their credit report?

Yes, I’ve had buyers getting back into homeownership, especially with rates being at a historical low. With short sales, as long as it’s been seasoned or two years out of that short sale situation, we can get an 80 percent loan-to-value, or if it’s over four years, 90 percent. With foreclosures, Fannie Mae requires seven years from completion date with conventional financing. So, if your client has had a foreclosure, or if these borrowers are coming back to entering the market to purchase homes, as long as they’ve been seven years removed from foreclosures with Fannie Mae, conventional financing takes seven years. For FHA, three years is the completion date, and for those who have military background, the VA only requires two years from discharge date. As long as the borrowers reach the criteria, we can provide them the finances.

How can agents and their clients use tech to their advantage when it comes to loans?

Our technology at Guaranteed Rate is industry-leading. One of the things I love about my company is the ease of use that borrowers have. Especially these days, a lot of people are doing things more online and looking for information. We’ve added a feature that allows borrowers to go online, create an account with a username and password. From there, they can pull credit scores free of charge. Then, if they take some additional steps, it will allow them to get approval right there on the spot. That’s another benefit for Realtors. It takes about 20 minutes to go through the process and you can start shopping or submitting a contract on a home without having to wait. That’s something that’s huge.

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