Getting a Mortgage in 2010: Things you should know

More than three years into a painful housing crash, the real estate market has sent recent--albeit tentative--signs of stabilization. Home sales have increased, inventory levels are down, and price declines have become less precipitous. Along with more affordable home prices and a tax perk from Uncle Sam, attractive mortgage rates--which remained below 5 percent as of late November--have been a driving force behind this development. The availability of low mortgage rates will play a decisive role in the performance of the 2010 housing market as well. To help consumers better understand the requirements and costs they will face as they shop for a home loan next year, U.S. News spoke with a handful of housing market experts and compiled a list of 10 things to know about getting a mortgage in 2010.

1. Still tight: The steep run-up in home prices during the first half of the decade was fueled in large part by breezy lending standards. Some bankers handed out loans without down payments or documentation requirements. But when the housing bubble popped and those loans became massive losses, banks began raising lending standards for borrowers of all stripes. And with the labor market continuing to erode--the unemployment rate hit 10.2 percent in October--and mortgage delinquency rates setting new records, there is no reason to expect credit requirements to loosen in 2010. "Lending standards have tightened dramatically between 2007 and 2009," says Scott Stern, CEO of Lenders One, a cooperative of independent mortgage bankers. "I think there will be a little more belt-tightening in 2010."


2. Down payments: This tight credit environment affects consumers in several ways. First, down payment requirements will be higher than they were just a few years ago. Loans backed by the Federal Housing Administration are at the low end of the spectrum and come with minimum down payments of 3.5 percent. (More on FHA loans below.) Down payments on loans outside of the FHA will vary depending on the market, the borrower, and the property type. "Generally, to get the best rate around, you need at least 20 percent for a down payment," says Guy Cecala, publisher of Inside Mortgage Finance. "That doesn't mean you can't get a mortgage if you have less of a down payment . . . it just means that you are not going to get the best interest rates." Could lenders ease up on down payment requirements in 2010? Possibly. If lenders become convinced that home prices are improving, they may allow borrowers to put slightly less down. But don't expect that to occur until the end of the year--if at all.


3. Credit scores: Cecala says that borrowers will need a FICO score of at least 730 to get the best mortgage rates. They also will need to fully document their income and assets. To ensure that your credit score is as strong as possible, borrowers should access their credit reports. The Fair and Accurate Credit Transactions Act entitles consumers to one free credit report from all three major credit reporting bureaus--TransUnion, Equifax, and Experian--each year. (The free reports can be obtained at annualcreditreport.com.) Consumers should examine each report to make sure it doesn't include any errors. "[Consumers] ought to know what their credit score is; they ought to know what's on their credit report; they ought to make sure that what's on their credit report is in fact theirs," says Rick Allen, director of strategic initiatives for Mortgage Marvel, an online mortgage shopping website. "That's a must do for everybody."


4. FHA: Borrowers who can't meet these tighter lending requirements can turn to the FHA, a federal agency that insures mortgage loans against default. Standards for FHA loans are typically less onerous than those for private lenders. The average credit score for FHA borrowers is about 690, and the minimum down payment is 3.5 percent, Cecala says. "If you can't make the 730 [credit score] or you can't make the 20 percent down [payment], the next best thing is FHA," Cecala says. The downside is that FHA loans come with additional costs. Borrowers must pay an insurance premium as well as a slightly higher interest rate, Cecala says.


5. FHA increase? With so many borrowers unable to meet today's stricter lending requirements, FHA-backed loans have become increasingly popular. Today, the FHA guarantees nearly 3 of every 10 new home mortgages. That's a stunning increase from 2006, when the agency backed roughly 3 percent of new home loans. Meanwhile, the agency's finances have deteriorated considerably. The seasonally adjusted delinquency rate for FHA loans increased from about 13 percent in the third quarter of last year to 14.36 percent in this year's third quarter. At the same time, the agency's capital reserve ratio dipped below the level that Congress mandates. In the face of mounting political pressure, the Obama administration has announced new steps that may make it more difficult for some borrowers to obtain mortgages backed by the agency. The steps include raising the minimum FICO score, increasing up-front cash requirements, and possibly charging higher insurance premiums. "We want to ensure that we are able to continue to support the housing market in the short term and provide access to homeownership over the long-term, while minimizing the risk to the American taxpayer," Housing and Urban Development Secretary Shaun Donovan told a congressional committee in written testimony.

Read the full story with additional things to know here: http://news.yahoo.com/s/usnews/20091203/ts_usnews/gettingamortgagein201010thingstoknow

Courtesy of U.S.NEWS

A Historic Time to Buy

Young people just starting to invest and buying their first homes are potentially the winners in this recession.

First-time homebuyers, most between the ages of 25 and 45, accounted for about 45 percent of home sales from January through July 2009, according to the National Association of REALTORS®

"This is a historic time," says George Jaramillo, a 35-year-old business analyst in Atlanta, who recently bought three homes, two of them foreclosures. "It's a great opportunity to make some great gains in the future."

A study by investment company T. Rowe Price points out that investing when prices are low can result in amazing gains. For instance, between 1970 and 1990, the annualized rate of return for the S&P 500 was 11.5 percent.

"We need to be shouting from the rooftops that this is not the time to get out of the market if you're young," says Christine Fahlund, a senior financial planner with T. Rowe Price. "This is the time to be in the market."

Source: The Associated Press, Chip Cutter

Good Year for FHA loans

FHA Is Having Busiest Year Ever
About 25 percent of all new mortgages are backed by the Federal Housing Administration in what will probably be the busiest year yet for the federal agency.

Applications for FHA mortgages rose 50 percent from last October through mid-August 2009 and approvals for purchases, refinancings, and reverse mortgages rose 70 percent to 1.67 million.

FHA loans "are one of the most important sources in this market," says Mark Zandi of Moody's Economy.com. "Without FHA, the housing slide would be much more severe. We wouldn't be talking about a recovery now. We'd still be talking about a crash."

Some analysts are concerned about the risk the FHA has taken on, but others point out that borrowers with FHA-insured loans now have an average credit score of 690, compared to 630 two years ago. Borrowers with a credit score below 500 must come up with a 10 percent down payment.

Source: USA Today, Stephanie Armour (09/02/2009)

July new US home sales up 9.6 percent

WASHINGTON (AP) -- New U.S. home sales surged 9.6 percent in July, rising for the fourth straight month and beating expectations as the housing market marches steadily back from its historic downturn.

The Commerce Department said Wednesday that sales rose to a seasonally adjusted annual rate of 433,000 from an upwardly revised June rate of 395,000. Sales are now up more than 30 percent from the bottom in January, but are still off nearly percent from the frenzied peak four years ago.

The median sales price of $210,100, however, was off 11.5 percent from year-ago levels and down slightly from $221,400 in June.

Last month's sales pace was the strongest since September and exceeded the forecasts of economists surveyed by Thomson Reuters, who expected a pace of 390,000 units.
In a kind of Cash for Clunkers effect, homebuyers are rushing to take advantage of a federal tax credit that covers 10 percent of the home price, or up to $8,000, for first-time owners. Home sales must be completed by the end of November for buyers to qualify.

Builders and real estate agents are pressing Congress for that credit to be extended. If it isn't, sales could reverse their upward trend.
As sales rise, that's likely to make builders more confident about getting going on new projects, and that's likely to lead to more jobs ins the construction industry. "These are crucial elements of a sustainable recovery," David Resler, chief economist at Nomura Securities, wrote in a research note.

Each new home built creates, on average, the equivalent of three jobs lasting one year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders.

There were 271,000 new homes for sale at the end of July, down more than 3 percent from May. At the current sales pace, that represents 7.5 months of supply - the lowest since April 2007. The decline means builders have scaled back construction to the point where supply and demand are coming into balance.

Courtesy of:
By ALAN ZIBEL
AP Real Estate Writer Aug 26, 11:19 AM EDT
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$8000 1st Time Homebuyer Tax Credit Deadline is Near

The deadline is approcahing and will be here before you know it. 1st Time Home Buyers have just a little over 100 days before the $8000 tax credit is gone.

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.


Don't miss out on this government housewarming gift.

10 Ways to Prepare for Homeownership

1. Decide what you can afford. Generally, you can afford a home equal in value to between two and three times your gross income.

2. Develop your home wish list. Then, prioritize the features on your list.

3. Select where you want to live. Compile a list of three or four neighborhoods you’d like to live in, taking into account items such as schools, recreational facilities, area expansion plans, and safety.

4. Start saving.Do you have enough money saved to qualify for a mortgage and cover your down payment? Ideally, you should have 3.5% to 20% of the purchase price saved as a down payment. Also, don’t forget to factor in closing costs. Closing costs — including taxes, attorney’s fee, and transfer fees — average between 2 and 7 percent of the home price.

5. Get your credit in order.Obtain a copy of your credit report to make sure it is accurate and to correct any errors immediately. A credit report provides a history of your credit, bad debts, and any late payments.

6. Determine your mortgage qualifications.How large of mortgage do you qualify for? Also, explore different loan options — such as 30-year or 15-year fixed mortgages or ARMs — and decide what’s best for you.

7. Get preapproved. Organize all the documentation a lender will need to preapprove you for a loan. You might need W-2 forms, copies of at least one pay stub, account numbers, and copies of two to four months of bank or credit union statements.

8. Weigh other sources of help with a down payment. Do you qualify for any special mortgage or down payment assistance programs? Check with your state and local government on down payment assistance programs for first-time buyers. Or, if you have an IRA account, you can use the money you’ve saved to buy your fist home without paying a penalty for early withdrawal.

9. Calculate the costs of homeownership. This should include property taxes, insurance, maintenance and utilities, and association fees, if applicable.

10. Contact a REALTOR®. Find an experienced REALTOR® who can help guide you through the process.

Source Realtor.org