Show Me The Money!

Many reports are circulating as to mortgage activity and product availability. One week is it reported that mortgage applications fall, while the next week it's just the opposite. The media often implies it's difficult to secure financing. So, what do we believe? 

Here in the MetroWest area the local Realtors have been busy. New listings are coming on the market every day. The question we ask is, are there enough qualified buyers out there to take advantage of all of the wonderful properties currently for sale, particularly first time buyers?

According to local mortgage expert Nicole Kittredge, "It has been a very busy and consistent spring with many buyers taking advantage of exceptional market conditions AND being able to qualify for many different financing options."

When I asked, “What is the biggest challenge to buyers in getting pre-approved?"

Kittredge believes there is often simply a lack of knowledge (of credit or funds needed).  She shared that overall, a large percentage of first time buyers are getting qualified. “With over 150 loan products, many of the low down payment options and options that suit those with less than perfect credit, there are great, affordable fixed rate loans for most."

"We really are in the perfect storm when it comes to buying. Low home prices, rates still in the mid-4's. Those that wait will miss out on one of the best times to purchase a home," she said.

Alan Kessler of The Mortgage Pros in Framingham has been in the mortgage industry for the past 25 years and has seen the mortgage industry go through many changes, from revisions to the appraisal process to a lowering of some qualifying ratio’s, but he says  currently the one that is having the greatest impact is the change in the Federal Housing Administration (FHA) monthly mortgage insurance premium.

"FHA loans allow a buyer to put as little as 3.5% down on a purchase  of a new 1-4 family property.  With this low down payment, a buyer is required to pay mortgage insurance," he said. 

 The mortgage insurance on the FHA loan has changed twice over the last 6 months, essentially more than doubling the cost of the mortgage insurance.  The monthly mortgage insurance premium per year  stands  at 1.15% per year, as of April 2011.  Even though there has been a decrease in an additional upfront insurance on the FHA loan, the increase in monthly payment on a $250,000 FHA mortgage is approximately $108 per month.

When asked why this rate has gone up, he explained, "An FHA mortgage is a government backed mortgage program.  The government’s concern is that the program may become insolvent without increasing monthly insurance premiums.  This is due to the high level of defaults and increased volume of FHA mortgages.”

With all of the changes in the industry one might wonder about the strength of the independent mortgage broker, but according to this seasoned professional, “With the ever changing guidelines, government regulations and programs, seemingly on a daily basis, the small local mortgage broker companies, like ours, have a distinct advantage over the larger banks and credit unions as we are able to adapt as quickly as changes occur," he said.

 “One of the biggest changes in our industry has been that all Mortgage Loan Officers in the United States must be individually licensed. This is accomplished by  passing a Federal and State Knowledge Exam, required continuing education and a federal background check including fingerprinting," he added.

 I was enlightened when he told me this is not required of loan officers at a local bank or credit union.

In spite of the increase in FHA mortgage insurance, the FHA loan is still a good option for many buyers.

I also see financial support coming from family members in the form of a gift towards the down payment, in some cases, this gift money is necessary to help the buyers qualify for a home loan.  

Jumbo loan limits vary from county to county as well, in some instances encouraging buyers to search for a home in Middlesex County where the jumbo loan limit is higher than in Worcester County.

Cash buyers are active in the market and are purchasing homes for their kids, or for themselves as retirement or vacation homes.

Others are investing in income property or renovating distressed homes, hoping to see a profit in 6 months or less with a fix and flip.