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Tag: conventional loan

  • Qualifying for mortgage easier with new student loan guidelines

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    Given all the media coverage about student loan debt keeping millennials out of the home purchase market, I thought it would be good to review some updated loan guidelines from Fannie Mae and USDA concerning this type of debt.

    One important point to remember is that both loan programs treat deferred student loans the same as loans in active repayment, meaning we have to include the loans in our debt calculations.

    Also, the guidelines recognize that income-based and graduated repayment plans, which have become popular, may not provide an accurate estimate of the loan’s impact on the borrower’s finances because the payment may rise. As a result, the guidelines require that we use a fixed percentage of the loan balance in our debt calculations.

    On a very positive note, the updated guidelines cut that fixed percentage from 2% to 1% of the loan balance. This is a big deal because it reduces the impact of student loan debt by 50%. Further, if the actual payment is less than the 1% calculation, the guidelines state that we can use that payment, but only if it fully amortizes the loan. If the actual payment is greater than 1%, we must use the actual payment.

    While USDA already has implemented the new guidelines, the changes won’t apply to Fannie loans until 4/1.

  • Return of 3% down payment mortgage

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    If FHFA Director Mel Watt has his way, we’ll have 3% down conventional loans again soon, but he’ll have to overcome criticism that lower down payments represent a return to the policies that led to the housing crash.

    Watt said the loan program he envisions would have tougher requirements, such as stronger credit histories or housing counseling, and Fannie Mae’s CEO claimed the new Dodd-Frank regulations will ensure borrowers can afford to repay the loans.

    Some independent analysis supports the safety of the proposed program. An Urban Institute study found that credit scores were a much better predictor of default risk than down payment size. It concluded that allowing loans with down payments less than the current 5% limit should have a negligible effect on default risk.

    Critics point out that it’s not the ability to repay that concerns them, but the ability to weather another decline in home values. It’s undeniable that having “no skin in the game” was a factor in some homeowners strategically defaulting on their underwater mortgages.

    Still others worry that this is “just the camel’s nose under the tent.” They say it’s naive to think this won’t lead to a further erosion of underwriting standards over time.

    However this plays out, I think Watt is being politically astute in sharing his plan with various interest groups and Congress. FHFA can change the minimum down payment requirement without Congressional approval, but I suspect Watt would like the cover that a broad consensus would give him.

  • Will we see lower down payment conventional loans?

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

  • Minimum credit score drops for FHA loan

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.