Changing Lending Rules Make Buying Real Estate
Harder
by Jeanette
Joy Fisher
If you're
hoping to buy a home in the near future, take note.
Joint guidelines have recently been issued by the
Treasury Department, Federal Reserve Board, FDIC, and
the National Credit Union Administration that seek to
tighten lending practices and underwriting standards for
the various types of nontraditional mortgages that have
been popping up over the past several years to help
buyers get into homes in the face of rapidly increasing
home prices in many areas of the country.
The new
guidelines are specifically aimed to slow the growth of
such exotic financing vehicles as payment-option,
negative amortization, interest-only, and stated income
mortgages. They'll affect how all federally-chartered
banks, mortgage bankers, and credit unions process loan
applications, as well as the types of financing options
they can offer their customers. It's also expected that
state regulators will be quick follow suit, regulating
state-chartered banks, independent mortgage firms, and
brokers.
The new
regulations will limit certain nontraditional funding
vehicles in the hope of helping borrowers stay out of
financial trouble in the face of a downturn in the real
estate market. They will force lenders to more carefully
scrutinize potential borrowers to make certain they
actually have the creditworthiness and financial ability
to repay loans before those loans are granted.
Payment
Option Mortgage
One of the
loans that caused the Fed's latest action is what's
known as the payment option mortgage, which gives
borrowers three payment choices every month. If they
choose the lowest payment option, the payment they make
isn't enough to cover principal and interest, which
means that the shortfall is added to the overall loan
balance. Option two is enough to pay that month's
interest, but nothing is deducted from the principal
balance. The third option is the traditional principal
and interest amount.
That type of
loan worked reasonably well for buyers in areas of the
country where home prices were escalating quickly and
didn't plan to stay in their homes for a long time. They
could easily make up any shortfall in their loan amount
by selling their homes at a considerably higher price,
paying off the mortgage, and moving on to their next
home. However, as prices level off and even decline in
some areas, that type of mortgage may prove disastrous.
New
Qualification Guidelines
The new rules
will also attempt to mandate more dependence on income
verification and less on a borrower's credit score. To
aid lenders in doing that, a new IRS program went into
effect on October 2, 2006, to provide lenders with quick
income tax data in an electronic format (known as Form
4506-Y), including income and federal taxes, going back
as far as four years.
That will make
it much easier for lenders to make informed decisions
about a buyer's actual ability to pay back a loan,
rather than relying strictly on past credit history. The
data will generally be available to lenders in one or
two days, which will speed up the overall lending
process.
If you've been
waiting to buy a home or to refinance a mortgage, now
might be the easiest time for you to qualify before
guidelines for qualifications get even tougher.
Copyright © 2006 Jeanette J. Fisher
Why You Need Strong Credit
I hope you don't fall into the
trap of thinking you need strong credit to buy luxuries
with credit cards. The only reason you need credit cards
is to build credit to buy a car, a home, and investment
properties. In fact, financial planners think you should
pay cash for your cars and only have credit cards for
emergencies. My friend Annette Bau, CFP®, even thinks
you should pay cash for houses. Imagine that!
If you don't have cash to buy
houses, build your credit to finance multiple investment
houses. Make yourself an investment plan for life and
start with your credit--even if you have good credit.
Many beginning investors think that they have good
credit because they have a decent credit score. However,
credit for mortgage financing differs from consumer
credit of personal finance, department store, and credit
cards.
Six Mortgage Qualification
Requirements
- Credit Scores
- Income
- Debt-to-Income Level
- Personal History and Employment
- Down Payment
- Cash
Determine your weakest area and
make a plan for your future. Your financial goals could
look like this:
Organize debt
and credit
Meet
mortgage requirements
Purchase
home
Purchase
second home
Purchase
investment properties
Of course, this simplified version
doesn't come close to a complete financial plan.
Consider where you are now, where you want to be in one
year, three years, five years, ten years, and in twenty
years. Then take it one step at a time to achieve your
dreams.
Get Credit Help Financial
Planner with the book below.
Credit Help!
Get the Credit You Need to Buy Real Estate
-- in ebook format!
Instant
Download (Discount
for newsletter readers!)
Please
note: This ebook can't be printed to save trees. It's
formatted for easy reading on your computer screen.
Read more about the only
credit book you need, even if you have a great credit
score, but don't buy the ebook on the homepage
link--come back here.
Worry Free Credit
Book
Print books shipped
Monday-Friday by Priority Mail.
Bonus Gift
with Credit Help! PDF (IF
you've already purchased Credit Help, email me and I'll
send the bonus PDF to you.)
Credit Help Financial Planner: Get Out of Debt and
Build Strong Credit
Contents
1. Get Ready for Action
Start with Your Assets
Personal Assets Worksheet
Business Financial Statement
2. Credit File
Credit Scores
Ten Step Credit Repair Guide
Credit Dispute Log
Evaluate Your Financial Situation
3. Get Out Of Debt!
Create a Plan of Action
Perfect Balance of Credit for Mortgage Financing
4. Build Strong Credit
Easy Way to Set Up an Investment Fund
Payment Plan to Raise Credit Scores
Payment Plan to Lower Debt-to-Income Ratio
Debt Reduction Plan to Raise Credit Scores
Get Financial Planner with ebook
If you see too many books from shopping around, just
change the ones you don't want to"0." Be sure to check
the right shipping box.
Please note, if you pay using
PayPal, the download link may have to be emailed to you.
If you pay with the secure credit card service, you
should get the links immediately. Make sure that you
clear any other products from the Shopping Cart and
check the right shipping box for the print book order.
Thank you.
Opt out number for credit card
offers
Stop receiving junk mail credit card offers! Call
888-567-8688. Besides wasting paper and filling your
trash bins, thieves steal your mail and use these credit
card offers to steal your identity.
If you don't know what's on your
credit report, you may be able to get a copy for free here:
https://www.annualcreditreport.com/
Free
Ebook Download
PDF ebook on Credit for Mortgage Financing
Turn Your Credit Burdens into Wealth Building Tools
P. S.
You might like to read
the real estate investing newsletter.
Watch for our next
newsletter for bonus gifts to readers.
Worry-Free Credit Information:
Free credit card debt help today!
Not a subscriber? Join Credit Help
Tips Newsletter now!
Privacy Policy: We never share with
outside companies.
Copyright
© 2006 Jeanette J. Fisher
Free Credit
Help Tips Newsletter
