As the country moves into year five of the re-regulated mortgage era, loan guidelines continue to become more flexible. If you’re buyingor refinancing a home, the following recent developments in expended loan options could affect you. In all cases, each lender’s guidelines will vary, so consult your loan officer to see if any of these fit your profile.
97-percent conforming loans for first-time buyers
In December, Fannie Mae and Freddie Mac rolled out 3-percent down programs targeted at first-time buyers. The loans require mortgage insurance and are capped at $417,000. But with a 3-percent down payment, that translates into a purchase price as high as $429,897.
Both Fannie and Freddie guides say the loans can be obtained with a credit score as low as 620, but each lender can layer its own guidelines on top of Fannie/Freddie guides, so you’ll need to ask your lender for its credit and other requirements.
90-percent jumbo loan with no mortgage insurance
For higher-earning home buyers who need to borrow more than the $417,000 conforming loan cap, an increasing number of jumbo lenders are adding the ability to lend 90 percent of a home’s value with loan amounts up to $1 million — and as high as $1.25 million for exceptional borrowers.
This translates into purchase price ranges of $1,111,111 to $1,388,888 with just 10 percent down and no mortgage insurance, which is a huge cost savings on larger loans. Borrowers typically must have a debt-to-income ratio of 35 percent or less, credit scores of 720 or greater, and at least 12 months cash reserves after the close. These programs are now available with most jumbo lenders.
Re-amortizing jumbo loans
Some large banks who keep their jumbo loans — instead of selling the loans after they close — have begun offering a re-amortization feature on jumbo loans over $417,000. Re-amortization means that your payment will decrease as you pay your loan down.
Depending on the lender, a loan balance pay-down from $5,000 to $20,000 will trigger a payment recalculation. This feature enables higher earners to lower their monthly budget as they chip away at their loan balance using extra income like bonuses or stock compensation. Previously, the only way to lower your payment as you paid your loan down was to use an interest-only loan, but those loans carry higher rates.