27 January 2009

Utah Mortgage options available despite credit freeze

Mortgage options available despite credit freeze

President's Message

Chris Sloan

            If you've thought about buying a home but have changed your mind because you believed you would be unable to get a mortgage, you may want to reconsider your decision. Despite what you may have heard, there are mortgages available, even if you have less-than-perfect credit or a small down payment.

            Of course, credit standards are tighter than they were during the real estate boom, but the situation is not nearly as bad as the rumors suggest. In fact, reports that say loans are only being made to those with credit scores above 720 who have down payments of 20 percent or more are simply inaccurate.

            There are a number of resources and loans available to today's buyers, most of which have very competitive interest rates. Below is a discussion of some of the mortgages and home-buying programs that deserve a closer look.

Conventional Loans

In today's market, the two types of loans generally available are conventional loans (those under $417,000 that can be sold to Fannie Mae and Freddie Mac in the secondary market) and FHA loans, which are insured by the government.

Conventional loans are best suited for someone with good credit and money saved for a down payment. Generally speaking, the best rates are available to those with 700 credit scores and above and have at least 5 percent down. For Salt Lake, Summit and Tooele counties, loan amounts can go up to $600,300, although there might be additional fees for anyone who takes out a loan for more than $417,000.

FHA Loans

For anyone who has less-than-perfect credit, a small down payment or lacks a traditional credit history, FHA may be the way to go. Down payments are only 3.5 percent, closing costs can be financed, and borrowers get to take advantage of competitive interest rates. At the time this article was written, rates for a 30-year fixed FHA loan were hovering around 5 percent.

Although good credit is required, perfect credit is not a prerequisite. In fact, the National Association of Realtors reports that someone with a credit score under 620 may be able to qualify.

            For 2009, FHA loan limits in Utah range from a low of $271,050 to a high of $600,300 depending on the county. Buyers can find FHA-approved lenders in their area by using the FHA Lender Search Engine at www.fha.gov.

USDA Loans

Another program that can benefit borrowers who have less-than-perfect credit is a U.S. Department of Agriculture rural housing loan. The program offers competitive interest rates (currently around 5 percent), allows seller concessions to be used for closing costs and qualifies borrowers without requiring monthly insurance premiums like the FHA program. Plus, the program will provide 100 percent financing.

Although many homes will not fall in the target areas required for qualification, there are some unexpected locations that are considered rural areas. For example, along with the more traditional rural areas in Utah,  all of Tooele County, some parts of Salt Lake, Utah, Weber and Washington counties will qualify. To learn more about the program, talk to a lender who specializes in USDA loans.

Down Payment/Closing Cost Assistance

Even though FHA can fill the lending void for those with less-than-perfect credit, those who need 100 percent financing (and don't qualify for the USDA program) could still face hurdles. That's where programs from Utah Housing Corporation and other government entities can fill the gap. Utah Housing works by providing an FHA-insured mortgage as the first loan, and offering a second loan (up 6 percent of the first mortgage) for down payment and closing costs.    

Similar types of assistance programs are also available from local government entities throughout Utah. To help buyers find these programs, the Utah Bankers Association has released a consumer guide, "Home Sweet Affordable Home," which details all of the state's affordable housing resources. Hard copies are available at most Utah bank branches, and all the information can be found online at www.HomeSweetHomeUtah.org.

            While the programs discussed above have certain requirements, the lenders originating the mortgages also have their own standards, which means qualification can vary. That's why it's important for you to shop around, do your research and work with a lender who knows the business well. If you don't have a relationship with a lender, your Realtor may be able to give you the names of several individuals he or she has worked with in the past.

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