Fannie Mae and Mortgage Insurers Make Changes
August 2nd, 2008 | categories: Coconut Grove Real Estate
This post is authored by Guest Contributor, James Venney:
The past 12 months have brought some dramatic underwriting guideline changes but some of the most recent ones are far more subtle but can jeopardize your loan approval none the less.
Fannie Mae instituted a new rule effective August 1st 2008 that requires that a home owner have at least 30% equity in their current home if they want to rent that home and use the rental income to help qualify for the loan on their new home. In the past 75% of the gross rental income could always be used to qualify for the loan on the new property regardless of the amount of equity in the current home. Of course there is an exception to this rule…if you have 6 months reserves to cover the PITI (principle, interest, taxes and insurance) for both the existing home and the new home than the 30% rule is waived.
Mortgage insurance companies that provide the required mortgage insurance when a buyer is making less than a 20% down payment announced this past week that there will be significant changes and restrictions to the loans that they will underwrite. One of the more notable changes is regarding investment property. Those potential investors that want take advantage of the current buyers market but only make a 10% down payment on investment property are in for an unpleasant surprise when they find out what the interest rate premium for doing so will be. Expect interest rates for investment property with only a 10% down payment to start around 8% and go up! However, if you are buying investment property and making a down payment of 20% or more you can still expect to get very attractive terms with interest rates remaining in the 6% range.
These are just two examples of the many changes we have seen over the past few weeks but all is not lost. Mortgage money is still readily available and interest rates remain near their historic lows.
If you are looking to buy and were pre-approved for financing more than 30 days ago you should contact your mortgage banker and have the approval updated to ensure its accuracy. And always keep in mind that when it comes to financial instruments like mortgages, advice is always far more important than price.
Authored by: James Venney CMPS, CMA
Phone: (305) 960-2671
Email: [email protected]
James Venney is a licensed mortgage broker and a State Certified Residential Appraiser. Currently, he is the top producing mortgage banker at Home Services Lending which is a joint venture with Warren Buffet’s Berkshire Hathaway and Wells Fargo Bank.