How the “Credit Crunch” Affects Mortgage Financing

The "Credit Crunch" is all over the news and it IS real, but what does that mean to you, the consumer? In general, it means higher lending costs, but there are caveats to that in the mortgage world. The atmosphere of mortgage lending has changed drastically over the past year and you, as a consumer, should know what to expect when looking into mortgage financing.

Let's start with what's no longer available... anywhere.

•· Stated Income (showing no income documentation) or Bank Statement (using bank statements to show income) loans

•· 100% financing (except for VA and USDA Rural Development)

•· Negative Amortization loans a.k.a. "Option ARMs"

If you were wanting any of the above, you need to be aware that these simply aren't options any longer. Also nearly extinct are exceptions to published guidelines - don't expect to get any. However, for those that have healthy FICO scores (700+), loan amounts under $417,000 (the conforming loan limit) and either equity or money to put down, the lowest rates of your lifetime are available right now.

That said, there are many new restrictions that will raise either your rate or costs even if you are one of those borrowers. What affects your rate?

•· Pulling cash out to over 60% of the value of your home and the higher the loan to value ratio (LTV), the more it will cost you.

•· FICO scores below 740 - 740 is the new gold standard. If your credit score is below that, it could cost you, especially if it's well below that threshold.

•· Down payments less than 20% will cost you more in either rate or mortgage insurance.

•· Loan amounts above $417,000 are considered "Jumbo" and carry significantly higher rates.

•· Investment properties are already going to carry a rate premium, but anything over 75% LTV will cost you even more.

•· Multi-unit properties carry higher rates as well.

There are some financing options to get around some of these costs if you're exploring all the options available to you, but if any of these factors apply to you, don't expect the interest rate advertized on the radio or TV - and always read the fine print! You should also be aware that for some transactions, appraisal costs are rising - either due to the requirement for two independent appraisals or the use of appraisal management companies that may charge higher fees than independent appraisers. This is quite out of your and your lender's control, but be sure to ask if your transaction might be subject to either. You will also find that lender underwriting or commitment fees are rising as well, while they take longer and longer to actually underwrite your loan.

It's a great time to finance your home, but be sure to work with someone who takes into account all the variables of your transaction.