Mortgage Updates

Just when "decision credit scoring" had benefits for buyers showing an excellent credit history (credit scores over 700), there is another change -back to a set fee.  Now instead of rewarding credit worthy home buyers, FHA is back to using the same measure for all.  That means that if you were one of the buyer's with the good credit history you now pay an up front mortgage premium (financed) of 1.75% of the loan amount instead of 1.25%.  And, no one gets a cut in the monthly premium either.  Now everyone is paying the higher .55 per 1,000 of loan amount as opposed to the more favorable .50.

FHA also now subscribes to the "Buy & Bail" rules that Fannie and Freddie initiated last summer.  For the rental income to offset the mortgage payment when qualifying for a new home loan, where a current residence is being converted to a rental property , a 30% minimum equity is required.

Welcome to the new world of lending which has become colored by those who "cheat".  - Yes, I said cheat.

You ask how?  It seems that for the last two years, folks that owned a house that they could no longer afford... or one they wanted to "trade out" - would buy a new home, using rental income projected for the "old house" to qualify... BINGO! They're in the new house... Now they walk from the old house... saying "bye, bye" to neg am... not caring about the credit "hit" because they have what they want.  It was the same "I'm taking care of 'me' first philosophy that got us into this mess to begin with!  Example: 

Last month my dentist wanted to move closer to town to decrease the commute not just for himself but his newly licensed driving children.  The current home requires traversing the American River Canyon several times a day.  This is a winding two way traffic part of Hwy49.  The new home they chose provided more living space, was five minutes from town, the schools and on acreage.  To qualify he was restricted from using rental income on the house he now owns and doesn't want to sell in this market.  Great FICO scores; great income; good down payment... What shouldn't have been a nail biter - was "tight" for qualifying because he now needed to qualify for BOTH mortgage payments. Just one example of how cheaters hurt everyone...

Just one word to folks thinking of implementing the "buy & bail" even after qualifying with both payments... If you bail... on the old house FHA will now call your Note due on the house you just bought... And, new financing will be VERY difficult to find...  My advice... DON'T.. do it.