First-Time Homebuyers Have Unique Advantage in Mortgage Market

First-time homebuyers and those thinking about refinancing are in a great place.

“The credit markets are still tight, but they have loosened up significantly from 90 days ago,” said Scott Norman, vice president of the Texas Mortgage Bankers Association.

So is this a good time to enter a mortgage transaction? It might be, if you can qualify. “The two biggest issues are going to be credit and down payment,” Norman said. “Those are really going to trigger your ability to get a mortgage in a decent amount of time.”

Here’s what you’re up against in specific mortgage situations and what you can do to increase your chances of getting a deal done.

If you’re buying a home
Get ready for paperwork. Have your bank statements, W-2 wage and tax statement and pay stubs organized.

“Overdocumentation is the name of the game right now,” said Linda Davidson, senior loan officer at Service First Mortgage in Garland, Texas.

Having all the documents upfront will speed the application process.

Check your credit score. The most widely used score is the FICO, which ranges from 300 to 850. Your score, based on information in your credit report, helps lenders predict how likely you are to make your payments on time. The higher the number, the better the chance you’ll be approved for a loan at a low interest rate. “Clean up your credit score,” Norman said. Catch up on any late payments and pay off or pay down your debt.

First-time buyers have a sweetener in the form of an $8,000 credit on federal income taxes for homes purchased before Dec. 1.

It’s critical that you have a down payment because lenders want to see that you have skin in the game. Mortgages insured by the Federal Housing Administration require a 3.5% down payment, which can come from a family member, employer or charitable organization as a gift. For a non-FHA-insured loan, lenders are requiring a 10% down payment, said real estate agent Brenda Rogers of Coldwell Banker Apex, Realtors in Plano, Texas.

If you’re refinancing
“Have plenty of equity,” Rogers said. Equity represents the ownership value you’ve accumulated over time by making payments, and lenders want you to have a financial stake in the refinancing. “The lender doesn’t want to lend 100 percent of the value of the property,” said Norman, of the Texas Mortgage Bankers Association.

Another reason to build equity is that you don’t want to owe more on your home than it’s worth, a situation some homeowners face today.

Also, consider how long you plan to remain in your home, because you need to stay long enough to recoup closing costs associated with refinancing. Those costs typically will total $3,000 to $5,000, said Davidson, of Service First Mortgage. “If you’re going to move out of your home in five years or less, then typically it’s not going to be worth your doing,” she said. “If you plan on staying longer than that, then we need to look at the costs vs. the monthly savings to see how long it will take to recoup that cost.”

Sometimes things outside your control can affect your attempt to refinance.

Rachel Kelley of Plano said she’s been trying to refinance with Bank of America, which last year acquired her original lender, Countrywide Financial Corp. Kelley, a medical writer, ran into financial trouble after her work was cut to part time. “I cannot afford my house payment anymore,” she said. She said her repeated attempts to get more information from Bank of America on how to refinance her home through the Obama administration’s Making Home Affordable refinancing program have been unsuccessful. “I spoke to several people, trying to get information about the program and what I needed to do to refinance,” Kelley said. “It is very likely I will be behind on my payments in the near future due to their inability to get me the proper information on time in order to refinance.”

Loan modifications
A loan modification is when a lender changes the terms of your loan so you can afford your payments.

That can be done by lengthening the term of your loan, lowering your interest rate or allowing you to skip payments and adding those to the end of your loan.

The Obama administration is prodding mortgage-servicing companies to bolster their efforts to modify troubled loans. The servicer is the company that collects and processes your mortgage payment. It may or may not be your original lender.

If you’re having trouble making your payment, contact your servicer immediately and ask about a loan modification.

(c) 2009, The Dallas Morning News.
Distributed by McClatchy-Tribune Information Services.