There have been a lot of questions lately from both buyers and sellers about the new mortgage and appraisal guidelines established by FHA, Fannie Mae and Freddie Mac. With the mortgage fallout and the number of foreclosures out there, many lenders are now tightening their belts even more, and the number of hoops you have to jump through to get a mortgage has increased.

I don’t mean to imply that it is impossible to get a home loan, in fact, there is a lot of money out there to be borrowed. But gone are the days of stated income, ( this is when you just tell the loan officer that you work somewhere and this is my income ). In the past, if you had a high enough credit score, you did not have to show any documentation when you wanted to get a home loan. These were known as “no-doc” loans. But these do not exist any more. So if you are self-employed, and you “write off” everything for tax purposes, you may have a more difficult time getting a mortgage loan than in the past.

So, what are the new guidelines? I have listed some of them below, along with the related websites, so you can stay informed of what the market is doing.

Fannie Mae’s 1004 Market Conditions Form is now required for all loans except VA. (But VA is expected to require this form in the very near future) This form is specifically designed to give a better analysis of the current market condition in individual neighborhoods as to declining values, average time on the market, seller concessions (these are seller paid closing costs, allowance for repairs, etc…anything paid by the seller on the buyer’s behalf). For example: if a neighborhood has had three sales in the last ninety days, and two of those sales were foreclosures, and the sales price was well below what the “average” should have been, appraisers now have to include these sales. They can no longer ignore these sales, because foreclosures are now such a big part of the market and they are establishing the “trend” in the area. Also affecting the value of the neighborhood will be any discounted new construction. If a builder has several home in the neighborhood and the bottom out the price just to unload the inventory, this will also establish a trend for the neighborhood value and this has to be taken into consideration as well. This change will be effective for all Fannie Mae and Freddie Mac loans not sold by April 1 and all FHA appraisals dated on or after April 1, 2009.

USDA: On March 20, 2009, $10 Billion in additional funding was provided to the USDA Housing Program through the American Recovery and Reinvestment Act of 2009. In order for you to be eligible for a USDA loan (also know as a RECD: Rural Economic Community Development), you must meet certain income guideline and the home must be located in an eligible rural area as determined by the USDA. For more information on these types of loan, visit: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?Home

Conventional Loans: Effective April 6, 2009, the following parameters will be in place for an 80% LTV (Loan to Value) Conventional Loan:

Fannie Mae fixed rate second/vacation home purchases are required to have six months reserves in place, plus is you own any other second/vacation homes, you must also have enough in reserves to cover two months of expense on each of those homes as well.
For 5% down conventional loans, the minimum credit score will be 680 and mortgage insurance will now be a requirement. Mortgage insurance companies are tightening their belts regarding credit scores and debt to income ratios.


Minimum Credit Score for FHA Loans: 620! This is for all purchase and refinance transactions regardless of loan amount.

So as you can see, the mortgage loan environment has undergone some serious changes and adjustments this year already, and I feel like there will be more to come as well.

If you have any questions at all about buying a home, please do not hesitate to contact me at 919-272-4754 or email me at LisaColeman@hpw.com . I will be happy to answer any questions I can, and if I can’t, I will find someone who can!

And don’t forget to visit my website at www.LiveInRaleighMidtown.com.