This entry was posted on Monday, March 5th, 2007 at 11:07 am and is filed under 100% Financing, Changing Guidelines, Qualifying. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Are You Pre-Approved for 100% Financing? Better Check Again…
Worthless Pre-Approvals
So you’ve decided to buy a home. And being the educated consumer or Realtor that you are, you secured loan approval for your 100% financing in advance. Now, you’ve got a formal approval and all the conditions are met.
Smooth sailing, right? Not necessarily.
I recently wrote an article entitled 6 Reasons Your Next Loan May Take Longer Than It Should. The post got a lot of attention over at Active Rain where most people had begun experiencing these very problems. And I’m afraid it’s just the tip of the iceberg.
Rapid Changes
The meltdown in sub-prime lending market is now threatening the “prime” mortgage market. Many of the lenders who offered 100% financing are out of business or cutting way back on those risky loans. For a list of the lenders who have failed or are now in trouble, check out The Mortgage Lender Implode-o-Meter. Last week, Federal regulators proposed stricter guidelines for sub-prime mortgages, and Freddie Mac drastically altered its criteria for buying these loans in the secondary market.
If you’re approved for 100% financing—especially “stated income”—you could suddenly find yourself without a loan. This news could reach you after you’ve already paid for inspections and the appraisal, and after you’ve removed your contingencies, putting your entire deposit at risk. If that sounds like hyperbole, here is just one of several emails I received last week from a major lender.
No Warning
Emails like this are coming in almost every day. This one was received March 2nd. Pay particular attention to the dates.
Please be advised that due to current market conditions and diminishing liquidity for 2nd mortgages behind Option ARMs transactions, the maximum CLTV that LCC will continue to offer is 95%, all index types. This change will be effective immediately. Any loans currently in the pipeline that meet the current FICO requirement of 700 and meet all other eligibility requirements, must fund no later than 3/9/2007 - no exceptions.
Important timeframes to consider in meeting this deadline: Refinances must be signed by March 5, 2007 and Purchases must be signed by March 8, 2007. Rateprice and Enegam will allow these transactions to be locked up to 5:00 PM Friday March 2, 2007. At that point, pricing will no longer be available. Please contact your account executive for any questions.
What this says is that, effective immediately, your 100% financing is now 95% financing. If you can find a 5% downpayment, you may still have a deal, as long as you can close by this Friday.. no exceptions. Pretty scary stuff, eh?
3 Ounces of Prevention
How can do you avoid this?
First, work with an experienced, full-time lender who understands the changes going on in the market. There are many who haven’t been in the business long enough to understand the loans they’re making, much less the market forces that cause change.
Second, try to find some cash for a down payment. If your loan changes on you, you may still be able to close.
Third, make sure you can qualify with your actual income if you need 100% financing. Lenders may still let you in without a down payment, but you can prove your income.
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September 24th, 2007 at 5:23 pm
[…] Even at something less than 100% LTV, stated income loans now require higher credit scores and more seasoned reserves than just a few months ago. If the buyer answers no to Question #1 and they also need one of these liar loans, shove those car keys back into your pocket and call your lender. […]