Wednesday, February 6, 2008

Getting a mortgage loan...conforming, jumbo and what about subprime?

If you are interested in getting a loan to buy a house, don't believe all that you hear in the media. Now IS a good time to buy in the Seattle/King County market. But, what kind of loan can you get and what rate should you pay? That is where it can get confusing. Basically there are two types of loans....conforming and jumbo. A conforming loan is one for a house selling for $417,000 or less. A jumbo loan is for a house over $417,000 and has a higher interest rate than a conforming loan. It used to be about 1/8 to 1/4 percentage point higher but now it can be 1 to 1.5 points higher. (A point is simply 1% of the sales price of the house.) That can represent a pretty hefty increase in your house payment. Just try to find a house for less than $417,000 in our area! It is tough, and right now there is legislation being discussed that will raise increase that figure to somewhere in the ballpark of $700,000. That will be a big help!

Some of you may not qualify for a loan since the subprime lenders have gone away. A subprime loan is one which means the buyer has poor credit scores, little or no down payment and is unable to prove their income. Although there are still zero down loans out there, it is imperative that purchasers 1) verify their income through pay stubs and the latest tax return, 2) have SOME money saved, and 3) work to increase their FICO credit scores.

FICO credit scores range from 300 to 850, and lenders usually get a borrowers' scores from each of the three major credit bureaus (Equifax, Experian and TransUnion) and their rate and terms are based on the middle of the three scores. Anything 620 and below used to be considered subprime, which meant that getting a loan would be more difficult and expensive. At the height of the boom, some lenders lowered that bar to 580, which I'm sure helped to cause the bottom to fall out of the subprime loans! Today, 660 is often considered subprime, and any score below 680 is likely to result in higher rates and more difficult terms.

If your score is mediocre, say between 640 and 680, you need to have 10% down. If you have a good credit score, you can buy with a 5% down payment and if you have great credit and verified income, you still may be able to find a zero down loan that won't have interest rates that will kill you!

If you want more information on getting a loan, I have several lenders that I work with and trust. I would love to put you in touch with one of them. Give me a call, or send me an email.

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