With the collapse of the Subprime mortgage market, the mortgage landscape has changed dramatically in recent months. Many of the more lenient mortgage programs have been discontinued. How will this effect the demand for first time home buyer loans?
From approximately the year 2000 until the year 2004 interest rates were continually lowered, reaching multi-decade historic lows by late 2004. This historic reduction in interest rates powered a multi-year boom in the real estate market. Real estate prices were rising rapidly with each passing day, and it seemed that everyone wanted to be involved in real estate.
That included lenders, who were happy to gain new business. In the frantic race to make as much profit from real estate as possible, lenders lowered their standards and created new lending requirements that were so lenient it seemed that anyone with a pulse would qualify!
Loose lending standards, historically low interest rates, and rapidly rising real estate values combined to make the perfect formula to attract millions upon millions of people, and create a real estate bubble along the way.
And that is exactly what happened.
And then disaster struck.
In August of 2007, the subprime home loan industry begin to break down. Large investors, monitoring the default rates of mortgage portfolios and concerned about the continuing fall in real estate prices nationwide decided to stop purchasing subprime loans. By late fall of 2007 the entire subprime industry as we knew it had vanished.
For the first time home buyer, as well as seasoned real estate investors, it was easy to take advantage of the lax guidelines offered by these lenders. They had flocked to the real estate market in droves. And then suddenly, the subprime market came to a screeching halt.
With the downfall of the subprime industry, millions of potential home buyers are now searching for alternative mortgage products that will accommodate their financial and credit history.
Does this mean that first time home buyers will no longer qualify for a home loan? No. There are other alternatives besides the subprime mortgage loan.
There are several solutions. Fannie Mae’s American Dream Commitment offers the most exciting, affordable first time home buyer loan solution that we have seen. To quote Fannie Mae, “Many Americans still are being overlooked, underserved, and overcharged in their search for affordable homeownership.” In defining their goals, Fannie Mae strives to “expand access to homeownership for first time home buyers and help expand the minority homeownership percentage with the ultimate goal of closing the homeownership gap entirely.”
This commitment translates into flexible, accommodative, and low cost home financing available to first time home buyers with less than perfect credit and restrictive budgets. But that’s not all. Reading into the guidelines carefully one will discover some amazing and thoughtful criteria. Amongst these guidelines are included a surprising and liberal allowance for “undocumented income”, expanded seller contribution tolerance, and a complete absence of saving and asset reserve requirements. All of these flexible rules make possible the lowest cost, no money down mortgage program available anywhere.
Credit score requirements are now the easiest of all of the first time home buyer loan programs available in the home loan market. The guidelines provide for a score of 620, but with moderate compensating factors lenders may approve loans with scores as low as 600.
In addition to this program, nearly every state offers some form of downpayment help for first time buyers. First home buyers are not completely shut out of the market. There remains ample state and Federal funding for first time home buyer programs.
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