Updated Mortgage Guidelines

Updated Mortgage Guidelines And Loan Programs

Gustan Cho Associates are mortgage brokers licensed in 48 states
This ARTICLE On Updated Mortgage Guidelines And Loan Programs For 2020 Was PUBLISHED On February 28th, 2020
The U.S. economy has set historic records.
  • Unemployment rates are at a 50-year low
  • The stock market hit a historic high
  • However, there was a market selloff due to the uncertainty of the coronavirus
  • The stock market has entered correction territory since the market dropped over 10%
  • A market correction is official once the stock market drops 10% or more
  • If the stock market plunges more than 20%, it means the economy is in a Bear Market
  • However, this market selloff means that mortgage rates will be plummeting in days and weeks to come
  • Home start hit another record for January 2020
  • There is nothing wrong with the economy and earnings of major corporations
  • The reason for the market correction is due to fears of the coronavirus and the uncertainty facing investors
  • The market panics and tanks during periods of uncertainty
  • With mortgage rates anticipated to plummet and updated mortgage guidelines, we are expecting a record-breaking 2020 for homebuyers and homeowners
  • Fed Chairman Jerome Powell had breaking news today that the Feds is keeping an open mind in dropping rates
  • Prior to the announcement by Powell, the Dow Jones Industrial Average was down 1,000 points
  • However, with the combination of interest rate cuts by the Fed Chairman and the press release by Vice President Michael Pence, the Dow Jones closed just over 300 points
  • This is a far cry from the low of the day of a drop of 1,000 plus points

In this article, we will discuss and cover the Updated Mortgage Guidelines for 2020 for homebuyers and homeowners on purchase and refinance transactions.

In this article, we will discuss and cover the Updated Mortgage Guidelines And Loan Programs For 2020.

Updated Mortgage Guidelines For 2020 On Purchases And Refinance Transactions

Updated Mortgage Guidelines And Loan Programs For 2020 due to the booming economy and hot housing market:

Changes To Government-Backed Loan Programs In 2020:
  • The major changes with FHA loans are the maximum loan to value on cash-out refinance
  • The old rule was 85% LTV on FHA Cash-Out Refinance Mortgages
  • The newly updated mortgage guidelines on FHA cash-out refinance loans is a maximum of 85% loan to value
  • Mortgage agencies such as HUD, FHFA, the VA, and USDA can change mortgage agency guidelines without notice
  • FHA still remains the most popular loan program in the U.S.
  • With only a 3.5% down payment required on a home purchase, HUD sets lenient agency mortgage guidelines on FHA loans
  • The minimum credit score requirement to qualify for an FHA loan with a 3.5% down payment is 580 FICO
  • Borrowers with under a 580 credit score and down to a 500 FICO may qualify for an FHA loan with a 10% down payment
The maximum loan limit on FHA loans has been raised to $331,760 for 2020. FHA loan limits are higher in high-cost areas. High-cost FHA loan limits are called high-balance FHA loans.


Updated Mortgage Guidelines On Conventional Loans

The Federal Housing Finance Agency often referred to as the FHFA, is the federal agency in charge of raising conforming loan limits.

Due to the hot housing market, the FHFA increased conventional loan limits for the past four years in a row.

2020 Changes On VA Mortgages

What are the 2020 Changes in VA mortgages

VA loans are hands down the best home mortgage program available in the United States. However, not everyone can qualify for VA loans. You need to be a retired and/or active member of the U.S. Military with a valid Certificate of Eligibility (COE).

Lenders offer 100% financing on VA loans with no down payment required by homebuyers. Most borrowers do not have to come up with any closing costs. Closing costs can be covered with either a seller’s concession and/or lender credit. There is no minimum credit score requirement on VA loans. There is no maximum debt to income ratio caps on VA mortgages. Gustan Cho Associates has no lender overlays on VA loans.

VA home loans

The Department of Veterans Affairs administers the VA mortgage program. The VA mortgage is one of the best and lowest-cost mortgages available. However, it’s not available to just anyone. The VA mortgage guarantee is an earned benefit for members and veterans of the US armed forces. The government does not loan money. Instead, it guarantees VA loans so lenders won’t lose if borrowers default. That encourages lenders to make these loans with no down payment.

Here are the advantages of VA home loans:

  • VA loans require no down payment
  • There are no official minimum credit scores, maximum debt-to-income (DTI) ratios, or loan limits.
  • VA home loans require no monthly mortgage insurance.
  • VA mortgage rates are often lower than those of other programs. The government guarantee removes most of the risk to lenders so they can afford to offer lower rates.
  • These home loans are assumable, which can help you sell your home faster or for more money.

The main disadvantage of VA mortgages is the funding fee that almost all applicants pay. (Disabled vets can receive a waiver). If you have a substantial down payment or home equity, it can be cheaper to choose a conventional (non-government) home loan with a low or no mortgage insurance premium — especially if your credit is excellent.

FHA home loans

FHA home loans are available to anyone who qualifies for them. The Department of Housing and Urban Development (HUD) guarantees the loans and oversees the FHA mortgage program.

The advantages of FHA home loans include:

  • Borrowers can have credit scores as low as 500.
  • Homebuyers can get the entire down payment from gift funds or down payment assistance programs.
  • DTI ratios can be as high as 57% for highly qualified applicants.
  • With the 203(k) program, you can finance a combined home purchase and renovation with one loan.

The disadvantages of FHA loans pertain to the required mortgage insurance premium (MIP). They include a 1,75% upfront premium, which you can choose to include in your loan balance, and a monthly premium that you’ll pay for the entire life of the loan. FHA mortgage insurance cannot be canceled.

See today’s mortgage rates.

USDA home loans

USDA home loans come in two flavors: a guaranteed loan like the FHA and VA programs, and a direct program unique to the USDA. Eligibility for direct loans is limited to applicants with very low incomes. Most borrowers use the guarantee program. USDA home loans have income-eligibility requirements and geographical eligibility rules. Only homes outside major metropolitan areas qualify.

USDA mortgage advantages:

  • There is no down payment requirement.
  • Underwriting is flexible.
  • Repayment terms can be up to 33 years to reduce payments.
  • Mortgage insurance is much cheaper than it is for FHA loans. (1% upfront and .35% each year, divided by 12).

The disadvantages of the USDA home loan mostly relate to its limited availability. About half of all residences in the US meet geographical guidelines. But applicants’ income cannot exceed specified limits for their family size. The paperwork can be a challenge and many lenders do not fund USDA home loans. Finally, borrowers must pay mortgage insurance premiums for the life of the loan.

Conforming Mortgages (Fannie Mae and Freddie Mac)

Conforming mortgages are conventional (non-government) home loans that meet the guidelines of Fannie Mae and Freddie Mac. These loans get their name because they “conform” to those guidelines. This allows the two mortgage corporations to buy the loans from lenders and combine them into pools of loans. They then sell shares in the pools to investors.

Conforming mortgages are the most popular loan programs in the country. Here are their main advantages:

  • Conforming mortgages are widely available, which keeps their pricing down.
  • The minimum down payment can be as low as 3%.
  • Lenders use automated underwriting systems (AUS) to underwrite most loans and borrowers can get decisions in minutes.
  • For highly qualified borrowers, conforming mortgages are among the least expensive.
  • HomeReady and Home Possible programs for income-eligible and first-time buyers offer flexible underwriting and discounted mortgage insurance.
  • Construction to permanent mortgages let you take a construction loan and permanent financing with a single application and closing.

The disadvantages include limitations on loan size and mortgage insurance requirements for loans with less than 20% down. The minimum credit score is 620 and underwriting guidelines can be much stricter than those of government-backed and portfolio loans. For applicants with higher-risk profiles, these mortgages can be more expensive than government-backed loans.

Non-Conforming, Portfolio, and Non-Prime Home Loans

All conventional mortgages that are not conforming loans are non-conforming loans. As the same says, they do not conform to Fannie Mae or Freddie Mac guidelines.

These loans often have other names as well. The name usually references the reason that the loan does not conform.

Jumbo and super-jumbo loans

Jumbo mortgages are loans that don’t meet conforming guidelines because of their size. Their amounts exceed the limits set by Fannie Mae and Freddie Mac. Super-jumbo loan amounts can head into the millions.

In general, jumbo mortgage underwriting guidelines are stricter than conforming guidelines. Expect to put at least 10% down. And the larger the loan, the higher the down payment percentage. Loans exceeding $2m might require a minimum down payment of at least 30% and the highest loan amounts might demand down payments of 40% to 50%.

Non-prime loans

Non-prime has replaced the term subprime. They are not the same thing. In the past, you could find loans with no down payment that allowed applicants to state their income and have very low credit scores. That layering of one risk on top of another created a crisis of foreclosures that took down the entire US economy by 2010.

These new products are different. First, all lenders must by law verify the applicant’s income and make sure he or she can afford the loan. That’s called the Ability to Repay rule or ATR. Second, you won’t find a loan for bad credit with no down payment requirement.

Examples of non-prime loans include loans for people one day out of bankruptcy or foreclosure, loans for people with 500 credit scores if they have a co-signer and loans for those with high debt-to-income ratios.

Bank statement loans

Bank statement loans are marketed to self-employed applicants with a lot of tax write-offs. Aggressive write-offs can save a lot of money at tax time. But often, these borrowers can’t qualify for a mortgage.

Fortunately, the ATR rule just says lenders have to verify the borrower’s income. They don’t have to do it with tax returns.

With a bank statement loan, the lender averages the borrower’s monthly business or personal account deposits, usually over a 24-month period. They discount this by some percentage and use that figure as a substitute for taxable income.

Portfolio loans

The term “portfolio loans” just means that the mortgage lender does not sell the loans to investors. Lenders keep portfolio loans on their own books, and they alone are on the hook if borrowers default. because investors are not involved, portfolio lenders can make up their own guidelines as long as they follow the law. They can come up with very creative and sometimes risky loans.

What about non-QM loans?

Non-QM stands for “non-qualifying” mortgage, which means it might have some riskier features than the plain vanilla “qualified” mortgages or QMs.

Some people use the term “non-QM” and non-conforming interchangeably. But that is not correct. All non-QM loans are non-conforming. But some non-conforming loans are QMs. They have safety features like fixed interest rates, fairly high minimum credit scores, bigger down payments, and low debt-to-income ratios. They are non-conforming only because their amounts are larger.

Non-QM And Alternative Financing

Gustan Cho Associates offers non-QM mortgages and alternative financing. There is no waiting period requirements after bankruptcy and/or foreclosure. Non-QM Loans allow late payments in the past 12 months. This includes mortgage lates in the past 12 months. 10% to 20% down payment is required. The amount of down payment required is dependent on the borrower’s credit scores, type of property, and how long the bankruptcy and/or housing event has been seasoned. Dale Elenteny of Gustan Cho Associates is a Non-QM lending expert.

2020 is a great year to purchase a home. It is also a great year for homeowners to refinance their home loans.
Mortgage rates are expected to tumble due to the stock market correction and the coronavirus epidemic scare. Take advantage of the historic mortgage rates available today and contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The Team at Gustan Cho Associates are available 7 days a week, evenings, weekends, and holidays.

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