Over the last few weeks, I have seen several loan guidelines loosen up.  This is a much needed change since in the last 18 months, we have seen constant guideline tightening.   To be fair, it is not just lenders, it has also been the mortgage insurance companies that have tightened up.  The latest change for the better is the increase of the maximum debt to income ratio from 41% to 45% for conventional loans with mortgage insurance.  This will allow buyers to buy slightly larger homes or to qualify for homes they were not able to qualify for before with the lower debt to income ratios.  Another positive change includes FHA’s modification of their guidelines for investors who “flip” properties.  Before FHA would not allow for a property that was owned for less than 91 days to be purchased.  Now FHA will allow a borrower who is using a FHA to purchase one of these properties as long as it meets certain FHA guidelines.  I feel after all the tightening up over the past year and half, lenders and mortgage insurance companies have identified why many loans have gone bad and will still have guidelines in place to prevent these types of loan going forward.  Many of the guidelines made it difficult for good quality borrowers to get the loans they needed.  Some of these changes will open up the mortgage market to more customers.  Lenders still require borrowers to qualify for home loans by proving all their incomes, assets, prove they are credit worthy and show they can afford the new mortgage.  Once the property values start increase slightly, lenders and mortgage insurance companies will loosen up a little more.  I have seen 3 or of 4 of the last appraisals I have ordered come in a little higher than the purchase price.  For most loan programs the minimum credit score is 620. USDA, VA and FHA still have no or little down payments programs for buying a home.  Borrowers can still “cash out” the equity in their homes up to 85% with a FHA loan, 90% for VA and 80% for conventional loans.

Even though FHA has not changed their lending guidelines recently they will start charging a little more for upfront mortgage insurance.  Currently the charge for up front mortgage insurance is 1.75% of the loan amount.  Starting April, FHA will increase the upfront monthly mortgage insurance from 1.75% to 2.25%.  Even though this up front mortgage insurance is financed, the cost will be passed on to the borrowers with slightly higher payments.  For a $200,000 purchase price home with 3.5% down payment the added monthly cost will be $5.48 to the buyer.  This is a small price to pay for the benefits of a 3.5% down payment FHA loans.  With FHA minim credit scores of 620 and the ability for buyers to receive a gift for the 3.5% down payments, the added up front mortgage insurance is worth paying for most buyers.