Lending in today’s market

August is traditionally a month of vacation and that's evident by my lack of posts! But Fall is about to begin and the market is starting to pick up. As I get ready to wade back into the market, let's talk about lending. It's the most important part of any deal.

One thing I wanted to address are the changes occurring in the lending market. A year ago, I had a client close on their condo with no down payment and a rate of 6.1%. Today, you must have a minimum of 10% down payment and the rates vary dramatically day to day. (Currently, the rate for a 30 year fixed rate loan is 6.4% and that's a drop from last week). Your credit has to be impeccable. There is no automatic underwriting.

Underwriting requirements are the rules that the lenders impose to make sure that the loan will be paid off. Before the current lending meltdown, if your credit was good, you were approved automatically and off you went to home ownership. As I noted earlier, a minimum of 10% down payment is required and some banks are implementing requirements of 20% down. Your credit needs to be in the 700's for a good rate and you have to fully document your income. There a no zero down loans anymore except from the Department of Veterans or VA loans. VA loans are the loans available only to veterans of the Armed Forces.

Another option available to new buyers is the FHA loans (Federal Housing Authority). Instead of 10% down, they allow a 3% down payment. This is the direction a lot of buyers in DC are going. There is one glaring problem with FHA loans: they're best with single family homes not condos. If the condo project isn't FHA approved, you can't use an FHA loan. A lot of the older building in DC are not FHA approved. What I am seeing in the market is a lot of the new condo projects getting FHA approval. For example, Madrigal Lofts and the Floridian are two new condo projects that recently received FHA approval.

My advice to a buyer is to talk to a lender ASAP! There's a lot of things happening in the lending world. You need to make sure you have the correct qualifications for a loan before you can make a purchase.

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