New Lending Guidelines Counter Productive to Stimulus Bill

Seems every time I get excited about something there is another something that comes around the corner and ruins my fun.  Within the past few weeks we have been on somewhat of a roller coaster trying to make sense and see what passes to help home buyers within the Stimulus bill.  Well, we did pretty good.  As mentioned in previous posts we got a solid $8,000 tax credit for first time home buyers and they kept FHA lending limits higher so more people could take advantage.

So imagine my surprise when I started to hear more and more about the new lending guidelines coming out from Fannie Mae and Freddie Mac.  It’s kind of all over the place so I will do my best to make sense of it all.  I’ve heard about this through my lenders as well as several articles.  You can read an article on it from the Chicago Tribune by clicking here.  Take note that these changes are going to be effective as of April 1, 2009.

From what I understand in order to get the best interest rate now, more than ever, it is going to be a much bigger down payment AND higher credit scores.  From what I gather we’re talking about at least a 740 credit score and a 20% down payment.  If you are below 740 the magic number on down payment to avoid fees is 30% down.  The 20% down was always the threshold for getting that best rate so that has not changed unless your credit is under 740.  The 740 is up from around 720 a few months ago and roughly 670 a few years ago.  So, if you are below 740 and have anything less than 30% down you are now going to be hit with an up front fee (all percentage based.)

Let me try to lay this out.  If you have a 715 credit score and you are putting 22% down you will get hit with one of these fees from Fannie & Freddie.  If you have more than 30% then they’ll be more flexible on your credit score.  That’s crazy.  Since when did a credit score of over 700 become not good enough to get prime interest rates.  Complete over reaction.  In order to avoid fees you need a combination of more than 30% down and a credit score of 740 and above.

For my condo buyers out there things actually are a little simpler but not in a good way.  Just know that if you are buying a condo you are more than likely going to get hit with a slightly higher interest rate and will find it almost impossible to avoid these up front fees.  Magic number on down payment for a condo seems to be around 25%.  However, regardless of credit and down payment there is going to be a fee.  The better your credit and the more you put down will just reduce the fee but not avoid it.

I know this is kind of all over the place but so are these guidelines and the people who are implementing them.  The reason I bring this to your attention is so you are aware and you can discuss and get your questions ready for your lender.  Now more than ever you need to ask questions about fees.  If you’d like you can call me as it will be easier to discuss knowing some specifics.  there are 1,000’s of scenarios we can go over and none may apply to you.  Good luck out there!!  If you ever need to talk or have things explained my door is always open and my email always on.