Condo Buyers Face Obstacles When Borrowing Money: Condo Mortgages Require a Higher House Deposit

Borrowing money has become more difficult for condo buyers. Mortgage lenders, such as Fannie Mae and Freddie Mac, are applying stricter criteria and requesting a higher house deposit in light of higher mortgage foreclosure rates. Whilst condo mortgages are still available, buyers are finding life more difficult than other categories of house buyer.

Why is There Now Tight Criteria for Condo Mortgages?

According to CBS News, mortgage foreclosure rates were up 82% in 2016. That equates to 18.4 foreclosure per 1000 households. Mortgage lenders have identified that house payments on condo mortgages have the highest default rates.

Peter Milewski, an official at MassHousing, stated: “Condos are considered more problematic to lenders because a few foreclosures can affect property values for an entire complex. They carry monthly fees and special assessments that can create massive collective debts if individual unit owners fall behind on payments.”

Condo Buyers Face a Higher House Deposit and Charges

The higher associated risk with condo buyers means that mortgage lenders have tightened their criteria. In order to be accepted, most banks now require a minimum house deposit of at least 20%. This is because a number of insurers will no longer provide coverage to banks offering condo mortgages.

Fannie Mae and Freddie Mac are charging condo buyers a surcharge equivalent of three-quarters of a percent of the loan value. In order to avoid this additional charge, a house deposit or equity equivalent to 25% of the property value is necessary. Brad German, a spokesman for Freddie Mac, stated that: “The point fee is meant to address the added risk of financing condos.”


Borrowing Money more Difficult

Mortgage lenders are applying stricter criteria regardless of how individual states have been affected by negative equity and mortgage foreclosure. Amy Tierce, of Fairway Independent Mortgages, stated that: “The restrictions and fees, which are in force nationwide, unfairly penalize homeowners in the Boston area, where condo foreclosures have not been as prevalent as in other parts of the country.”

Mortgage lenders are increasingly reluctant to lend to condo buyers because of the problems faced in the event of mortgage foreclosure. Condo mortgages are still available, but borrowing money is now more difficult. Borrowers will now need a 20% house deposit.

Calculating your Home Mortgage

The interest rate you pay makes a significance difference in your monthly house payments. If you borrow $100,000, and take out a 30 year loan at 4 percent interest, your monthly payment to cover just this amount will be approximately $477. If the interest rate is 6 percent, your monthly payment jumps to about $600 a month.

Some consumers opt to pay points, to bring down interest rates. A point is one percent of the loan amount. Before paying points to bring down your interest payments, calculate how long it will take you to pay back the cost of points, in interest savings. If you plan to stay in the house 30 years, it may be a smart choice. Yet, if you intend to move within 5 years, it might not be a wise financial decision.

 Private Mortgage Insurance

If you don’t have a large enough down payment, you may be required to pay private mortgage insurance, or PMI. Government regulations require many lenders to limit their loan amount to 80 percent of the home’s value. This means, if you are purchasing a home for $100,000, you will need to put down $20,000 cash. If the house only appraises for $90,000, the lender will only loan you 80 percent of the $90,000 appraised value.

One way to get into a new house with a lower down payment is to purchase private mortgage insurance. The monthly premium is included with your house payment. If you put down just 5 percent instead of 20 percent, the PMI covers the unpaid 15 percent, should you default on your loan. This payment may, or may not be, tax deductable, depending on your financial situation. After you build sufficient equity in your home, there are ways to eliminate PMI.

Two other expenses attached to your new home are homeowner’s insurance and property tax. Some lenders require you have an impound account, which means your monthly house payment includes additional funds to cover these expenses. The lender, rather than the buyer will make the insurance and tax payments. Some borrowers prefer not to have an impound account, and manage this payment separate from the monthly house payment. For some consumers, eliminating the impound account creates problems, especially if they have difficulty budgeting monthly expenses.

If the property is part of a homeowner’s association there may be association fees. This is common with condominiums. The additional monthly fee typically covers maintenance on the grounds and common areas, and may include water and trash expense.

When calculating your home mortgage, remember to consider you loan fees, which are often rolled into your home loan. Once you come to a clear understanding on what you can afford to pay each month, along with your monthly fees, you will be in a better position to start shopping for that new home.

Home Mortgage Refinancing for those with Bad Credit

Unfortunately, bad credit is becoming a widespread problem for Americans. The flip side of this is that there is a whole new industry of lenders who specialize in providing credit for the growing population of consumers with bad credit.

Benefits of Home Mortgage Refinancing

The primary reason for refinancing mortgages with bad credit, is usually to lower payments so that the borrowers can restore their credit by getting and staying current on the new mortgage. Lower payments enable cash poor borrowers to better meet the obligation of the mortgage. As borrowers keep payments current on the new lower payment mortgage, their credit score will return to a better level.

Home mortgage refinancing can extend the term of the loan, so that payments are lower. There are some whose credit rating is falling, because the original mortgage is an Adjustable Rate Mortgage and the interest rate has skyrocketed. Even with a higher than average fixed rate caused by bad credit, home mortgage refinancing to a fixed rate might prove to be more advantageous. With a fixed rate mortgage, the borrower is guaranteed that the interest rate will never change.

Guidelines for Refinancing

If one decides to apply for a bad credit mortgage refinance loan it is important to consider a few things. Target a lender that specializes in lending to borrowers with bad credit. They are uniquely qualified to handle these situations and are more likely to work with you to find the best deal. The borrower will not waste valuable time applying with lenders who are not willing to lend to individuals who have low credit scores and want to improve their credit rating.

Get quotes from two to three lenders, but no more. Applying for a mortgage is always stressful, particularly in a situation where the borrower feels that they are at a disadvantage. It is important not to be desperate in the decision process. A mortgage is a product just like a car or house. Even with bad credit, the customer has some negotiating power and does not want to act too quickly in deciding on the lender and terms.


 

Bad Credit Home Mortgage Refinance is Possible

People who have never been behind on payments are facing job loss and real estate meltdowns that are causing them to fall behind and credit scores to fall. Whatever the reason for having bad credit, refinancing the home mortgage is one solution for calming the storm and helping debtors to get back on their feet.