Mortgages in Today’s Market

KNOWAtlanta speaks with Greg Shumate, president and managing partner of Brand Mortgage in Duluth, on the new regulations ushered in by the Real Estate Settlement Procedures Act, regarding mortgage fraud and down payment requirements.

Q: It’s a buyer’s real estate market in Atlanta. What’s the climate for mortgages—is financing readily available?
A: Mortgage availability is better than a year ago, but it is still a detailed process to get one. Today, you must provide an overabundance of paperwork—the process takes a lot longer. It used to be that you could close a loan in two weeks; now homebuyers need to budget 30 to 45 days for the new regulations and rules requiring more documentation.
The new regulations rolled out in January, in order for consumers to be able to easily compare mortgage products. It was the first change in mortgage lending in the past 35 years. It’s new and buyers will have to allot for extra time.

Q: What are your suggestions for avoiding mortgage fraud and ensuring that you have a good product?
A: From a consumer standpoint, you don’t have lot of choices—there are about four product choices available in the market and price selection is generic. The new rules have eliminated dangerous lending products and outcomes like negative amortization.

A couple of years ago less documentation was required, and consumers were approved for loans that they had trouble affording—they could get in above their heads. The new documentation procedures helps you get approved for what you can truly afford.

Q: What type of documentation should homebuyers expect to present during their mortgage application?
A: You’ll be asked to provide documentation on income assets, bank statements, tax returns and pay stubs. We’re verifying everything and then re-verifying it. When we get your paycheck stub, we’re re-verifying your Ssocial Security Number. It’s a double check and triple check-process.

Q: What is Down Payment Assistance?
A: Down payment assistance has been around for a long time. HUD (Department of Housing and Urban Development) has had a first-time homebuyer down payment grant issued through your county, city or the Department of Community Affairs through your state.

Most FHA loans require a 3.5 percent down payment. These first-time homebuyer grants provide that money. If you’re given $5,000, then it’s forgivable over time. It’s arranged as an interest-free second mortgage forgivable at 20 percent a year. If you live in the house for five years, the second mortgage is forgiven. If you move after three years you will have to pay part of the mortgage back.

Q: How much are homebuyers expected to offer as a down payment in today’s market?
A: Down payments for FHA, VA and USDA loans [3.5 percent] have not changed yet, but typically with a conventional loan a down payment of 5 percent is required—if you have good credit. If the property is in an area with declining values, lenders want 10 percent down.

Many more homebuyers are opting for an FHA loan. It used to be that 2 percent of consumers went with an FHA loan, but now in some areas 50 percent of consumers are choosing an FHA loan. Those consumers can put down 3.5 percent or more if they like.