Florida Mortgages: What’s Old is New Again

If Florida mortgage finance is the art of the impossible, what is possible right now for home buyers and sellers worried about rising mortgage rates, market jitters and soft home prices?

Plenty. Although certain aspects of today’s post-boom market may look scary on any given day, most of the traditional problem-solving tools of real estate finance are still at the disposal of buyers and sellers.

Florida mortgage rates of 6.75 percent and higher needn’t be dealbreakers or impediments to selling or buying.

Just talk to veteran mortgage or real estate professionals who’ve worked through periods of double-digit and high single-digit interest rates and negative prices in the 1980s and early ’90s for some perspective.

“It’s really back to the future,” said Paul E. Skeens, owner of Carteret Mortgage Corp. in Waldorf, Md.

“We’re headed back to a more normal cycle after the feeding frenzies of the boom years. The crazy stuff may be gone, but the old solutions still work great.”

For example, for buyers with limited cash on hand and bad credit who might have signed up for a zero-down bad credit Florida mortgage two years ago, a program available nationwide through Freddie Mac may be better.

It’s called “Home Possible” and comes in several variations, including the zero-down-payment “Home Possible 100.”

According to Freddie’s website, the program allows seller contributions of up to 3 percent of the total costs and does not require any set amount of financial reserves by borrowers.

The maximum Florida mortgage amount is $417,000.

The “back-to-the-future” aspect is that, unlike the razzle-dazzle, stated-income underwriting, Freddie Mac requires applicants to qualify through its traditional “Loan Prospector” automated underwriting system.

This means that borrowers generally need a FICO credit score of 620 or more and must be prepared to verify income and employment.

For Florida mortgage applicants with nontraditional credit that cause them to have artificially depressed credit scores, Freddie Mac will accept old-fashioned “manual” underwriting, as well as look at non-traditional credit records such as rent payment histories and utility payments — a key feature for young, first-time buyers with slim credit files.

Skeens is also bullish on the oldest home mortgage program around — FHA loans backed by the Federal Housing Administration — especially for Florida mortgage refinancing out of mortgages that aren’t consumer friendly.

Once Congress passes pending legislation allowing zero down payments and 40-year terms, “we’ll be doing a lot more FHA loans for home purchasers,” he said.

FHA loans currently require 3 percent down payments, as well as employment, income and asset verifications. Unlike bad credit home loans, they come with lower mortgage rates and no prepayment penalty.

Back-to-the-future sellers and buyers should also be looking closely at still another time-tested technique: rate buy-downs.

The underlying mortgage can take any form — fixed-rate, adjustable, interest-only or a hybrid — but the net result is the same: The Florida home loan rate is reduced for a period of years as a concession to the buyer.

Svinth says that heads-up sellers and their agents should consider advertising the availability of buy-downs to bring in purchasers. “It’s a very effective tool, and just about any mortgage lender can arrange it.”

Still another back-to-the-future concept for today’s market: seller “take-backs” or “carry-backs.”

A mainstay of the creative financing toolbox during the hyper-inflationary periods of the 1980s — when a conventional loan for a buyer with good credit topped out at 15 percent — seller take-backs are simply deferred-payment notes offered by sellers on attractive terms to help buyers.

SOURCE: Los Angeles Times