Mortgages in 2013: How They've Changed

The mortgage has changed significantly since the housing crash. The easy-to-obtain loans of the housing boom are long gone. But what can the growing number of regular buyers, who need a mortgage to purchase a home, expect in this market?

Jay Luber, president of Phoenix-based Galaxy Lending, is a veteran of Arizona’s mortgage market. His thoughts and advice for borrowers:

Question: Is it difficult for a first-time buyer to get a mortgage now?

Answer: The Federal Housing Authority is a popular loan with basic requirements for first-time home buyers. To adjust for lending risks, there have been some modest changes to mortgage insurance premiums. With lower FICO score requirements and low minimum down payments, FHA loans are the most popular program for those entering the housing market for the first time. In addition, 100 percent of the down payment can come from a gift.

Borrowers must furnish lenders with documentation of income and assets, including a pay stub, two months of bank statements and tax returns for those self-employed. The loan process is smoothest for those who are organized.

Q: What would you recommend for a buyer to do in order to get pre-approved for a mortgage?

A: Pre-approval for a mortgage begins with a potential borrower talking to a knowledgeable loan officer at a reputable mortgage lending company.

Potential borrowers should determine their financial comfort zone for a total monthly mortgage payment. Included are principal and interest, taxes, hazard insurance, FHA mortgage insurance premiums and HOA dues if applicable. In today’s market, principal and interest on a monthly payment is calculated at about $4.50 for every $1,000 of the total loan.

Borrowers should be prepared to talk openly with a loan officer, who will help them determine a maximum home-purchase price, looking at their desired monthly mortgage payment, income, credit history and other monthly obligations.

The loan officer will analyze the information provided, verify documentation and then issue a PQF (pre-qualification form) that a real-estate agent uses when presenting a purchase offer to a seller.

Pre-approved borrowers should not make any major purchases, such as buying a new car, without first consulting their lender.

Q: Are you seeing a lot of metro Phoenix homeowners able to refinance with the aid of government programs?

A: During the first nine months of 2012, the bulk of all refinances were Home Affordable Refinance Program (HARP) loans targeted to help homeowners underwater. Borrowers who financed their mortgages after June 2009 did not qualify. I believe the majority of borrowers who could refinance under HARP 2.0 have already done so.

Now, we are seeing most refinances are conventional. As home values continue to increase, even more borrowers will be eligible to refinance at today’s low rates. In addition, jumbo financing has become more attractive and available.

Q: Where are interest rates heading?

A: As the economy continues to improve, interest rates will continue to rise modestly. I would not be surprised if by the end of 2013, rates are well above 4 percent. But those are still very attractive to borrowers.

Reach the reporter, Catherine Reagor