For many, buying a home can feel like childbirth: It’s incredibly painful in the moment, but all is forgotten once you take delivery of that new (split-level) bundle of joy.
Others, however, recall every excruciating detail—even some 10 years later.
Regardless of what specifically you remember about the last time you bought a home, if you’re planning to jump back into the market, there are some key changes you should know about.
Don’t worry—there’s good stuff in store, like the fact that the mortgage process has gotten a bit easier to manage.
So if a new home is on your wish list for the new year, we’re giving you the 101 on three programs that may help make the home-buying journey less bumpy.
Get started with a free financial assessment.
Get started with a free financial assessment.
The 101 on ... “Know Before You Owe” Mortgage Disclosure Docs
With all the rules and regulations that typically come into play, it goes without saying that it can be tricky—and frankly overwhelming—to navigate the mortgage process.
A 2014 study from Discover Home Loans found that although 87% of respondents were confident that they could get a mortgage, fewer than half had calculated their down payment. And only 51% even knew what their projected monthly mortgage payment would be.
But new mortgage-disclosure forms introduced on October 3 by the Consumer Financial Protection Bureau (CFPB) should help make the mortgage process a bit more transparent.
The Details: You’ll now have more information—and more time to review it—thanks to these three new forms that would-be buyers receive:
- Your Home Loan Toolkit This 28-page document serves as a primer for the entire buying process. It provides definitions of mortgage terms, background on how mortgage insurance and closing costs work and more.
- Loan Estimate This new form is designed to make it easier for potential borrowers to compare different types of loans, including estimates of the monthly payment, the total amount owed, what you could expect to pay in closing costs and whether your interest rate could rise after closing.
- Closing Estimate The new rules require that the estimate be provided to a buyer three days prior to closing, so you can fully assess what you’re committing to. It enables you to check the final numbers against your loan estimate and spells out your total monthly outlay—including taxes and insurance—so you’re crystal clear on how your new mortgage will affect your monthly budget.
Keep in mind ... Consumers may find that the closing process is lengthened by about 15 days as lenders and settlement agents adjust to the new forms, says Chris Polychron, president of the National Association of Realtors.
The 101 on ... New Mortgages That Can Help Cover Fixer-Upper Costs
Blame it on HGTV. Thanks to the popularity of home-renovation shows, more and more people are considering the idea of buying lower-cost properties in need of some TLC.
The problem is that few people are able to sink even more money into a home after cobbling together their 20% down payment.
Enter specialty mortgages that enable you to take out a single mortgage that combines the cost of approved improvements with the cost of buying the house, eliminating the need to take out a second mortgage or home equity line of credit to cover renovation work.
The Details: Fannie Mae’s HomeStyle Renovation mortgage allows borrowers to include the cost of planned renovations, repairs or improvements—totaling up to 50% of the as-completed appraised value of the property—in their first mortgage, provided they meet approval guidelines.
Buyers have to work with their lenders to find an approved contractor to do the improvements, and the subsequent appraisal is based on the as-completed, or after renovation, value of the property.
Many types of renovations and repairs are eligible, but they have to be permanently affixed and add value to the home.
The Federal Housing Administration (FHA) has a similar program, known as the 203(k) rehabilitation loan. And the HomeStyle Renovation loan is also available for second homes or investment properties.
Keep in Mind ... You can’t get too creative with the projects you want approved, since they must fit clearly within the guidelines. So while a new shower would likely pass muster, a towel warmer would probably not.
The goal is to provide flexibility for borrowers who can demonstrate that the credit disaster was a one-off event caused by something beyond their control—such as a global financial crisis.
The 101 on ... Changes for People Recovering From Bad Credit
There you were, living your life and paying your bills on time. And then the Great Recession happened.
If you were like millions of other people, you may have gotten caught up in the repercussions—whether it was an unexpected job loss or an underwater home—and your previously strong credit rating took a tumble.
And if you took a serious one-time credit hit you’re not alone. So not alone, in fact, that organizations like Fannie Mae and FHA have rolled out programs that may allow you to get out of the credit penalty box ahead of schedule—if you can show that you are truly creditworthy.
Previously, Fannie Mae, for example, required that borrowers wait seven years after a “significant derogatory credit event”—such as a foreclosure or bankruptcy—before being potentially eligible for a new mortgage.
Now the minimum waiting period is two to four years, depending on the circumstances and the amount you are seeking.
The Details: Participating banks and mortgage companies won’t rely solely on your credit score to determine if you can have a loan.
Instead, they’ll look at your bigger financial picture in order to assess whether you are a good candidate for the mortgage, explains Jude Landis, vice president of single family credit policy and risk management for Fannie Mae. Your creditworthiness will be evaluated by assessing your income, credit history, down payment, savings and other factors.
The goal, according to Fannie Mae, is to provide flexibility for borrowers who can demonstrate that the credit problem was a one-off event caused by something beyond their control—such as a global financial crisis—that resulted in a sudden, significant and prolonged reduction in income or a catastrophic increase in financial obligations.
“So many have been affected by this historic economic collapse,” says Bellevue, Wash.-based Miller Laine Properties co-founder Ed Laine, who recently helped a client who was ecstatic to get back into the marketplace after a previous short sale. “It’s appropriate to have modifications in place for those who made an effort to fulfill their financial obligations by using a tool such as a short sale, rather than simply giving their property back to the bank or servicer.”
Keep in Mind ... Be careful about being too ambitious and optimistic about what you can afford. Even if you are back on your feet and feeling financially secure and creditworthy, you still need to make sure that taking on a new mortgage is the smart financial decision for you.