In the coming months you will hear a lot about “declining markets”. This is because both Fannie Mae and Freddie Mac along with all major mortgage insurance providers have introduced strict rules regarding such markets.
Staring January 15, all loans going to Fannie Mae will be subject to the decling markets guideline:“Current home price trends indicate that home values continue to decline in many markets across the country. As a result, and based on our continued monitoring of loan performance, Fannie Mae is reinstating a policy to restrict the maximum loan-to-value (LTV) ratio and combined loan-to-value (CLTV) ratio for properties located within a declining market to five percentage points less than the maximum permitted for the selected mortgage product.”
“The reinstatement of the maximum financing policy and the other changes outlined in this Announcement are necessary in light of current market conditions. These policies are effective for all loans delivered with application dates on or after January 15, 2008.”
What this means to you is that if the appraiser indicates that the property is in a declining market then you may be required to put an additional 5% down. However, be aware that only MyCommunity and Flex loans are severely affected since until now we were able to do such loans upto 100%. Now we can only go upto 5% in a declining market scenario.
Does this mean 100% financing is no longer available? Most certainly not. Remember that FHA and VA loans are still around and neither agencies have any immediate plans to change guidelines. This is not to say they don’t care about potential falling values.
In fact both FHA and VA will be asking for detailed explanation in the appraisal on whether or not the property is in a declining market. But they neither program has indicated that they will then force the borrower to put more money down.
I know that most of Maricopa and Pinal county zip codes (Phoenix Metro area) fall with declining markets. While this does not disqualify you from 100% financing, make sure your lender offers FHA as a possibility (and VA if you qualify). With higher lending limits and competitive rates, these are certainly loan options you need to seriously consider.