You just have to know where to look. Yes, the headlines are unsettling. Would-be home buyers are understandably afraid to make a move. After all, anyone who reads a paper or watches the news knows that jumbo loans (over $417,000) are virtually unobtainable, that stated income and no-doc loans have been driven to extinction, that credit must be perfect, and that huge down payments are the norm. The only thing wrong with these statements is that--while they make for head-turning news stories--they are simply not true.

Jumbo Loans: Buyers Can Still "Live Large"

Jumbo mortgages were early casualties in the mortgage crisis. The exodus of panicked investors caused jumbo rates to skyrocket to 9%. However, it didn't take long for some institutions and investors to see that there was a need and there was money to be made. And rates on jumbo mortgages quietly came down.

For example, one large mortgage lender still offers a $500,000 loan up to 95% of the home's value if the borrower has a 680 credit score. And while it's true that rates on 30 year fixed rate jumbo loans are on the high side (about 7.5%), borrowers can save significantly by opting for a hybrid ARM that is fixed for 5 years. The rate is approximately 5.5%. Borrowers who really want a 30 year fixed jumbo loan might save money by doing two loans: a conforming 30 year fixed rate to $417,000, combined with a second mortgage (called a piggyback). For example:

Sales Price of Home:            $600,000

20% Down Payment:            $120,000

Mortgage Amount:               $480,000

Jumbo Pmt at 7.5%              $3,356.23

Piggy Back Payment:            $3,102.19

The piggy back solution is a conforming first mortgage of $417,000 at 6% backed by a $63,000 15 years second mortgage at 8%. The total of both payments is $254 a month less than the jumbo payment. And the 15 year loan helps borrowers accrue equity more quickly.

FHA Home Loans: The Low Down

FHA mortgages have been retooled by the government to make it easier for credit-challenged borrowers and those with limited funds to buy homes. With down payments as low as 3% and generous underwriting guidelines that don't require a minimum credit score, FHA loans are more popular than ever. FHA borrowers must be able to document their income, and the maximum loan amounts vary depending on the location of the home. FHA loans can help borrowers with the following issues:

1. Credit problems. Even borrowers with a bankruptcy (discharged at least 2 years ago) can qualify. Borrowers with no credit on their credit reports can use non-traditional credit (for example utility bills and rent) to get approved.
2. Low Down Payment. Only 3% is required, and that can come from family or government agencies, or even contributions from the seller.
3. Limited Income. Many conventional lenders require that borrowers' total debts including the mortgage payment be 36% or less. FHA allows a ratio of 45%.

The State of Stated Income Loans

Stated income loans are still available with some constraints. Most lenders will not allow W-2 filers to state their income when it's so easy to document it. Ditto for borrowers with passive income like pensions and dividends. But self-employed borrowers, whose taxable income often doesn't reflect their cash flows, can still find low-doc loans to 90% of the purchase price--if they have decent credit, generally defined as a score of 680 (up from the 620-650 allowed in the past). Some lenders require scores of at least 700.

The Bottom Line on Mortgage Loans

While mortgage rates and programs change constantly with financial markets, the upshot is that money is available, rates are the lowest they've been in years, and homes are cheaper in many markets. Conditions can be extremely favorable for would-be buyers if they act promptly.

Sources:

Fannie Mae

SEC

FHA

FHA Loan Pros