Lending Atmosphere Rapidly Changing

If you haven't been following the recent developments in sub-prime lending, here is a brief update. Sub-prime refers to more risky loans written by banks for borrowers who cannot or would rather not qualify for a more conventional loan. Conventional would refer to loans where the borrower's income and assets are fully documented and verified, and the loan to value is no more than 80%. There is also a Federally insured loan program (called FHA - Federal Housing Administration) that will offer up to 100% financing. Any other exotic loan products where the borrower is "stating" their income but not providing supporting documentation, and they are borrowing up to 106% of the appraised value of the home are commonly referred to as "sub-prime" or "Alt-A" loans. This market has almost completely disappeared. My preferred mortgage broker has informed me that she is no longer aware of any sub-prime products out there. What that means for you is that if you are a first time home buyer and you need to finance 100% of your purchase price, you are probably going to have to use an FHA loan (which technically will only finance 97% but the other 3% can come in the form of a gift).