29 March 2008 - The days of lenders bending over backwards to provide subprime borrowers with zero down payment mortgages are gone, but that doesn't mean loans for creditworthy borrowers have dried up - not by a long shot.

In fact, with the government's recent initiatives to stimulate the housing market, there may actually be more lending options than you might originally think.

That doesn't mean banks will lend to anyone. Lending standards are tighter and most borrowers should expect to have high credit scores and down payments of at least 5 percent. Even so, the government has provided a number of incentives that warrant taking a closer look at today's mortgage options.

First, the federal government has extended a tax deduction for private mortgage insurance premiums. This is significant because lenders require either private mortgage insurance or a second "piggy-back" loan when a borrower has a down payment of less than 20 percent.

Before 2006, the interest paid on piggy-back loans was tax deductible while PMI premiums were not. This tax treatment encouraged many borrowers to put together piggy-back loan packages as a way to avoid the cost of PMI. This changed in 2006 when Congress allowed PMI premiums to be deducted from federal income taxes, a provision that Congress extended in 2007 for another three years.

This extension is particularly significant because it makes private mortgage insurance a more affordable option at a time when piggy-back loans are becoming harder to come by.
Another help to the mortgage environment is increased loan limits for government-sponsored enterprises, Fannie Mae and Freddie Mac. The recently signed Economic Stimulus Act of 2008 allows Fannie and Freddie to purchase conforming loans up to 125 percent of an area's median home price, capped at $729,750. That's up from the $417,000 previously allowed.

In Utah, that means lenders in Salt Lake, Summit and Tooele counties will be able to make conforming loans up to $729,750. In Wasatch County, the new limit is $431,250, while the limits in all other counties will remain at $417,000.

This increase means borrowers in high-cost areas, who previously had to either use an expensive nonconforming jumbo loan or put two loans together in a piggy-back package, will have access to a single, more affordable mortgage with more advantageous terms. This is especially helpful since many lenders have shied away from jumbo and piggy-back loans over the past year.

The Department of Housing and Urban Development similarly raised the limits for loans guaranteed by the Federal Housing Administration. In Utah, every county saw increases in their FHA limit, with Salt Lake, Summit and Tooele counties seeing their limits raised to the maximum of $729,750. The lowest FHA limit in the state is now $271,050, up from $200,160.

This is helpful for borrowers with less-than-perfect credit because FHA loans are safer than subprime products. Borrowers receive rates that are 3 percent lower on average than those of a subprime loan, and FHA has programs in place to keep owners out of foreclosure if they become delinquent.

At a time when the financial world is increasingly skittish, the government is providing viable ways for borrowers to continue to enter the home-buying market with affordable and sustainable mortgage products. To learn more about real estate and lending in your community, contact your local Realtor, because nobody knows Utah real estate like a Utah Realtor.