The lending industry has gone through a great deal of upheaval in the last two years. There were a number of large financial institutions that made loans that more conservative banks would label as high-risk. These loans were made to people with questionable credit and high debt-to-income ratios. Many of these loans required either low or no down payment. They were also made in a low-interest rate environment, and these rates were only guaranteed for two to five years.

Eventually, these loans came due and the interest rate climate had changed. The borrowers were faced with higher interest rates and monthly payments, which they could not afford. The borrowers stopped paying on these loans, and the banks were forced to foreclose. This led to a decline in the value of mortgage-backed securities and a financial nightmare. However, there were a large number of smaller community banks which maintained conservative lending practices and did not participate in these high-risk loans. These banks remain financially solid and are still lending money using the same conservative philosophies.

The lending environment continues to change, and there are several federal programs available to borrowers. The one which has probably received the most publicity is the $8,000 tax credit. First-time home buyers can qualify for a tax credit up to $8,000 depending on the purchase price of their home.

Another program is the Guaranteed Rural Housing Loan. This program is designed for buyers who are purchasing homes in rural communities with populations of 10,000 or less. These loans offer up to 100-percent financing with no mortgage insurance. The closing fees may also be rolled into the loan amount. There are income restrictions associated with these loans, and appraisals must meet Guaranteed Rural Housing standards.

Some banks offer FHA (Federal Housing Administration) loans, which require a 3.5-percent down payment. Qualification standards for FHA loans have become more conservative, and appraisals must also meet stricter standards. Other banks offer FHLB (Federal Home Loan Banking System) loans, which require a 20-percent down payment. These loans are for the buyers who do not want to borrow as much money so they can keep their payments lower. These buyers benefit by immediately having 20-percent equity in their homes.

There are a variety of other programs available to borrowers. You need to tell your banker what you need and allow them to help you find the best loan product to meet your needs. Buying a home is one of the most important decisions you will ever make. Be sure you fully understand the lending process and the financial obligation you accept when you purchase your home. iBi