Despite historically low home prices and rock-bottom mortgage rates, tight lending standards continue to keep would-be buyers on the sidelines. Higher credit-score requirements and more extensive income documentation requirements have also played a role in discouraging consumers from becoming homeowners.
“The mortgage climate has become a bit more challenging,” says Erin Lantz, director of Zillow Mortgage Marketplace. “The lending community is fairly conservative right now.”
But while mortgage financing is certainly no easier to come by these days, it’s no harder, either. “Borrowers have a little bit of a misconception that you can’t get mortgage financing,” says Keith Gumbinger, vice president of mortgage information web site HSH.com. “The mentality of ‘It’s going to be too hard for me to get financing, so I’m not going to bother even looking,’ is persistent.”
Credit standards stopped tightening about a year ago, Gumbinger says, and the most recent Senior Loan Officer Opinion Survey released by the Federal Reserve indicated that the residential mortgage market has essentially plateaued, meaning the lending climate hasn’t become any tighter, but it’s not getting any looser. “On net, standards on prime closed-end residential real estate loans and home equity lines of credit were about unchanged during the first quarter of 2011,” the Fed press release said.
The prominence of government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac in the mortgage market has further complicated the picture. Gumbinger estimates that 90 percent of home loans are backed by Fannie, Freddie, or the Federal Housing Administration (FHA). There is virtually no private loan market to speak of. “Because Fannie and Freddie so dominate the marketplace, until they make a move or make a change to loosen, nothing is really going to change,” Gumbinger says.
So now that we know that lending standards have been unchanged in most of the past year lets focus on how you can avoid getting your application rejected when applying for a loan.
Let’s talk about the three things most lenders are looking for these days. They are credit score (willingness to pay back), assets (including savings accounts and investments), and the continuation of funds (a steady and secure job). The lending industry, since the mortgage meltdown, has been putting increased attention on proof of these 3 things. Prior to the crisis many lenders would be underwriting loans without actual proof of these 3 criteria.
Make sure to disclose all facts about your previous employment and financial history when applying for a loan. We already know that lenders are looking into applications a lot closer when evaluating loans so why lie on your application? Disclosing all information for the past 2 years could actually help by reducing the time it takes to get your loan approved. If it does get rejected however your loan agent will know how you can clean up your history since he knows all the facts. This will help you later down the road when you re-apply for a mortgage.
How does the lender determine the interest rate you will be getting? It depends mostly on your credit score, the higher the score the lower the rate. However if your credit score is not the greatest there are other options available such as FHA Loans. Your lender should also be able to give you some tips on how you can clean up your credit score in as quickly as a couple months to half a year.
This is another reason I advise my buyers to talk to a lender once they even start thinking about buying a home. A knowledgeable lender is a crucial part of your home buying team and will be able to guide you through all the loan packages available to you. Buying down the rate with points is always an option for home buyers as well, whether this makes sense or not depends on how long you plan to stay in the home for.
A mortgage point, discount point or merely “point” as it is variously called, is a fee you pay to receive a reduction in the interest rate on a home loan. Considered prepaid interest by the Internal Revenue Service, points are fully deductible, just like mortgage interest. One point costs you 1 percent of the loan value.
However if you pay this upfront fee and do not stay in your home long enough for the savings to start happening you are wasting your money. A knowledgeable loan agent should be able to break down all of your options and show you your monthly costs and savings when comparing to other loan packages.
Give my loan consultant Joe Lima a call at (408-872-3043) to see how you may be able to clean up your credit score and learn about the current loan programs available to first time home buyers.
Because of the many legal and tax situations that can arise through the sale and purchase of real estate ALWAYS consult with your ATTORNEY or ACCOUNTANT before making ANY decisions in ANY transaction
* THIS ARTICLE WAS POSTED AT Thomas Feng’s Bay Area Connect *