Is the current economic outlook sour? Take a sweeter look at life with these three new realities about the home-loan industry.
3 sweet changes in mortgage lending
In today’s world, it seems like lemons are a dime a dozen and the real estate market has been leading the world in lemon production.
So, what are some “sweet” things to help improve your situation as a homeowner? Here are three new realities about the home-loan industry and what is sweet about each.
Interest rates are extremely low
A combination of the federal government wanting to encourage lending and competition for qualified loan applicants has led to historically low interest rates for both new mortgages and refinancing of existing mortgages.
“I’m encouraged by the low interest rates we’re seeing,” says Heidi Simpson, real estate underwriter for Utah Community Credit Union in Provo. “People are able to refinance into a lower payment or purchase a home with a reasonable payment.”
Of course, the home may have depreciated since the original purchase, which means the numbers may not add up for a refinanced loan. However, the government stimulus plan is expected to open refinancing options for families who have made payments and have good credit, but who have experienced bad luck in their home’s depreciation.
“We won’t know for sure how this stimulus will affect things, but we expect there will be some programs that will loosen mortgage insurance restrictions and value-to-debt ratios,” says Jeff Meyers, assistant vice president of real estate lending for Utah Community Credit Union in Provo.
The Sweet Outlook
If you’re in a solid situation, take advantage of lower interest rates. Loans can lower your payment on an existing house or allow you to buy a new house and get more house for your money.
Loans require more proof of affordability
There once was a time when buying a home required proof of income, a down payment and verification that the homeowner wasn’t overextended. Then for a brief (and disastrous) time, stated-income loans were advertised everywhere — and down payments were simply an added bonus.
Now we’re back to the old times.
A down payment on an FHA loan typically now requires 3.5 percent of the sales price while conventional loans are at about 5 percent. Also, documentation proving a borrower can make the payments is now required — meaning good-bye to the stated-income loan.
“We have come full circle and we’re back to making sure people can afford the payment they’re committing to,” Heidi says.
While generating a down payment may delay a home purchase, homeowners will be better prepared to make payments when they do get into a home.
The Sweet Outlook
Living in a neighborhood where people can pay their bills strengthens the community. Stretching ourselves too thin can have dire consequences and strain relationships.
Good credit is the key
With everything else tightening up, it makes sense that credit scores and past history would become more important.
“Credit scores highly affect your interest rate or even whether you can get a loan,” Jeff says.
In the past few years, having a less-than-desirable credit score might have meant a few hundredths of a percentage on your interest rate. Now it might make it impossible to get a loan.
Which makes it all the more important to build and keep good credit.
“Everyone should check their credit report annually,” Jeff says. “You should know where you’re at before coming in to talk about a loan.”
The government mandates that each person can get one free credit report each year from each of the three primary reporting organizations: Equifax, Experian and TransUnion. One way to do this is by visiting www.annualcreditreport.com — a site sponsored by Equifax, Experian and TransUnion.
The Sweet Outlook
Credit scores reward people who fulfill payment obligations, which encourages smarter debt incurrence and closer monitoring of your credit score.