Mortgage Rate, Lending Guidelines Round-Up - February 14, 2009

After dropping over 1 point over the last few months, mortgage rates are back up hovering just over 5 percent. Mortgage rates took a little dip last Tuesday after Tim Geithner's less-than-detailed/non-specific speech about the government's financial rescue plan and overall concern surrounding the stimulus bill.

As far as whether it's getting easier or harder to get a loan, that hasn't changed much. Getting a loan still requires good credit (typically 720 or higher), money down (at least 3.5% percent if you go FHA/VA) and full documentation (you mean I have to prove that I make what I say I make?!). Here's a quote from an article on BankRate.com regarding lending guidelines:

"In short, lending standards are a lot tighter than they were in the go-go period of around 2002 to 2007. On Wednesday, the House Financial Services Committee held a hearing in which financial services CEOs were asked what they did with their federal bailout billions. The CEOs said their institutions have been lending lots of money. Their implicit message was: Please don't ask us to loosen lending standards.

Vikram Pandit, chief executive of Citigroup, told the committee that his company lent $75 billion in new loans to consumers and businesses in the last three months of 2008 and that it will continue to lend "in a responsible and disciplined manner." Later in his statement, he said lenders have tightened credit and that, "in this difficult environment, Citi will not — and cannot — take excessive risk with the capital the American public and other investors have entrusted to the company." (Citigroup has received $50 billion in TARP money, or $351.87 from every working American.)"

Money is still available to those who are in the financial position to buy a home - it's just more strict than before (which is a good thing overall). If you have good credit and money to put down, you're sitting pretty right now.

Think It’s All About Prices and Rates? Think Again…

Many buyers think mainly (or only) about real estate prices and mortgage/interest rates. But don’t forget one very important thing - the ability to obtain financing. Unless you’re paying cash, the ability to get financing will directly affect your ability to buy real estate.

In a recent Fed survey, due to the credit crisis of recent years, 75 percent of banks tightened their standards for prime mortgages during the second quarter of this year. Of the 32 lenders that were writing non-traditional loans such as interest-only loans, 85 percent said they’d tighten standards. As for sub-prime lenders (of the few that are left), 86 percent said they had tightened standards in the last three months.

What does this mean to you as a home buyer?

1. Your previously good credit score is no longer good enough to qualify. Credit (FICO) score requirements are one of the first things lenders tighten up on.
2. More money out of your pocket for a down payment. Trying to get a 5-percent down loan these days is next to impossible. You’re looking at 10, 15, 20 sometimes 30 percent down minimum.
3. Work history, 1099 contractor documentation and other back-end requirements are being tightened up on. What was ok before may not be good enough now or tomorrow.
4. If you previously qualified, but are now on the fine line (or over), the lender may say "ok," but you may be stuck with a higher interest rate and/or higher closing costs than before.

If you do not qualify under the new (or future) tighter standards, neither prices nor interest rates will matter.

You will either pay a higher interest rate due to being "higher risk" based on the new guidelines or you won’t be able to buy at all. And the decrease in your monthly mortgage payment you hoped lower prices would bring may be wiped out once you factor in the higher interest rate’s effect on your monthly mortgage payment.

It’s not only about real estate prices and interest rates. Don’t get caught up on just one factor and get blind-sided by the other(s).

Source: InmanNews