27 Jun Obtaining A Home Loan May Be Getting Easier
Over the last few years, it’s been tough for a lot of people to meet the criteria for getting a new mortgage or refinancing their existing one. But luckily, current economic trends and government program changes mean it could be getting easier to own a home or refinance.
In fact, according to a recent report from Ellie Mae, a nationwide residential mortgage solutions provider, the average approved borrower credit score of applicants borrowing from banks and private insurers in March 2013 was 743. This is the lowest it has been since tracking began in August 2011.
Need more signs that restrictions are easing up? Here are three indications that it may soon be easier to get that home loan you need.
Home Values Are Increasing
If you’re a homeowner whose home is underwater, you probably know that it can be difficult to refinance. That’s because through most conventional lenders, underwater homeowners simply can’t qualify for refinancing as lenders view them as a risk.
Why? Let’s say you have a $400,000 mortgage, and your home is now worth $300,000. If you defaulted on your loan, the lender could stand to lose $100,000 – which makes lending you money a risk. But if your home value increased to $450,000, you would have more equity in your home, making you less of a risk, and a much stronger candidate for refinancing.
But here’s some good news for underwater homeowners looking to refinance: According to the U.S. Department of Housing and Urban Development (HUD), property values are on the rise.
For example, Richard Booth, a certified mortgage banker with America’s First Funding Group in Neptune, New Jersey, says that home prices are rising in the New Jersey and New York City areas. He notes that home prices are especially rising for homes that are priced in the lower ranges of $175,000 to $350,000.
So, if the value of your home has gone up and you now have more equity in your home, you may have a better chance of qualifying for refinancing today.
Government Programs Are Being Extended, While New Ones Are Becoming Available
If your home is underwater and you have an FHA-insured mortgage (through Freddie Mac or Fannie Mae), you’re in luck.
The Federal Housing Finance Agency announced on April 11, 2013 that HARP will be extended by two years to December 31, 2015. It was originally set to end in December 2013. HARP is designed to help underwater homeowners refinance to a lower interest rate – and could be a big help to many.
“Suffice to say that the extension of this program will continue to make it easy for homeowners to refinance in situations where they will otherwise be unable to,” says Tim Dwyer, a housing expert and CEO of Entitle Direct, a direct-to-consumer title insurance company.
But in addition to HARP, there are two other government programs that are available to help struggling homeowners: the Home Affordable Modification Program (also known as HAMP) and the coming Streamlined Modification Initiative (SMI), says Dwyer.
“These programs were designed to help underwater homeowners reduce their monthly payments and get back on track by receiving a new, lower interest rate and term extension,” he explains. So what’s the difference between HARP, HAMP, and SMI? Basically, through HAMP and SMI, you would make a modification to the existing loan, while with HARP, you would refinance to a new loan completely. However, according to the federal government’s Making Home Affordable website, HAMP is only extended until December 31, 2013, while SMI will be available from July 1, 2013 through August 1, 2015.
Loan Approvals Are Increasing for Applicants with Low Down Payments & Credit Scores
Have you struggled to buy a home due to a low down payment or less than perfect credit? Your luck may soon change. As the housing market gets better, private insurers see less risk in insuring loans for applicants with lower credit scores and lower down payments, according to Michael Sema, president of Amber Sky Home Mortgage in New Jersey
Plus, as more private mortgage insurers enter the market, Sema says there will be more options when it comes to qualifying for a loan.
“More conventional loans and [private mortgage insurance] companies gives more clients options and ease of financing,” he explains. And these options also include trends like more conventional loans with 10 percent down or less. “Today, [our lending company has] 3 percent down conventional loans available with PMI on single family homes and condos if the client has a 680 or better FICO score,” he says.
And some lenders are even offering low down payment mortgages with no monthly mortgage insurance at all, says Sema.
“There are also five to 15 percent down payment options with no PMI payments,” he says. Instead, the lender absorbs the cost of the PMI by adjusting the closing fees or interest rate.
As you can see, different lenders have different standards for qualifying for a loan, so it pays to do your research and shop around.
By Sarita Harbour | Yahoo! Homes