The recent mortgage lending crisis spurred lending institutions to do a complete 180 from practices common 5 years ago. Then, anyone could get a loan whether they could afford the payments or not, and many creative financing options were available, including loans that required no documentation of income. Those days are long gone and have been replaced by the opposite scenario where it has become very difficult for a potential home buyer to secure a loan, even with a good financial portfolio.
But recently, it appears that mortgage lending requirements may be loosening and adopting the clean lending policies of a decade ago. As delinquent loans and credit losses are beginning to shrink, lending giant Freddie Mac recorded 1st quarter profits and has claimed that they no longer need government funding. The National Mortgage News also reported that at the beginning of the year, Wells Fargo dropped its credit score requirement for FHA backed loans to around 500. While lending institutions are aware that tightened lending requirements are keeping many eligible buyers from purchasing homes, thus prolonging housing recovery, they are keeping a watchful eye on the economy as they slowly loosen standards.
In a May 10 article in U.S. News and World Report, Keith Gumbinger, VP of mortgage information web site HSH.com, said, “Borrowers have a little bit of a misconception that you can’t get mortgage financing. 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.” There are many options for borrowers out there, including:
- FHA Backed Loans. Lower credit scores are required and first time home buyers may qualify for a 3.5% down mortgage.
- 30 or 15 Year Conventional Fixed Mortgages. With this type, your payment will remain the same over the life of the loan. A credit score of 720 or higher will get you the best interest rate, while a score of 600-700 can still get you approved.
- ARM & Interest Only loans. These type allow for lower monthly payments, but your payment amount will rise over the life of loan. This is a risky option, but may work for certain buyers.
- Jumbo Loans. This type is required for loans over $333,700. Typically a 20% down payment is required and the interest rate tends to be a bit higher than a conventional loan.
The mortgage lending environment is constantly changing. To find out current loan requirements and options available to you, of for a list of local lenders that have gone above and beyond for our Ann Arbor real estate clients, contact us today at 734-761-3060 or firstname.lastname@example.org. And if you are thinking of purchasing a home or condo, check out our Subdivision Hotline and Condo Hotline for up-to-date active and sold listing information.