Real Estate Marketing & Beyond
If you are still looking to buy a home in the near future, you can be relieved that mortgages have remained low, although many experts had expected them to rise during the busy summer home buying season. For your good fortune, interest rates have remained near historic lows but they only have one direction to go and that is up.
Don't stay on the sidelines too long. The Mortgage Bankers Association's latest forecast is for interest rates to begin inching upward to about 4.9% over the next few months and to end the year above 5%. Each uptick makes it more difficult to qualify for a mortgage as the monthly payments increased.
Being approved for a loan remains a challenge these days. It's nowhere near as easy as it was 10 years ago when all you had to do was fog a mirror. Recently, the FHA lowered the credit score requirement from 640 down to 600. The FHA is also offering the industry's lowest down payment, as low as 3.5%. The FHA is also allowing loans to be made in as little time as 12 months after a bankruptcy, short sale, or foreclosure (with extenuating circumstances such as a job lose or medical cause).
Of course, the FHA doesn't actually make or approve the loans. What they do is set the standards and policies for loans they will insure. However, lenders don't all follow FHA policies and standards to the letter. Some lenders impose stricter policies that they feel better protect them. This is especially true when the lenders default rate is close to exceeding what the FHA allows to insure the lender's loans. What this comes down to is that just because one lender turns you down based on its own stricter qualifications doesn't mean another lender won't approve your loan. You can benefit by shopping around for less restrictive qualification standards.
A new set of rules came into effect at the beginning of this year. The U.S. Consumer Financial Protection Bureau issued "Qualified Mortgage Standards" as a result of changes made to the Truth in Lending Act. Many lenders tightened lending qualification standards and approved fewer loans as a result of the new rules. Today, almost nine months later, lenders are becoming more knowledgeable about these new rules and are loosening their qualification standards. These rules only apply to loans involving the GSE, FHA, VA, and USDA.
Some lenders are beginning to build a business model around loans that don't qualify under the Qualified Mortgage Standards because they see solid business opportunities here by making loans to reliable borrowers that can't qualify under the new rules.
Another change that is in the making is a new FHA program called Homeowners Armed With Knowledge (HAWK). The FHA hasn't announced exactly when this program will start but it is expected to become effective this fall. What has been made public is that borrowers that are willing to take "homeownership counseling" will be given loan fee discounts and annual fee discounts that will lower both their closing costs and monthly payments. The upfront fee will be reduced from 1.75% to 1.25%. A saving on a $200,000 loan of $1,000. The annual mortgage insurance premium will be reduced from 1.35% to 1.25%. That's a savings of about $17 per month on the same loan.
What this all means is that mortgages will become easier to qualify for. That's until interest rates begin creeping upward to wipe out the recent gains to easier qualifications.
Please leave a comment if this article was helpful or if you have a question.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.
