What Does It Take to Get a Loan Today? A Lot!

What Does It Take to Get a Loan Today? A Lot!

One of the biggest obstacles home buyers are facing is qualifying for financing, and a new report by the Federal Reserve shows exactly how big of struggle potential borrowers face.

According to a new Federal Reserve report surveying banks, the report found that most banks say they are a lot less likely to issue a mortgage to borrowers with a FICO credit of 620 and a 10 percent down payment than they were in 2006 during the housing boom.

“A moderate net fraction of banks were less likely to originate loans to borrowers with a FICO score of 680, regardless of down payment size,” the report also said. “A modest net fraction of banks were less likely to originate loans to borrowers with a FICO score of 720 and a 10 percent down payment, although survey respondents indicated that they were about as likely to originate loans now as they were in 2006 if such borrowers had a down payment of 20 percent.”

So while mortgage rates continue to sink to new record lows, many home buyers are finding they can’t always qualify for the low rates.

As a recent New York Times article about the Federal Reserve’s report illustrates: “A borrower with a credit score of 720 can expect a rate of 3.70 percent on a 30-year, $300,000 fixed-rate mortgage … while someone with a score of 620 to 639 can expect a 5.07 percent rate — or an extra $242 per monthly payment.”

Source: “How to Pump Up Your Credit Score,” The New York Times (May 17, 2012) & realtormag.realtor.org

Housing Affordability Reaches Record Highs.

Housing Affordability Reaches Record Highs

For the median-income family, buying a home has never been more affordable, new surveys by the National Association of REALTORS® and National Association of Home Builders show.

Housing affordability reached a record high for the second-straight quarter in the first three months of this year, the National Association of Home Builders/Wells Fargo Housing Opportunity index shows. Nearly 78 percent of all new and existing homes sold in the first quarter this year were affordable to families earning the national median income of $65,000, according to the index.

NAR’s quarterly Housing Affordability Index also showed a record high in affordability in the first quarter. NAR first began keeping records on affordability in 1970.

According to NAR’s index, the median-income family earning under $61,000 could afford a home costing $325,000 — more than double the national median existing single-family home price of $158,100.

“The median monthly mortgage principal and interest payment for a median-priced home would take only 13.5 percent of gross income,” according to NAR’s affordability index.

Buyers Struggle to Take Advantage

However, while affordability remains high, many home buyers are still being shut out of the market and are unable to take advantage of the deals due to tight lending conditions, housing experts say.

“For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present,” says Moe Veissi, NAR’s president. “Although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means. This is especially true for self-employed buyers.”

Indeed, Barry Rutenberg, NAHB’s chairman, echoes those comments, adding that “without this significant hurdle, the housing and economic recovery could be proceeding at a much stronger pace.”

Where Affordability Is the Highest

Some of the most affordable housing markets in the first quarter, according to the NAHB/Wells Fargo Index are:

1. Indianapolis-Carmel, Ind. (where 95.8 percent of the homes sold during the first quarter were affordable to households earning the area’s median family income of $66,900)

2. Dayton, Ohio

3. Lakeland-Winter Haven, Fla.

4. Modesto, Calif.

5. Grand Rapids-Wyoming, Mich. (tied for fifth place)

5. Buffalo-Niagara Falls, N.Y. (tied for fifth place)

Meanwhile, the least affordable housing market continued to be New York-White Plains-Wayne, N.Y.-N.J., a title which it has held for 16-straight quarters, according to the NAHB/Wells Fargo index. Only 31.5 percent of the homes sold in the first three months were affordable to those earning the median income in the area of $68,200.

Source: REALTOR® Magazine Daily News & realtormag.realtor.org

Builders Get More Confident About Improving Market.

Builders Get More Confident About Improving Market

“Firming home values, improving employment, and low mortgage rates” are driving greater optimism over a recovery taking shape in the new-home market, says David Crowe, chief economist for the National Association of Home Builders.

Builder confidence for the market of newly built single-family homes rose five points this month, posting its best reading since May of 2007, according to a measure of builder sentiment by NAHB/Wells Fargo. The index measures builder sentiment on sales conditions and expectations as well as buyer traffic.

“Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April,” says Barry Rutenberg, NAHB chairman. “It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase.”

Still, housing experts warn the new-home market still has a long way to go toward normalizing, based on historical trends. Builders say consumer access to credit, inaccurate appraisals, and the rise in materials costs for new construction continue to pose major challenges to the industry.

According to May’s index, the largest gains in builder confidence occurred in the Northeast, followed by Midwest and South. The West posted a two-point decline in builder sentiment for May, according to the index.

Source: National Association of Home Builders

Lenders Put Borrowers Through More Scrutiny.

Lenders Put Borrowers Through More Scrutiny

Home buyers and refinancers applying for a mortgage are being caught off guard in what all lenders are asking for when approving a loan.

The Wall Street Journal reports an incident where a borrower was even asked for a copy of her divorce decree — from two years ago — and asked to explain a deposit of about $200 into her bank account when applying for a mortgage.

Lenders are being more careful in who they issue a loan to nowadays, tightening underwriting standards and carefully documenting applicants’ finances and ability to repay the loan.

Practically nothing is off the table these days when it comes to what a lender may ask for. Lenders may question any deposits to bank accounts, increases in a borrower’s income, and any disputed balance over a late payment, even if it was from years ago. Some lenders are even requesting college transcripts and diplomas in verifying employment history.

Any credit inquiries on a person’s credit invites red flags and more questions from lenders, Rhonda Porter, a loan officer in Seattle, told The Wall Street Journal.

“I have customers who know they’re a strong [borrower], and they’re still asked for documentation,” Porter says. “Some of them get their feathers ruffled.”

Some borrowers — particularly refinancers — are getting so frustrated by the extra paperwork and questions that they are increasingly just stopping the process, according to news reports.

Stella Adams, a fair housing advocate in North Carolina, says banks need to lighten up. Banks should return to “solid, old-fashioned underwriting” standards that were used prior to the housing boom and stop making it so difficult for people to get financing.

Source: “Lenders Want to Know Everything,” The Wall Street Journal (May 12, 2012)