Mortgages are easier to obtain than many prospective home buyers might expect

Are you on the home-buying sidelines this spring because you think you wouldn’t be able to qualify for a mortgage? Do you know what sort of FICO credit scores are being accepted by lenders at the moment — they’re lower than they were a year ago — and whether your score might now be good enough?

You may be part of the surprisingly large crowd of folks who fear the home-loan unknown. A new national consumer survey found that 56 percent of all potential purchasers of homes — people who don’t own now but hope to during the coming 24 months — say they’re out of the market because they don’t want to face the possibility of rejection by lenders. Even 30 percent of current homeowners believe they wouldn’t pass muster today.

Using a statistical sample of 1,055 Americans 18 and older, survey research firm OmniTel — polling on behalf of mortgage lender loanDepot — documented widespread uncertainty and lack of specific knowledge about current market conditions relative to qualifying to buy a home. According to the survey, 74 percent of potential buyers who would need a mortgage concede that they have not scoped out the current market or taken the steps needed to qualify. Many potential buyers believe that they need near-perfect credit scores to get a home loan. Half of those surveyed said they had no idea what minimum FICO score is needed for a mortgage and nearly a fifth (18 percent) said the minimum score might be 770 or higher.

Debt-to-income ratios are another insurmountable obstacle in many potential buyers’ eyes — enough so that they don’t even try to obtain a mortgage. Most lenders use two forms of debt ratios: a “front end” ratio that compares the monthly costs of the proposed new mortgage and other housing expenses with the applicant’s monthly income; and a “back end” ratio comparing all recurring monthly debt obligations, including housing expenses, student loans, credit cards and the like, with the applicant’s monthly income. Roughly a third of all potential buyers on the sidelines believe their debt ratios are too high.

But what’s the statistical reality on debt ratios, FICO-score minimums and down payments? What are lenders approving? The best answers come from Ellie Mae, a company whose loan origination and tracking software is widely used by lenders. Every month, Ellie Mae analyzes a huge sample of new mortgage originations nationwide and issues an overview report rich with the sort of detail that buyers sitting on the sidelines could use.

Here’s what it found in its report on March, released last week:

●Thirty-three percent of all new loans last month had borrower FICO scores below 700. A year ago, it was just 27 percent. (FICO scores max out at 830, which is considered excellent credit; applicants with scores under 700 present higher credit risks to lenders.) Federal Housing Administration-insured home-purchase loans had an average FICO in March of 684. Conventional mortgages, those designed for purchase by investors Fannie Mae and Freddie Mac, still have relatively high FICOs: They averaged 755 in March, but that was down slightly from 759 a year before. Lenders are doing far fewer refinancings this year, so they are loosening up on FICO minimums for purchasers.

●Debt ratios also are more generous than many sidelined potential borrowers probably imagine. FHA’s average front end (housing costs) ratio last month for purchase loans was 28 percent. In other words, if your projected housing and mortgage-related costs represent 28 percent of monthly income, you’re average. Fannie Mae and Freddie Mac loans averaged 22 percent ratios on the front end. Back end (total recurring debt) ratios for FHA averaged 41 percent. For Fannie and Freddie, it was lower: 34 percent.

●Down payments can be small if that’s what you need. FHA’s average down payment last month for home purchases was 5 percent, but many borrowers put down just 3.5 percent. Fannie and Freddie also allow 5 percent down, provided you can pay mortgage insurance premiums. Down payments on VA loans can go to zero if your veteran status allows you to qualify. Department of Agriculture loans — which are designed for home buyers who live in small towns — also allow for down payments of zero.

The point here: If you’re on the sidelines, check out what’s really going on in the mortgage market. There may be more opportunities — even in an era of tighter underwriting — than you think.

Source: Washington Post

Home Sales Mark Sluggish Start to Spring

Existing-home sales basically held flat in March, and current home sales activity shows signs of underperforming by historical standards, according to the National Association of REALTORS®’ latest existing-home sales report. But NAR Chief Economist Lawrence Yun says the slow start to spring may be temporary, with an improvement for the housing market likely on the horizon.

Existing-home sales dropped slightly by 0.2 percent to a seasonally adjust annual rate of 4.59 million in March. They are 7.5 percent below the 4.96 million unit pace a year ago. The March sales volume was the slowest since July 2012, NAR notes.

“There really should be stronger levels of home sales, given our population growth,” Yun says. “In contrast, price growth is rising faster than historical norms because of inventory shortages.”

The median price for existing homes was $198,500 in March, up 7.9 percent compared to year-ago levels. “With rising home equity, we expect distressed homes to decline to a single-digit market share later this year,” Yun says. Distressed homes, which include foreclosures and short sales, accounted for 14 percent of sales in March, down from 21 percent in March 2013.

Yun says the housing market will likely see an increase in activity in the months ahead.

“With ongoing job creation and some weather-delayed shopping activity, home sales should pick up, especially if inventory continues to improve and mortgage interest rates rise only modestly,” he says.

Regional Snapshot:

    Northeast: Existing-home sales rose 9.1 percent in March, but remain 4.8 percent below year-ago levels. Median price: $244,700, up 3.2 percent from a year ago

    Midwest: Existing-home sales rose 4 percent in March but are 10.3 percent below March 2013 levels. Median price: $149,600, 5.9 percent above year-ago levels

    South: Existing-home sales fell 3 percent in March and are 3 percent below March 2013. Median price: $173,000, up 6.7 percent from a year ago.

    West: Existing-home sales dropped 3.7 percent and are 13.4 percent below a year ago. Median price: $289,300, up 12.6 percent from March 2013

Source:

Americans Sold on Real Estate as Best Long-Term Investment

WASHINGTON, D.C. -- Americans today are more likely to think real estate is the best option for long-term investments than in the past, ranking it ahead of gold and stocks.

These results are from Gallup's April 3-6 Economy and Personal Finances poll that asked Americans to choose the best option for long-term investments: real estate, stocks and mutual funds, gold, savings accounts and CDs, or bonds. Prior to 2011, Gallup asked the same question, but did not include gold as an option.

Gold was the most popular long-term investment among Americans in 2011 -- a time when gold was at its highest market price and real estate and stock values were lower than they are today. Gold prices dropped significantly after that and it lost favor with Americans. The 24% of Americans who currently name gold as the best long-term investment ties with the 24% who choose stocks.

Bonds have been Americans' least favored investment option for as long as Gallup has been asking the question. Savings accounts and CDs, on the other hand, have been more popular in the past. In September 2008, before gold was an option and at a time when the real estate and stock markets were tanking, savings accounts were the most popular long-term investment among Americans.

This year, the housing market has been improving across the U.S., and home prices have recently been rising after a steep drop in 2007 during the subprime mortgage crisis. This current improvement in prices may be why more Americans now consider real estate the best option for long-term investments. In 2002, during the real estate boom that preceded the mortgage crisis and before gold was offered as an option in the question, half of Americans said real estate was the best investment choice. Read More

A Third of Home Owners in Foreclosure Have Equity

 More home owners in the foreclosure process are finding that their home may no longer be underwater, according to a new report by RealtyTrac.

 “Because of rising home prices, many of the home owners in the foreclosure process — more than a third — actually have positive equity,” says Daren Blomquist, vice president of RealtyTrac. “That will enable some of them to avoid foreclosure,” allowing the home owners to either sell or refinance. 

 However, “many distressed home owners with equity may not realize they have it and, in some cases, have vacated the property already, assuming that their foreclosure is inevitable,” Blomquist says. Read full article here

Buying a home JUST got easier! Mortgages loosening credit standards...

Access to mortgage credit is at its highest level in at least three years, and credit standards are expected to loosen even more this year, according to a newly-released index by the Mortgage Bankers Association.

MBA’s index, which tracks mortgage credit availability, shows that in March the gauge rose to 114 – the highest reading in the gauge’s three-year history.

“I don’t think there’s any question that mortgage underwriting has gotten easier or is looser than it was two or three years ago, but it’s nowhere near where it was in 2005, 2006,” Guy Cecala, publisher Inside Mortgage Finance, told The Wall Street Journal. “We are talking about easing from extremely tight underwriting standards.” Read More...