Much like pizza for breakfast, I have re-warmed an older article that I posted in December of 2009. Much of it is still true today. The rest of it; it was moldy so I threw it out!
Mortgage rates in Northwest Indiana, and the United States as a whole, have dropped to nearly their lowest levels since the 1940s, thanks to a trillion-dollar intervention by the federal government.
Yet the banks that once handed out home loans freely are imposing such stringent requirements that many homeowners who might want to refinance are effectively locked out.
The scarcity of credit not only hurts Indiana homeowners but also has broad economic repercussions at a time when consumer spending and employment are showing modest signs of improvement, hinting at a recovery after two years of recession (while true today, this kinda missed the mark in late 2009).
The issue here is twofold.
First, many homeowners who have purchased in previous years using high loan-to-value products such as 100%, 102%, 125%, 80-20, etc. loans have seen their home values go down much faster than their principle has. For them, it is almost impossible to refinance if they own thousands, if not tens of thousands more than the current value. To make it worse, many of them are in adjustable rate products that could cause their payments to increase. For them, walking away may be an option. See previous post.
Second, it is estimated that 60% of those that are actively looking for a home may not qualify do to increased credit standards. Whereas a few years ago you could get a mortgage loan if you could steam up a mirror placed under your nose, the minimum scores are currently 620 and trending higher (for the most part it is 640, but there are some exceptions). If you are below this number, a 619 for instance, you will not qualify (not necessarily true currently). Add a 30+ day late payment in the last 12 months or a new collection and you may be watching someone else move into your dream home (still applies).
My advice to those that are thinking about purchasing or refinancing in the immediate (or not so immediate) future… contact your loan professional now!
You really need someone to look at your credit report, as well as your income, debts, etc., to make sure that you will qualify. If not, there are options! For instance, 79% of all credit reports contain incorrect information and 25% have incorrect information that is significant enough to be rejected for a mortgage. If I cannot get you qualified, I have a nationwide credit restoration association that has done a great job for some of my previous clients that you can investigate.
[This space was previously occupied by how we had high hopes for the homeowners who were underwater and were going through the loan modification process with their lender. We now know this has, for the most part, been a miserable failure.]
The rates are currently at (near) historical lows. Don’t miss the opportunity, as they are expected to start increasing in the next couple months (which they did and then went down again only to start trending back up recently). Also, remember the $8,000 / $6,500 new homebuyer / move-up homebuyer tax credits that require you to have your next purchase under contract by April 30, 2010. [The funny (or not so funny) part about this is that the rates dropped after the tax credit expired (except for certain military personnel and a few others to whom the credit is extended), leaving those who missed the tax credit to get better interest rates and save far more than $8000 over the life of their loan.]
In a nutshell, economists are saying that things are looking up for mid-to-late 2011. If this is the case, expect interest rates to start to increase. Although we have been wrong in our predictions before, one thing is true: when it comes to interest rates, what goes down must come up!
Scott
Your Indiana mortgage expert specializing in FHA, VA, and USDA Rural Development loans.
Need cash to buy or refinance a home and make repairs or improvements? Ask about our FHA 203(k) Rehab loans.
