“Yep, mortgage interest rates are low, but there’s a catch: It doesn’t matter how cheap rates are if you can’t get a loan.”
“And these days, only highly qualified borrowers can get financing — let alone the best rates.”
“Nearly a quarter of people who apply for loans are turned down, according to the Federal Reserve.”
The above are quotes are directly from an article in CNN Money posted here. Unfortunately, the above statements are essentially true. What’s even more unfortunate is that there are several other parts or the article that are inaccurate and misleading to the consumers. Take a couple minutes to read the above article and then come back here to see my take on it!
“Nearly a quarter of people who apply for loans are turned down, according to the Federal Reserve.”
While this number is probably true, it doesn’t state the number of people who don’t even apply because they don’t believe they will qualify. I had heard that nearly 40% of those who would like to purchase now cannot.
“”Good borrowers with one or two blemishes on their credit are being denied credit,” said Lawrence Yun, chief economist for the National Association of Realtors.”
While that is true in some situations, I am getting loans through for good borrowers with a few blemishes. You just have to be looking at the right program for those borrowers.
“On most loans, banks want 20% down. On $200,000 purchases, that’s $40,000, an insurmountable obstacle for many young house hunters. Or, in New York City, where the median home price is $800,000, buyers need $160,000 up front.”
While this is true for many big cities that have home prices above the government lending limits, I am able to provide 100% + financing for borrowers in Lake, Porter, Laporte, Newton, and Jasper counties here in Indiana. If the borrower or the property does not qualify for the No Money Down program, FHA still has the 3.5% downpayment option.
“And it’s about to get harder for buyers. Federal regulators proposed rules last week that are designed to discourage risky lending but that will also likely further restrict lending.”
This I cannot argue with. With the recent implementation of the Loan Officer Compensation Act, many good lenders may find it difficult to stay in business because the government decided to tell them how much they could make on a loan. Does the government tell the supermarkets how much profit they can make on cabbage, or a car dealer that they are limited on how much they can charge on a used car? NO, because the consumers are smart enough to shop around for a fair price. As a mortgage consultant, I don’t just sell money! I help my clients get the best use of their funds and help them successfully navigate all the way through the process from application to closing. It’s a service that can save them thousands of dollars, but doesn’t cost any more. I am not a commodity and neither are many of the lenders I work with.
The other issue is the increase in fees. As of April 18, the FHA monthly mortgage insurance rate is going to increase by .25%. While that may not seem like much, the costs do add up. Also, expect to see other risk based pricing on loans in the future. Think of it as mortgage rates ala-mode. There will be a base rate for the loan and then add .5% here, .25% there, 1.5% for this, and you’ll quickly see the rates rise. Some of these increases will be due to credit scores under 760, a loan-to-value greater than 80%, cash-out on a refinance, etc.
The biggest hurt for the borrowers will come if some of the politicians get their way and dissolve Fannie Mae and Freddie Mac. If the government stops supporting the borrowers and allow the big banks to set the rates, there is nowhere to go but up!
Agree? Disagree? Let me know!
Scott
Your Indiana mortgage expert specializing in FHA, VA, and USDA Rural Development loans.
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