The mortgage market has definitely changed in the years following the financial crisis. Underwriting guidelines became much more stringent, requiring higher FICO scores and better credit histories in order to secure loans in many cases. But the good news is that interest rates have come down since the great recession and remain near historic lows today.
Recently, Coldwell Banker Residential Brokerage talked with Steve Majerus, Regional Executive for the western region of Princeton Capital, a mortgage bank/broker, about the state of the mortgage market. Majerus also offered some timely tips for those thinking about buying a home and looking for a mortgage loan:
CB What is the current state of the mortgage market today compared to the years following the 2007 financial crisis?
SM Interest rates have been consistently low – historically low – in the last eight years. The tough part is that access to credit has diminished. The homeownership rate is at 63 percent, compared to 69 percent at its peak before the financial crisis. Fewer people have been able to qualify for mortgages as underwriting guidelines became more stringent- sometimes appropriately so.
The good news is things are improving. Some new innovative programs are live in the market today, and a skilled loan officer can make a big difference in helping borrowers get approved as change continues to take place.
CB What are the steps someone goes through to get a new mortgage today?
SM The most important parts of the approval process haven’t changed much over the years, in terms of completing a loan application, supplying all required documentation, locking in an interest rate and signing closing docs. Working with an Independent real estate professional and loan officer in tandem, as early in the process as possible, is still a smart decision. It helps put the buyer in the best possible position as a home shopper and sets the stage for a smoother loan approval process.
Internet-based innovations continue to add a sense of urgency to the home shopping process, which makes obtaining a pre-approval more important than ever.
CB What can a borrower do that will increase the potential for securing a mortgage?
SM This answer is actually framed best as a list of things NOT to do: Don’t buy or lease an auto, don’t move assets from one account to another, don’t change jobs, don’t buy new furniture or major appliances, don’t use credit cards unnecessarily or do things that cause your credit to be negatively impcted, don’t attempt to consolidate bills without consulting your loan officer, and for those relocating, don’t pack or ship important papers. Each of these “don’ts” comes with a rationale which any of our loan officers can explain in detail to buyers.
The importance of gathering all of your financial documentation together and bringing it to your first meeting with your loan officer is also worth noting. It’ll help both of you gain a clearer understanding of how much home you can afford. Provinding all relevant documentation up-front helps avoid delays in escrow and can make the entire process go smoother.
CB What is the outlook for interest rates, given recent Federal Reserve announcements about raising rates gradually this year?
SM No one can account for unforeseen events, of course, but as things stand now mortgage interest rates are not expected to go up dramatically in 2016. Currently, the market is pricing in one additional Fed rate hike, and if that assumption plays out, the single increase will not materially raise the price of a 30-year fixed-rate mortgage. It should have minimal impact.
For the longer term the expectation is that rates will gradually rise. People with adjustable rate mortgages that have performed so well for the past eight years would be wise to consider locking into a fixed rate loan.
CB How much can a 1 or 2 percent hike in rates affect your mortgage?
SM Rate hikes can drastically affect qualification, in that the loan amount a consumer qualifies for can be reduced as the rates climb. For instance, a borrower who is qualified for a payment of $2,500 could potentially be qualified for a $523,600 loan at a rate of 4 percent, while if the rate increases to 5 percent the loan amount could be as low as $465,700. When looking at a home loan value with a 20 percent down payment, it’s a difference of more than $70,000 in purchase price. Obviously in tight markets with low inventory this can have a significant impact on buyers’ ability to obtain the house they want.