Mortgage Rates Drop, Qualifying Bar Rises
HOME LOANS, INDUSTRY NEWS, SHASTA COUNTY, TIPS FOR BUYERS, TIPS FOR SELLERS
March 27th, 2009
Local lenders are quoting 30-year fixed rates below 5%. In fact, a rate close to 4.5% is possible if you make the grade. That means a down payment of 20% or more, a credit score of 720 or better, a reliable income that can be documented and have low debt. The other factor that is out of a borrowers control is buying in an area with stable prices.
Like it or not, the Redding area continues to see price erosion. This has caused appraisers to error on the low side when doing appraisals, especially if you are doing a refinance to take cash out of your property. Purchase loans at least are based on market forces of supply and demand and knowledgeable buyers and sellers negotiating a price that typically reflects market value.
Most of us in the real estate industry believe the underwriters have gone overboard by scrutinizing even the most qualified borrowers. In their defense, underwriters are reacting to significant tightening of rules by the secondary market (think Fannie Mae and Freddie Mac). Underwriters must not only underwrite loans that satisfy their company’s rules but must also make sure the stringent rules of the secondary market are met or the lender will have to keep the loan in their portfolio. Lenders typically package and sell the loans to recoup their capital. Most of their profits come from upfront fees and loan servicing.
What’s the answer? Here are my suggestions:
- Before you start looking for a home to buy or apply for a refinance, pull your credit reports. Pay the extra money to get your credit scores from the three credit bureaus. Review the reports for accuracy and make any needed corrections/explanations.
- Find a local lender that you can meet face-to-face with and ask if you can be preapproved (not prequalified) for a loan. This involves having all your financial information checked and verified.
- Consider a portfolio loan if you can’t qualify for the 30-year fixed. Many loans have payments fixed for 5-7 years before adjusting. By then, things should get back to normal and you can refinance with a fixed rate loan.
- Once you have a full stamp of approval, begin your home search.
Back in the good ol’ days, a few years back, fogging a mirror or casting a shadow was all that was required to get a loan. We are all paying the price today for these past mistakes. Blame the lack of sound business practices for the erosion of real estate values and retirement account declines. Will the banking industry ever learn?
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
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