In 2006, your dog could have qualified for a home loan. The pendulum had swung too far left. In 2009, very few people could qualify for a loan with all the new regulations and restriction. The pendulum had swung too far right. In 2013, I am pleased to report that it appears that the pendulum is moving more towards the middle, and getting a home loan may be a bit easier for the majority of Americans. Here is what we are beginning to see in Colorado and around the rest of the US.
1) Lenders are a little more flexible with credit scores. People can still qualify for a loan with a credit score of around 600. Below 600, and it’s likely that you’ll need to go through some credit restoration first before qualifying. Mortgage Insurers have also lowered their qualifying scores to 620. Remember, if you are not putting 20% down and need mortgage insurance, you’ll also be subject to their qualifying guidelines as well as that of the lenders.
2) If you are buying a home greater than $500,000 then you may be able to take advantage of what we call “piggyback loans”. That’s taking out two loans at the same time. An example would be someone who wants to get a low interest rate on a confirming loan of $417,000. Then they get another loan for the remainder of the money less their 10% down payment. Sometimes they call it an 80-10-10 loan. That’s composed of 80% first loan, 10% second loan, and 10% down payment from the buyer. This helps the buyer get a lower interest rate and avoid mortgage insurance.
3) Stated income loans may be coming. Many people remember stated loans as what they became to be known as “liar loans”. This is where you got a loan with no documentation of your income. This was a big contributing factor to people getting in trouble during the real estate crash. Right now, we are not seeing any of these in Colorado. They are doing some in California under stricter guidelines. It will be a considerably higher interest rate and require the borrower to put more money down.
4) Subprime loans may be coming back. These were loans given to people with poor credit, no money for down payment, and no collateral. Again, we are not seeing these in Colorado right now, but they are beginning to be available in other states. Like stated loans, they are coming back with stricter guidelines. The borrower will need a higher credit score, more money for down payment, and pay a higher interest rate.
5) High rates can also mean that lenders will need to compete for your business. A half of a point or a quarter of a point that a lending institution can offer may be the difference in them getting the business going forward in a more competitive market place.
If you have more questions or wonder if you can qualify for a home loan, please contact me at email@example.com or 303-522-1161.