A Return to Traditional Lending
In recent weeks, there has been another media frenzy causing a lot
of homeowners concern. The latest changes in mortgage lending have many home
owners and potential home owners asking the question, how will this affect me?
There will be very little change for buyers who have good credit, a down
payment, and stable job history.
One of the first regulations to be
tightened for home buyers is the credit score. After 2004, an effort to continue
economic growth in housing produced creative financing for marginal or “risky”
buyers. More buyers in the market kept home sales moving. The pendulum has now
swung back to traditional credit score pricing. The interest rate on your
mortgage is now based on risk assessment. A good credit score is rewarded with a
good mortgage rate.
Another risk assessment change in mortgage lending is
the elimination of no money down loans. Buyers will need a minimum of 3.5 % down
payment. Statistics show buyers that make a financial investment in a home are
less likely to default on the payments. The mortgage lender will hire an
appraiser to verify the house value and assess the ability to sell if the buyer
defaults. If the buyer has a larger down payment, the default risk for the
lender decreases.
Back to basics with job time and stability of
employment now applies. Mortgage lenders require two years W2 tax returns to
review job history and income. Creative lending programs that allowed buyers to
“state” their own income have been eliminated. Overtime and commission income
will need to be verified to be considered for the mortgage payments. The 30 year
fixed mortgage is considered the safest way for buyers to protect themselves
from future payment concerns.
With the state of Iowa being a leader in
consumer protection, many of the mortgage guideline changes are minimal to home
buyers. Our local real estate market is still healthy with a fair balance of
buyer and sellers. The return of traditional lending will require a few more
dollars invested and a commitment to your home investment.
Heather
Morris CRS, GRI, CLHMS
Broker Associate to Skogman
Realty
