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
Article September 2008
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