There has been a lot of good traction for Mortgage Loans in the last couple weeks. Ellie Mae’s latest Mortgage Credit Availability Index report is stating that buyers are finding it easier to get pre-approved and pre-qualified for loans on homes. The index reading has gone up since July. In basic terms, lending standards are relaxing a little more. The report says more than 60% of all loan applications closed in May. This is a way better average than last year at this time. When this happens and people start telling others about how easily they got their loan, it makes people want to go out and take that same chance themselves.
One of the trains of thought is that a larger percent of mortgage loans are being approved because there are new easy loan programs for affordable housing. These loans have lower down payments, therefore making buying a home more affordable to the average consumer. People who live their daily lives and have recurring bills to pay, including rent, don’t normally live in homes where they can easily afford it. Your payments are usually based on what you can afford. It’s a well known fact of how hard it can be for households with average income to come up with 20 or even 10% down on a decent home in the Inland Empire. With average home prices being above $200,000. coming up with $20,000 to $40,000 as a down payment is not realistic for some people.
Is it just standard fixed mortgages that we’re talking about? No. FHA and VA loans are being simplified as well. In addition to a loosening for prime mortgage borrowers, the banks are making it easier to get approved for government loans including VA and FHA loans. FHA and VA loans are notoriously harder to qualify for. FHA loans are mainly popular among first-time buyers because they allow for lower down payments of 3.5% and because credit score requirements are often lower as compared to other loan programs. The FHA recently lowered its required mortgage insurance premiums on all 30 year mortgages. It’s now more affordable to use FHA financing than it has been any other time historically. With that said, FHA loans are available to all mortgage applicants. VA loans and USDA loans are more complicated because they require special qualification. The loans guaranteed by the Department of Veterans Affairs and the U.S. Department of Agriculture are aimed at specific groups of buyers.
In conclusion, overall, this is very good news in terms of people being able to buy homes. However, it can’t go without saying that we ran into a similar issue in 2006. It became extremely easy to get loans and the rates were very low. This caused people that didn’t necessarily qualify for a loan to go out and get one. In the meantime, you had people either selling their homes or people who owned their homes for a long time refinancing. Rates were so low that people who had equity wanted to pull out cash and lower their payment. For those who did it the right way, it was a great time. I am an optimist and I believe that the mistakes of our past will teach us how to improve on the way it was done incorrectly the first time.