“In today’s real estate market, as long as people have decent credit, they reasonably qualify in regards to income and have sufficient assets for the down payment and closing costs, they can get a loan,” Norris said. “For example, there are products that will allow people to purchase a home with as low as a 620 to 660 credit score and as low as a 3 percent down payment. It is also important to remember that in regards to lack of assets, there are many grant options to assist with the need for additional assets to have a sufficient down payment.”
Norris believes that just a scant handful of factors can hold people back from getting a mortgage: bad credit or a lack of a credit history; insufficient assets for making down payments and covering closing costs; and borrowers, such as those who are self-employed, who are unable to document their income.
“The scrutiny that lenders across the board have on conventional, FHA and jumbo loans has broadened to nuanced parts of the credit application. More aspects are now being analyzed more closely,” said Shimmy Braun, senior vice president of mortgage lending at Guaranteed Rate. “Even after a loan is approved, there tends to be a few levels of audits, depending on the features of the loans and the risk of the borrower, which often results in more questions and supporting documentation requests. Most of the time, the supporting documents can be supplied, but some borrowers have been running into challenges more than they have in the past.”
Where’s the Boom?
National mortgage rates for a consumer with credit scores in the range of 740 to 850 and with a 20 percent down payment remain extremely low at an average of 3.57 percent for a 30-year fixed-rate mortgage, according to Zillow Mortgages. In Illinois, the rate was slightly lower at 3.54 percent. Logically, low rates should be expected to translate into more consumers getting mortgages and entering the housing market.
“Realistically, there can be an eventual slowing affect,” Norris said. “At first, it can be very helpful, but as properties begin to move and inventory becomes scarce, home prices will rise and create a sellers’ market. Eventually after prices rise, it has a negative effect as people look at the potential of buying or upgrading their home as out of reach. Even though the rates are great, the cost of the item has now nullified the benefit of the discounted rates.”
The housing market crash of 2007 demonstrated the risks associated with loosening lending regulations and handing out home loans to unqualified buyers. The long path to recovery and the lingering aftereffects of that crash, however, have shown the dampening effect that tighter lending guidelines and increased regulation can have on the market. Lenders are not offering mortgages to unqualified borrowers, but many are making the process of getting a loan much more onerous even for individuals with good credit.
New regulations set forth by the Consumer Financial Protection Bureau are intended to protect people from some predatory lending, which led to many homebuyers with subprime mortgages finding themselves underwater and in danger of foreclosure. The tightening of lending guidelines and the care that banks and other lending institutions have taken to hold applicants to high standards have made it difficult for many otherwise credit-worthy people to get loans. Flawless credit reports are often required in order for a bank or other lending institution to grant a mortgage to an applicant.