It makes for an awful headline, but are home loan approvals getting easier?  It appears so.

The Federal Reserve’s quarterly survey has been covered in previous posts.  The Fed asks senior lending officers whether their “prime” residential mortgage guidelines have tightened in the prior 3 months.  (A “prime” borrower is one with documented income, high credit scores, and an acceptable debt-to-income ratio.)

The meat and potatoes of the Fed’s release starts on page 34.   Of the 54 banks polled, only 2 said that they had tightened guidelines versus 1 that had weakened.  The rest were unchanged.

It’s a positive sign for housing.  By no means are we back to the unsustainable patterns of the past, but that’s good.  It would be hard to get a bad loan these days.  They are predominantly 30 Year Fixed rates, most applicants will have a strong credit history, and there are no subprime ARMs lurking about.

In order to get your loan approved, the requirements are fairly straightforward.  Today’s guidelines are more conservative with respect to household income, total assets, and overall credit scores.

However, for qualified buyers, the options are getting looser everyday.  The FHA 203(k) program is better than the “All-in-One” construction loans from the height of the boom and is friendly on marginal credit scores.  The one-time premium options for PMI for borrowers with good credit are as good or better than anything during the height of the boom.  The second-home options for 10% down are as competitive as anything back during the go-go days.  There are ample options, many of which are better than a few years ago.

The housing market has posted report-after-report of solid results lately.  That is directly tied to how loose/tight lending guidelines will be.  Banks can take more risk when prices are appreciating.  However, that also means that the buyer who waits pays a higher price.  It’s far cheaper to move your credit score up a few points than to wait for the loan programs to come down to your tier.

If you need help, don’t hesitate to contact us or have a review of the credit center section in the site.

Mortgage lending appears to be loosening. At least for now.

In its quarterly survey of member banks, the Federal Reserve asks senior loan officers around the country whether their “prime” residential mortgage guidelines had tightened within the last 3 months.

A prime borrower is one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.

Of the 54 responding banks, just 2 said its guidelines had tightened during the period October-December 2010. That’s less than 4 percent. And, by comparison, 95 percent of banks said guidelines remained “basically unchanged”.

The remaining banks reported a loosening.

It’s a positive sign for the housing market, and for home buyers in Chicago and nationwide. If banks have stopped raising the hurdles of home loan approval, in theory, more would-be buyers will be approved.

It’s much tougher to get a home loan versus 5 years ago. Delinquencies and defaults have changed how banks review loan applications. Today’s underwriters are more conservative with respect to household income, total assets and overall credit scores.

Even as compared to January 2010, approval standards are higher : 

• Minimum credit score requirements are higher
• Downpayment/equity requirements are larger
• Maximum allowable debt-to-income ratios have been lowered

Although mortgage rates remain low, qualification standards do not. Based on last quarter’s banking survey, however, mortgage applicants in Illinois may find approvals easier to come by soon. Low rates don’t matter, after all, if you’re not eligible to get them.

The housing market is strong and lending looks to be loosening. It should help fuel the demand for homes in 2011, which will push supplies down and lead prices up. For homeowners that qualify, therefore, the best time to purchase a home may be sometime this spring.

Are home loan approvals getting easier or more difficult?  Well, both.

One item that is getting easier is the “gifting” process.  Under the new guidelines, buyers using gift money to purchase an owner-occupied single-family homes, condos, or townhomes will have an easier time.  These previously required that 5% of the contribution come from the borrower’s own funds in most cases.  Under the new guidelines, 100% of the down payment can be comprised of gifted or granted monies.  This helps on many loans for first time home buyers, but the 5% restriction is not waived on second homes, investment property, or multi-unit buildings.

We’re also seeing a trend reversal with respect to documentation.  When things were bad, Fannie was asking for everything short of a blood sample.  In this new revision, salaried borrowers from whom commissions and bonuses are less than 25% of annual income will need only one pay stub rather than the last 30 days.   This is one small step in terms of reducing the amount of paperwork per loan, but it is a giant step in terms of changing that trend of requiring more and more documentation.

Some items are getting more difficult.  Previously, Fannie Mae had tightened up debt-to-income (DTI) restrictions.  While they’re not changing the DTI levels in this revision, they are changing how certain debts are calculated.

For example, under the previous rules, certain installment loans with 10 payments or less remaining were excluded from DTI.  Now, they are included.  For borrowers with relatively high car payments and only a few months remaining, their DTI under the old and new systems would be significantly different.   Another example are revolving debts with no payment reported.  These now will be calculated at 5% of the outstanding balance.   If you must have a credit card balance at the time of mortgage application, some people may choose to use a card other than their AMEX for a month or two to avoid having that 5% of outstanding balance raise their DTI.  Some folks with just a few months on car or student loan payments may choose to pay them in advance.

With proper planning, these new guidelines shouldn’t influence home loan approvals too much.  Fannie Mae’s complete guideline changes are available online at http://efanniemae.com.

Fannie Mae rolls out new mortgage guidelines Monday. Therefore, if you’re in the process of applying for a conforming home loan, consider giving your complete application by the close of business Friday.

All Fannie Mae applications taken on, or after, December 13, 2010, are subject to the changes.

As compared to mortgage guidelines updates of the last 3 years, Monday’s roll-out is relatively small. There is no change to the maximum debt-to-income ratio, for example; nor is there an increase in the minimum FICO score requirement.

Most mortgage applicants in Oak Park and nationwide will be unaffected.

Others, however, will find getting approved to be more difficult.

The most major change is with respect to revolving and installment debt. This category includes credit cards, charge cards, and student loans, among others. Going forward:

1. Debt with fewer than 10 payments remaining must now be included in an applicant’s monthly obligations.
2. Debt not reporting a monthly payment must be assigned a payment equal to 5% of the outstanding credit balance.

These edits will raise applicants’ debt-to-income ratios, and may push some of them beyond the maximum allowable limits, resulting in a denial. People with relatively large car payments are especially susceptible.

Another change relates to receiving gift funds for a purchase. Unlike debt calculations, though, the “gifting” process is getting easier.

Under the new Fannie Mae guidelines, buyers of owner-occupied, 1-unit properties (i.e. single-family homes, condos, townhomes) can forgo Fannie Mae’s customary, minimum 5% downpayment contribution from personal funds. Downpayments can be comprised 100 percent of gifted and/or granted monies.

Buyers of second or investment homes, or multi-unit properties must still make a 5% downpayment from their own funds.

And, lastly, Fannie Mae is easing some of its documentation requirements. Salaried applicants from whom commissions and/or bonuses paid account for less than 25% of annual income will have fewer paystubs to produce for underwriting.

Fannie Mae’s complete guideline changes are available online at http://efanniemae.com.

The Fed’s survey asks senior loan officers whether “prime residential mortgage guidelines” have tightened or loosened in the prior three months.  For the period July-September 2010, 52 of 54 responding loan officers admitted to tightening their prime guidelines, or leaving them “basically unchanged” and just 4% of banks loosened their guidelines.

A “prime” borrower will have sufficient credit, low debt-to-income, and will use one of the traditional mortgage programs, whether it is fixed rate or adjustable.

While mortgage rates are at their lowest levels in recorded history, qualification requirements are at their highest levels in recent history.   What it means is that the average home buyer or home owner may not qualify for the best rates or may not even qualify at all.  Loans are not black and white, with proper planning, many mortgage applicants can enhance their loan options.

Planning Your Home Loan Approval

Repeat after me, it is not 2004.   In 2004, obtaining a home loan simply meant contacting any lender.  If a mortgage broker could fog up a mirror, they’d get roughly the same mortgage programs as mortgage banks and retail banks.

Today, there are two elements that lead to a successful home loan approval.   To get the best terms on your mortgage today, you need to go to a credit-worthy lender and you need to present your loan in the most credit-worthy fashion.

In short, not all lenders are the same.  You’d see the roughly same terms at a mortgage broker, mortgage banker, or retail bank in 2004.  Now, that is not the case.  In 2004, there wasn’t a huge difference in mortgage rates for borrowers with 720 v. 680 FICOs even though there should be.  Today, we’re in a “normal” market where credit influences mortgage rate.

Similarly, we’re in a normal market where the financial strength of the mortgage company influences what types of mortgage rates they receive.   When mortgage rates for the 720 FICO and 680 FICO are similar, so too are mortgage rates for brokers and actual mortgage lenders.  At some point in the future, I’m sure they’ll be similar again.  Right now, they’re not. You can ascertain if your mortgage company is a lender or middleman by asking who will “fund” the loan.  What you want to hear is that the lender funds in their own name and underwrites their own loans.

Preparing to apply: A loan is very simple.  It is credit, income, assets and/or equity. To get the best mortgage rates and obtain an approval, the one item that I can influence directly is my credit score.  Short of blackmailing the boss, I can’t change my income that quickly.  It’s hard to adjust home values overnight.  It is very easy to enhance a credit score.  Here are three quick techniques:

1. Credit Verification:  I would not personally seek a loan without verifying the accuracy of my credit file.  To do this, go to www.annualcreditreport.com and obtain your free annual report.  Do not pay for the scores, do not get upsold on some credit product.  Your goal here is to simply confirm that the credit file is accurate.
2. Credit Protection:  The holidays will be here soon and every retailer will offer you 10-20% off of your purchase if you apply for their credit card.  YOU’RE NOT SAVING ENOUGH TO MAKE IT WORTH IT.  The FICO scoring model is pretty punitive on these department store charge cards.  If you save $20 off your purchase at XYZ Retailers, but your credit score then causes your mortgage rate to be .25% higher on a $250,000 loan, you lost.   A good credit score is worth more than a small discount in today’s market.
3. Credit Optimization:  There are many techniques to enhance your credit score over time.  You can immediately enhance your credit score by reducing balances on revolving credit.  Most lenders, even many credit cards, have utilities that will project FICO scores if balances are paid down to 10%, 30% or 50% of the available credit.

Low mortgage rates don’t matter if you end up getting a higher-than-necessary rate simply because of your credit score.  If you need help with any of those credit enhancing steps, contact us.  We’re here to help.

It’s getting tougher to get approved for a mortgage. Still.

In its quarterly survey of senior loan officers around the country, the Federal Reserve asked whether “prime” residential mortgage guidelines” have tightened in the prior 3 months.

A “prime” borrower typically carries a well-documented credit history with high credit scores, has a low debt-to-income ratio, and uses a traditional fixed-rate or adjustable-rate mortgage.

For the period July-September 2010, 52 of 54 responding loan officers admitted to tightening their prime guidelines, or leaving them “basically unchanged”.

Just 4% of banks loosened their lending standards.

If you’ve applied for a home loan lately — for either purchase or refinance — you’ve likely experienced the effects of the last 4 years. Because of delinquencies and defaults, today’s mortgage underwriters are forced to scrutinize income, assets and credit scores, among other facets of an home loan application.

Mortgage applicants in Chicago have higher hurdles to clear:

• Minimum credit scores are higher versus last year
• Downpayment/equity requirements are larger versus last year
• Debt-to-Income ratios must be lower versus last year

In other words, although mortgage rates are the lowest they’ve been in history, qualification standards are not.  Minimum eligibility requirements are tougher, and appear to be toughening still.

If you’re among the many people wondering if now is the right time to join the Refinance Boom, or to buy a home, consider that, while mortgage rates may fall further, eligibility standards may not.

Low mortgage rates don’t matter if you can’t qualify for them

Home loan approvals will be more difficult for some, easier for others.

What we’ve been forecasting is that the credit crunch would continue to tighten things for some loans nearer the margins, but get easier for strong loans.  This seems to be another start in this “new normal” type of underwriting.

The biggest change that represents a loosening of standards are the new rules towards gift funds.    Under the new guidelines, buyers of owner-occupied, single unit properties (i.e. single-family homes, condos, townhomes) can bypass Fannie Mae’s typical, minimum 5% personal downpayment contribution.   Downpayments on these homes can be 100% gifted and/or granted funds.

Second homes and multi-units are not exempt from this condition. This is one new loan characteristic that is actually friendly the buyer with little-to-no money down.

In a different change, we see an instance of where the have’s and have not’s will see different underwriting guidelines.  We’ve already seen debt-to-income ratio guidelines grow more conservative, the new changes will impact how monthly debt is calculated.  This has the net effect of limiting the prequalification limits for borrowers who carry monthly debt and has no impact on the debt-free borrower.  Under the new rules:

1. Debts with less than 10 monthly payments left on the term will no longer be waived.  These would now be included in the ratios.
2. Debts lacking a monthly payment will be assigned a payment equal to 5% of the outstanding balance.

With proper mortgage planning, neither of these should be major issues.  If you are buying a home and close to the margins on your approval, it’s wise to contain spending anyway.  Under today’s guidelines, if that spending occurs on your AMEX, it just impacted your qualification amount.

Net-net, the home buyer who has no debt, strong credit, little saved for down payment, but is receiving a gift from a family member has actually seen the qualifications loosen.

We will also see documentation requirements get a little easier for some folks.  No changes for the self-employed or commissioned salesperson, but for salaried workers there will be few pay stubs required.

What we’re seeing, in general, is that the “makes sense” loans are suffering less scrutiny than at the height of the credit crunch.   The system shifted away, aggressively, from the riskier loan types, but it is getting easier for the average consumer to get into a safe, secure conforming loan.

Loan applications taken prior to December 13, 2010 are exempt from the new rules. Fannie Mae’s complete guideline changes are available online at http://efanniemae.com.

Starting Monday, December 13, 2010, Fannie Mae is changing its mortgage lending guidelines.

For some mortgage applicants of Illinois , the loan approval process will simplify. For others, it will toughen. How you’ll be affected personally will depend on your credit profile and your loan characteristics.

Among the biggest changes from Fannie Mae is a new set of guidelines for gift funds. When the new rules roll out, accepting cash gifts for downpayment will be easier.

Undetr the new guidelines, buyers of owner-occupied, 1-unit properties (i.e. single-family homes, condos, townhomes) can forgo Fannie Mae’s typical, minimum 5% personal downpayment contribution. Downpayments on homes meeting the above criteria can be comprised of 100% gifted and/or granted funds.

Buyers of second homes and multi-unit properties, however, are not exempt.

There’s also two changes pending with respect to revolving debt.

1. Debt with less than 10 payments remaining may no longer be waived in debt-to-income ratio calculations
2. Debt lacking a monthly payment on credit must be assigned a payment equal to 5% of the outstanding balance

Both of the above should increase the number of loan denials in 2011.

And, lastly, Fannie Mae changes some of its documentation requirements, the most noticeable of which will be with respect to income verification. Salaried workers and applicants whose commission/bonus accounts for less than a quarter of their income will have fewer paystubs to produce for underwriting.

Loan applications taken prior to December 13, 2010 are exempt from the new rules.

Fannie Mae’s complete guideline changes are available online at http://efanniemae.com.

They have many traits, notably is the amount of the loan.  These limits are set each year by the government.  Loans above this conforming amount are referred to as “jumbo.”

From 1980 to 2006, the limit increased from $93,750 to $417,000 to follow increases in home values.

In 2011, for the 6th consecutive year, $417,000 will be the country’s conforming mortgage loan limit.

Conforming loan limits very by property type. The complete breakdown is as follows:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

These limits are extended to cover almost 200 areas that are deemed “high cost.”  In these areas, the limit will range from $417,001 to $729,750.  High-cost is defined by the median sales price of a region.

The high cost areas are again as follows:

Conforming mortgages is so named because, literally, they conform to the mortgage guidelines set forth by Fannie Mae and Freddie Mac.

Of the many traits of a conforming mortgage, one is “loan size” and loan sizes have limits. Mortgages exceeding this loan size limit cannot be securitized as a conforming mortgage and, therefore, are ineligible for conforming mortgage rates.

Conforming mortgage rates are often the cheapest source of mortgage money for residents of Illinois , all things equal.

Each year, the government re-evaluates its maximum allowable loan size based on “typical” housing costs nationwide. Loans in excess of this amount are often called “jumbo”.

Between 1980 and 2006, as home prices increased, so did conforming loan limits — from $93,750 to $417,000.  Since 2006, however, home prices have retreated but the conforming loan limit has not.

In 2011, for the 6th consecutive year, $417,000 will be the country’s conforming mortgage loan limit.

Conforming loan limits very by property type. The complete breakdown is as follows:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

Despite the limits, some parts of the country get “loan limit exceptions”. In areas considered “high cost”, conforming loan limits range from $417,001 to $729,750. High-cost is defined by the median sales price of a region.

Los Angeles County, for example, is a high-cost region, along with a lot of California. There are less than 200 such areas nationwide, though.

You can verify your local market’s loan limit via the Fannie Mae website. A complete county-by-county list is published online.