Written by Blanche Evans
The national average for the 30-year fixed-rate mortgage last week was 3.86 percent, according to Freddie Mac’s most recent survey. Freddie’s Deputy Chief Economist Len Keifer believes 2015 will be a great year, with the highest number of housing sales since 2007. The outlook for 2015 is even better, assuring almost instant equity if you purchase now.
Keifer names several reasons why Freddie Mac is optimistic:
- Jobs have grown at a rate of 250,000 per month for over a year, with strong job growth in the first-time homebuyer age group.
- About 80 percent of metro markets are affordable for the median family income to purchase the median priced home.
- Rents have risen 11 percent over the last three years, which may be the tipping point for renters to become homeowners.
So with interest rates only slightly above record lows, why aren’t you running to the nearest lender to get a home loan? Maybe you’re spooked by two mortgage myths – that you have to have 20% down to buy a home and that only buyers with perfect credit can get a loan. Neither one is true.
Lending requirements aren’t as strict as media horror stories might lead you to believe. Freddie Mac is making it possible for more borrowers to meet conforming loan standards. Qualifying borrowers who buy within maximum loan limits, up to $417,000 in most areas and $625,000 in high-cost areas such as parts of California can get loans with less than 20 percent down. Of course, any loan with less than 20 percent down will require private mortgage insurance, but PMI is tax deductible along with the interest you pay on your mortgage if you itemize.
Low-income and first-time buyers can get a conforming loan with as little as three percent down from Fannie Mae, and after March 23, 2015, so will Freddie Mac borrowers. You’ll have to meet certain credit and income qualifications, but the upside is you can start building equity now.
Government-guaranteed loans are also available with as little as zero down through the Veterans Administration for veterans and active-duty military. And the Federal Housing Administration has programs as low as 3.5 percent down. All FHA loans require PMI for the life of the loan.
It’s also not true that only borrowers with perfect credit can get loans. Higher credit scores help borrowers qualify for a better rate. You can get an FHA loan with a credit score as low as 580 if you can provide the 3.5 percent down payment. A credit score of 650 or above will get you in the game for a Fannie or Freddie conforming loan if other variables in your financials are in order.
The rule of thumb is simple — less money down requires a higher credit score and vice versa.
Credit scores tell you how much money you have to put down and they’re a factor in your interest rate. If you put 20 percent down, you can get a loan even if you have a low credit score of 580 or 620. If you have a 740 or 760, the lender will allow you to put less money down.
Other lending myths are also out there, such as lenders are no longer doing stated income loans or jumbo loans. Again, that’s not true. Lenders are doing loans that don’t require an income verification if the customer has a large portfolio of liquid assets.
You may qualify for a better rate on one criteria, but not qualify on another. Lenders look at approximately 15 to 20 pieces of criteria, including credit scores, downpayments, liquid assets, current employment, revolving loans, ownership of other properties, and much more.
The lesson for you is this – don’t try to outsmart the market. The housing market is getting stronger. In fact, there’s rarely been a better time to buy a home.