Will Mortgage Providers Ease Lending Standards?

Will Mortgage Providers Ease Lending Standards?
  • Opening Intro -

    The U.S. housing market is certainly not stellar, but it apparently has put its very worst years behind it.

    The S&P/Case-Shiller home index rose by 2.2 percent in May, with all 20 of the nation's largest metropolitan areas posting average housing price gains over April.

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Tough mortgage underwriting standards remain.

The index, released at the end of July, is delayed by several months to allow for data gathering and adjustments. The positive news has some people wondering if mortgage providers will ease lending standards, tightened for nearly five years as the nation continues to work through its housing downturn.

Metro Areas

Of the 20 largest metropolitan areas, 12 now have housing prices above last year’s prices, with Phoenix prices increasing 11.5 percent over May 2011. In Atlanta, however, housing prices fell 14.5 percent year over year, but did manage to rise 4 percent from April to May according to the prices indices report.

Housing prices are still far off of previous highs in many markets with Phoenix homes valued at about half of what they were before the housing bubble burst. In Las Vegas, the market is down by more than 60 percent. Most of the remaining large metropolitan areas are down by at least 20 percent.

Credit Standards

Holding back some home buyers from the market are tough credit preferences or what the Washington Post says are credit scores in the mid-700s, down payments of at least 20 percent and tighter debt-to-credit ratios. Those stiffer requirements, adopted following the mortgage meltdown, are largely still in place, limiting the lowest mortgage rates to those meeting the still-elevated requirements.

Consumers, however, still have options available to them when shopping for a new home. You may not be eligible for the lowest rate mortgage, but by shopping around and being a bit creative, you just might be able to swing your loan. That means stepping outside of the box and expanding your mortgage options.

Mortgage Options

For instance, you may be thinking 30-year mortgage, but if you can afford to put more money down and make higher monthly payments, then why not a 20-year or even a 15-year mortgage? Also, an adjustable rate mortgage can be ideal if you know that you will only be staying in your home for a few years. Take a look at a 5/1 or 7/1 ARM and compare that rate to your fixed rate mortgage. The savings may surprise you.

Likely, we won’t see a return to the loose lending standards of the mid-2000s. Those standards allowed millions of unqualified people to buy homes, homeowners who soon couldn’t afford to make payments and lost their homes.

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Categories: Home Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Auto Trends Magazine", an online publication. Matt covers campus, consumer, business and financial topics on various websites and weblogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".