Banks Start To Loosen Up In Underwritingr

rWritten on February 3, 2012 by FHA203k ~ Real Estate Bloggers

After a half-decade of tightening mortgage guidelines, banks are starting to “loosen up”.r

The Federal Reserve conducts a quarterly survey of its member banks and, last quarter, not a single responding bank reported having tightened its mortgage guidelines for prime borrowers.r

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

53 banks responded to the Fed’s survey and none said that mortgage guidelines “tightened considerably” or “tightened somewhat” between September and December 2011; 50 said that guidelines remained “basicaly unchanged”; 3 said that guidelines “eased somewhat”.r

Mortgage applicants sometimes remark that the mortgage approval process can be challenging. Last quarter’s Fed survey hints that looser standards are coming.r

Not since before the recession have banks lowered mortgage approval standards like this and it bodes well for this year’s housing market. Real estate agents report that 1 in 3 home sale contracts fail with “declined mortgage applications” as a leading cause.r

Looser mortgage lending standards should mean more home loan approvals for buyers, and fewer contract cancellations. This can spur the housing market forward.r

Make note, though. “Looser standards” should not be confused with ”irresponsible standards”. It remains more difficult to meet bank standards as compared to 5 years ago. Today’s underwriters are more conservative with respect to household income, overall assets and credit scores.r

Even as compared to one year ago:r

1. Minimum credit score requirements are higher for most lenders. FGMC looks at Home Buyers in a bigger and better light.  They approve home buyer’s with FICO scores at 580 and above.  Learn more by talking with your FGMC Loan Consultant.  

2. Downpayment/equity requirements are larger for most conventional loans, but FHA and FNMA’s HomePath Property and Loan programs still allow for as little as just three (3%) percent downpayments.

3. Maximum allowable debt-to-income ratios are lower, except for FHA loans.  Conventional loan limit DTI to 45% in most cases, but many lenders will go up to as high as 60% DTI when it makes sense. r

For buyers and refinancing households gaining approval, though, the reward is the lowest mortgage rates in a lifetime. Mortgage rates in Louisiana and Mississippi continue to fall, helping home affordability reach new highs.r

If you’re in the market to buy a home be sure to contact one of the Real Estate Agents on our fb Home Buyer’s Education Page.r 

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