By: Steve Smith - Eagle Home Mortgage
We have seen a big change in the mortgage lending market over the past year. It has gone from a very loose market where there was a loan for anyone who wanted one, to a tighter, back-to-basics type market. For those who have been involved in real estate for more than six years, it really is a return to the way lenders used to do business "back in the day." Fully 80% of the market is unaffected by all the turmoil in the mortgage industry. Those borrowers that have a reasonable down payment, purchasing a home for at or below $417,000, have average to good credit, and can verify their income are completely unaffected. Those basic “conforming” loans are not only available but available at a very good interest rate.
The other 20% of the market is what we call non-conforming loans. These are loans that are stated income, high loan to value loans, (minimum or no down payment), borrowers with credit challenges, or loans in excess of $417,000. I am not saying these loans do not exist, but in some cases maybe harder to attain or more expensive in rate. What we have really seen in this area is a tightening of underwriting guidelines, such as higher down payment requirements, higher credit score requirements, and more reserves required. It is a case of lowering the risk factors on these types of loans.
The areas we have seen some big changes in are the jumbo loan arena. These are loans in excess of $417,000. This type of loan is really sensitive to supply and demand. Lenders must sell these loans on Wall Street to investors. As long as the demand for these loans is there, the price is kept down. When the demand for jumbo loans slows, such as now, we see the price, (rate) go up to make them more attractive to investors. In a “normal market you would see a difference in rate between conforming and non-conforming loans of about .5% to .75% the higher rate being on non-conforming loans. This is what I think we can expect for the foreseeable future in the residential real estate market. Again I want to stress that it’s not that jumbo loans are not available, they are just a little more expensive.
Going forward make sure you are dealing with an experienced loan officer. Experience in this market counts for a lot and will help you get the right mortgage. Remember, the wrong mortgage product at the lowest rate, can cost you a great deal of money over time. Make sure you have the right mortgage at a competitive rate.
Do not hesitate to be a borrower in today’s market. This is a buyers market and there are great deals to be had not only on homes but mortgages as well. Don’t believe everything you read or hear in the press.
For more information regarding the mortgage market, please contact Steve Smith of Eagle Home Mortgage.
Steve Smith
Senior Mortgage Consultant
Eagle Home Mortgage
(480) 391-5407
SteveSmith@eaglehomemortgage.com