2018 Mortgage Lending Trends — 10 Savvy Takeaways8 Mar Charles Witt - RealSavvy Customer Success Guru
At RealSavvy, our mission is to help brokers, agents and teams connect with clients to help them find the perfect home for them and their families. There can be some anxiety, however, in making such a large purchase if it requires vast sums of borrowed money. “Can I afford it?” Is surely a question that every home buyer asks themselves — especially for first time buyers.
Thus, once a broker or agent connects with a potential client, it is important for real estate professionals to be knowledgeable about the latest regulatory and macro economic trends impacting down payment requirements, mortgage lending rates, and special programs to help home buyers who who may not have the resources for the required down payment.
Offering personal knowledge of the current mortgage landscape — and pointing home buyers in the right direction towards lenders that will work with them — can be a key differentiator in helping your real estate business stand out and thrive.
Savvy Takeaways regarding 2018 mortgage lending trends
To that end, here are some Savvy Takeaways regarding 2018 mortgage lending trends sourced from a recent article by Michele Lerner in the Washington Post*:
• Some lenders have lowered minimum credit scores and raised debt-to-income ratios.
• Borrowers are confused by requirements.
• 0, 3 or 3.5 percent minimum down payment mortgage loans could be available.
• Some lenders will allow lower credit score if the borrower can show compensating factors or income from alternative sources (e.g. Bank of Mom and Dad).
• 30 year fixed mortgage rates could rise to 5% in 2018 (keep a close watch on Uncle Sam’s 10 year bond yield to see where rates are headed).
• FHA lenders can offer some borrowers a 3.5% down payment and a 55% debt-to-income ratio — ideal for first time buyers.
• The standard debt-to-income ratio has been raised from 45% to 50~55% for many lenders.
• If parents or employers are making student loan payments on behalf of the loan applicant, the student loan payment can be excluded from the debt-to-income ratio if there are twelve months of history to prove that fact.
• 2018 conforming loan limits have been raised to $453,100 — or $679,650 if the applicant is in a high-cost housing market.
• Borrowers can search for down payment assistance programs at downpaymentresource.com.
Mortgage lending standards were arguably too loose leading up to the subprime mortgage lending crisis that began to unfold in 2008. Afterwards, home lending standards were more harsh and disqualified many home mortgage applicants from obtaining a mortgage. In your real estate business you may encounter this situation, as evidenced by the following:
“Awareness of the availability of low down-payment loans and first-time buyer programs is essential, because many people don’t know about the opportunities for homeownership,” Pataky said. “Many of these borrowers have good jobs and can afford the mortgage payments, but they are not cash rich.”**
One resource to point clients to is Fannie Mae’s HomeReady® mortgage program. There are even resources available online just for real estate professionals: https://www.homepath.com/homeready.html.
Per their web site, “More than 1,000 lenders offer HomeReady – ask your local lender about Fannie Mae’s affordable lending product.” This is an affordable lending program that helps get buyers into a home with as little as 3% down payment, cancellable mortgage insurance, co-borrowers and additional income flexibility.
What about the required debt-to-income ratio? It can be a key stumbling block, and many mortgage applicants can struggle to understand the ratio in a clear and concise manner. Simply put, potential borrowers need to add up the minimum monthly payments of all recurring debt (including a potential home loan payment and student loans) and then compare that number to their gross monthly income (note the use of gross, not net, monthly income). For many lenders total debt payments can now be up to 55% of one’s gross monthly income — compared to 45% just a few years ago.
In conclusion, home price increases in the last number of years have pushed many potential buyers over the maximum debt-to-income ratio and under the minimum down payment requirement — this is especially true for first time buyers and buyers who want to upgrade but have little equity in their existing property.
Recently, however, some of the restrictions have begun to ease, and the mortgage lending box has begun to expand. The Washington Post article sited above is a great way to get familiar with 2018 mortgage lending trends and to help potential buyers understand the current lending environment.
© Copyright RealSavvy LLC