I will bet that if you have had to apply for at least two mortgages in your life the process was not the same for both. This is because the mortgage industry is constantly changing and lenders are always updating their guidelines for mortgage qualification.
Before the housing bubble burst you could get a mortgage on a ‘Stated Income’. This simply meant you told the lender what your income was and they gave you a loan based on that income (these were one of the types of loans that contributed highly to the housing bubble). After the bubble burst and the recession hit, lenders and banks tightened the reigns. They required more documentation proving income, assets and other factors to be sure you would not default on your loan.
In 2010 the guidelines continued to be strict as house prices continued to fall. The decreasing housing prices sent many homes into foreclosure and made refinancing impossible for many homeowners.
At the same time 2010 brought us the lowest interest rates our country had seen in nearly 50 years. In November of 2010 the average 30 year mortgage rate was 4.17 percent. This combined with falling housing prices meant many Americans could purchase less expensive homes with extremely low interest rates.
So how does that scenario compare to today?
Towards the end of 2010 mortgage rates started to increase. Many forecasters said this was the end of the record low rates. Rates continued to climb and by February of 2011 we were back in the 5 percent range. Many people thought they had missed their opportunity for a 4 percent mortgage.
Since then rates have been back on the downward trend. In fact just over a week ago on September 8th rates surpassed last year’s record low and the current average mortgage rate sits at 4.12 percent. Due to a non-recovering economy and threats of a second recession the mortgage scene does not look much different than it did last year at this time.
Housing prices are still down and rates have now set a new record low. To qualify for a mortgage you will need to make sure you have the appropriate income, a good down payment and verifiable assets. If you have credit card debt or other loan payments (ie cars, boats, etc) these monthly payments will count against your debt to income (DTI) ratio. If you pay off these loans, this will improve your DTI and you will be able to qualify for more.
All in all, the mortgage scene has not changed a tremendous amount since last year. It is still a great time to get a house at an extremely low interest rate.
This guest post was written by Ben at BankAim.com.