Mortgage applications get more rigid requirements
With an increase in foreclosures and short sales, 2011 will still be a good year for those looking to invest in real estate. However, people who've gone through the process of buying a home before might find they now have to jump through more hoops to get a mortgage.
"You really have to be sparkling great to get anywhere," says Natalie Amento, who works in real estate in the Longwood, Fla., area near Orlando, says. Many lenders are requiring higher credit scores, and more documentation of income and debt.
Bank of America and Wells Fargo, for example, raised their credit score requirements to 640 from 620 for some Federal Housing Administration loans. More stringent federal and state requirements for processing loans have also prompted some brokers to raise their fees, anywhere from around $125 to $300 or more, depending on local requirements.
"Four or five years ago, a consumer could get a loan with a pay stub," says highly rated broker Mark Milburn of Federated Mortgage in Pittsburgh. He says consumers who in past years could have used W-2 forms to secure a mortgage now must show two years of tax returns. The increased paperwork is giving some Angie's List members a headache.
"It seems that mortgage companies, real estate agents, and nearly everyone involved in the process of buying a home has become overly cautious about everything," says member Kevin Harvey, who bought a home in Stem, N.C., near Raleigh, last year. "I felt I was being punished for the mistakes that people had made in the past, although I had down payment money and excellent credit." But real estate professionals say most buyers appreciate the increased safeguards, and people who meet the criteria to hold a mortgage are still able to get one.
Many existing homeowners also decided in 2010 to refinance to capture interest rates that dipped below 5 percent and hit an all-time low in October when the monthly average commitment rate on a 30-year fixed-rate mortgage was 4.23 percent. In the last six months of 2010, about 80 percent of mortgage applications were refinances.
Member Carol Rapier had a 6-percent rate for the 30-year mortgage on her home, which is built above a horse stable in a woodsy area of Phoenixville, Penn., about 30 miles northwest of Philadelphia. Because she plans to remain living there, she says the cost of refinancing was worth the benefit of reducing her rate.
"Like they say about dogs: this is my 'forever home,'" says Rapier, who was able to secure a 4.37 percent rate, knock $147 off her monthly payment and take $10,000 of equity out to make improvements, including installing new granite countertops.
Max Leaman, a highly rated senior loan officer and branch manager at PrimeLending in Austin, Texas, says his business went gangbusters with refinancing last year. "I had so many inquiries, I couldn't get back to everyone in the same day," he says. But as rates began to climb toward the end of the year, he says his phone rang less.
While those looking to refinance in 2011 may not score quite the deal Rapier did, industry pros like Leaman predict some will still find rates low enough to reduce their monthly payments. The Mortgage Bankers Association forecast at the end of 2010 that rates would rise to around 5 percent during 2011 and hit 6 percent in 2012. Experts predicted demand would decline with the growth of rates, though they're expected to remain within historically low ranges.
Leaman has a sheet tacked up near his desk that shows the average rate for a 30-year FHA mortgage in October 1987 — 11.5 percent. "It puts things in perspective," he says with a laugh.
While some consumers shopping for homes or refinancing deals got lucky last year, many trying to sell homes had trouble. "We went from an appreciating market to a turbulent one," real estate appraiser David Roberts says of the rocky central Ohio market since the real estate bubble burst.
He says the roller coaster of housing prices has made it difficult in some cases to find all the data he needs to determine a home's value. Sometimes, homeowners don't like what he comes up with. "I've had people call me on the phone, screaming at me," he says. Columbus, Ohio, may be poised for a turnaround this year, however. Clear Capital, a real estate valuation provider, predicts a 2.1-percent increase in home values this year after a 17-percent decline in 2010.