According to a survey of 65 U.S. banks conducted by the Federal Reserve, “prime” borrowers are having it easier than in times past to take out the home loan that they’ve been looking for.
“Prime,” in this instance, refers to well-qualified buyers with credit scores at 740 or higher with lower than average debt-to-income ratios and whose mortgage is a standard loan type. Those who are considered less than “prime” are still roughly in the same position that they were in before.
• 3.0% reported mortgage guidelines tightening
• 86.6% reported no change in mortgage guidelines
• 10.4% reported mortgage guidelines loosening
Demand For Housing Remains Strong In 2013
U.S. home inventory is barely able to keep pace with demand put in place by today’s home buyers. Similarly, the Home Affordable Refinancing Program (HARP) has continued to show strong growth in the past year as HARP 3.0 remains right around the corner.
Mortgage rates have remained relatively flat since July and still aren’t too far off from the historical lows that the market experienced back in 2012. And with falling standards for well-off buyers, it’s becoming easier for them to take out larger loans that once may have been very difficult to get.
It’s not entirely clear how rising mortgage rates could affect home sales in the long run, but for the time being they remain strong. Let’s take a look at some of the reasons why 2014 might be a less favorable year than 2013 to purchase a home.
Why It Might Get More Difficult To Buy A Home
There are a number of factors that could easily swing the direction of the housing market in ways unfavorable to home buyers. For instance, the decision by the Federal Reserve to pull back support from its bond buying program could help push interest rates on home loans up further. This would effectively make it more expensive over time to purchase a home.
Aside from what the Federal Reserve may do in the next few months, new mortgage rules that are scheduled to go into effect will restrict borrower’s loan options. “If you’re comfortable with what you can get this year, lock it in,” says John Vogel, adjunct professor of real estate at the Tuck School of Business at Dartmouth College. “Most rules that will come are in fact going to be less favorable to borrowers.”
Loan limits for popular mortgages are due to drop in January according to a report by the Wall Street Journal. Loan limits in most parts of the country are around $417,000 and $625,000. Once those limits fall, this will leave borrowers with fewer options to purchase homes that exceed the conforming loan limits.
Borrowers looking to purchase homes above those conforming loan limits will often be forced to take out jumbo loans, which typically come with high interest rates and hefty down payment standards. So, if you’re goal is to purchase a home in the ballpark of $400,000, then you absolutely owe it to yourself to try it do it this year rather than next year.
