5 housing trends for summer
It may still be hard to find the home of your dreams with the limited inventory for sale. But at least when it comes to getting a mortgage, you might have more options as lenders loosen some of their standards.
Here are some of the housing trends you should expect to see this summer.
1. Mortgage rates remain surprisingly low
Mortgage rates have surprised many industry observers who expected rates to rise this year. Rates remain near the bottom and it is unlikely they will spike this summer.
"Rates are falling as a direct relationship to the fact that the economy is not healing as fast as everybody thought it would," says Anthony Hsieh, CEO of loanDepot.
The Mortgage Bankers Association's latest forecast says the 30-year fixed rate could average 4.9 percent by the third quarter and reach 5 percent by the end of 2014.
But there's a good chance rates will remain stable through the summer, says Peter Grabel, senior mortgage loan originator for Luxury Mortgage Corp. in Stamford, Conn.
"I don't feel there's any reason for rates to change a lot," he says. Still, if you like the rate you have today, don't waste time. "They are not that much off all-time lows. There's only room for them to go in one direction and that's up."
2. Lending standards loosen up
Getting a mortgage these days is obviously not as easy as it was during the housing boom, when pretty much anyone could get a loan.
But after years of tightening, it seems like the standards are loosening up a bit.
"We are seeing underwriters have a little more flexibility with some common-sense issues," Grabel says. "That's not a suggestion we are going back to the old days."
Standards have loosened mostly for larger loans because they are not the types of loans that get sold to Fannie Mae and Freddie Mac. The institutions have their own guidelines and lenders must follow them if they want to sell the loans after they issue them.
Mel Watt, the new head of the Federal Housing Finance Agency, recently said his office will change some of the guidelines to allow lending to borrowers with slightly lower credit scores. The FHFA oversees Fannie and Freddie.
"Mel Watt reversed course for the first time in many years to say we have to loosen the current lending standards," Hsieh says.
Some lenders also are allowing lower credit scores on FHA loans. Many lenders required borrowers to have a credit score of at least 640 for an FHA loan.
3. Creative, non-QM mortgages emerge
When new mortgage regulations were implemented this year, many lenders said they would not lend outside the guidelines provided by the Consumer Financial Protection Bureau's qualified mortgage rule, or QM.
They said it would be challenging for many borrowers to be able to get approved for a home loan once the rules went into effect.
Loans that meet QM's requirement offer lenders a certain level of protection against borrowers' lawsuits. But now that lenders are slowly becoming more comfortable with the rules, some are once again offering creative loans that don't meet QM requirements.
"There are some places offering non-QM loans," says John Walsh, president of Total Mortgage Services in Milford, Connecticut. "I think you will see more investors enter that space because there is an opportunity there."
Borrowers usually don't know whether or not they are getting a loan that meets QM requirements unless they are told they can't get a loan because of new regulations and the lender explains the details. But it is helpful for certain borrowers, including some who are self-employed and those seeking larger loans, to have access to lenders that go outside the QM lending box.
4. Discounts on FHA loans
Homebuyers with small down payments have long relied on FHA loans, or loans insured by the Federal Housing Administration. But the cost of mortgage insurance on FHA loans increased significantly in recent years and it's an obstacle to many borrowers.
The government is trying to ease some of that burden for borrowers who are willing to go through housing counseling before they purchase a home.
"It's a pretty decent discount that you would get," Walsh says. "If you get a $200,000 loan, you are going to save $1,000 upfront and 10 basis points yearly." On that same loan, that would translate into about $17 per month in savings.
"For people that are aware of it, it would be crazy not to take advantage of this program," Walsh adds.
"Plus, the counseling service should help people understand what it really means to buy a house."
5. Home prices take a summer break
The spring homebuying season wasn't as good as people in the industry had expected.
But for now, home prices seem to be taking a break. That's good news for those planning to buy a home this summer.
Part of the reason home prices have increased so rapidly in some places is a shortage of homes available for sale, experts say.
"In the New York City area, rents are so high and there's still tremendous demand for buying," Grabel says. "But people are getting stretched already. I don't think that can continue much longer."
Investors and institutional investors also have contributed to higher home prices as first-time homebuyers get squeezed out of the market, Hsieh says.
"We are in an unsustainable recovery," he says.
ABOUT THE WRITER
Polyana da Costa is the senior mortgage reporter for Bankrate.com. Visit Bankrate online at http://www.bankrate.com.
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