While there’s not a lot of positive news to write about the economy, real estate and mortgage rates, considering that the Christmas season itself is, in part, a good reason to count one’s blessings, I’m going to point out some good things.
Even though the Federal Reserve’s so-called “quantitative easing” program has not yet produced the intended results of lower mortgage rates, the rates still remain quite low. Let’s take a look at a real-life example.
A house may be on the market for $350,000. With a 5 percent down payment, a buyer may expect to obtain a 30-year fixed-rate loan of about 5.75 percent with no points or origination fees. This includes private mortgage insurance, which is a premium that is paid if the down payment is less than 20 percent.
A 95 percent loan would result in a $15,000 down payment and a $285,000 loan amount. At 5.75 percent, the buyer would expect to pay a principal-and-interest payment of $1,663 per month. Once taxes and insurance are included, the total payment might fall in the range of $2,000.
In this example, our borrowers need to come up with a $15,000 down payment. Closing costs and escrow deposits also need to be paid, and they will run in the range of $7,000, but they can be paid by the seller if negotiated in the contract.
Despite the overreaction of the mortgage meltdown in the credit markets that created the credit crunch, the buyer of the house in this example would need, at minimum, an annual income of just about $50,000. This buyer would have to have little or no other debt and an excellent credit rating.
As much as I have bellyached about the unreasonable policies of mortgage lenders, I can tell you that credit is still very much available if a would-be borrower fits the mold of the standards that are being enforced and are unbendable - and frankly, they are not unreasonable.
Being able to borrow $285,000 with an income of just $50,000 is lenient, as far as I’m concerned. Having to scrimp and save $15,000 for the 5 percent down payment also is very reasonable.
Let’s talk about credit rating. Well, I never thought mortgage loans should have been made to folks who have a record of not paying their bills. This is not to show disrespect to those folks; a lot of folks fell on hard times, lost their jobs, faced unexpected medical bills, etc., which resulted in a poor credit rating. Purchasing a home before such problems are sorted out, however, is not the answer.
Credit is indeed available to folks who wish to purchase a home. The underwriting guidelines are fairly lenient.
The qualification requirements to refinance, however, remain unreasonable. Folks who have considerable savings, excellent credit and lots of equity in their home still cannot refinance to a lower interest rate if they can’t document the required income. It seems to me that if you can demonstrate several years’ income already in the bank, you shouldn’t have to demonstrate an income stream if you have good credit and you are merely trying to lower your payment.
We should indeed count our blessings that mortgage programs remain available for prudent and responsible first-time home buyers. We also should be diligent in our efforts to endorse a more common-sense approach in the underwriting process.
Henry Savage is president of PMC Mortgage in Alexandria, Va. Send e-mail to henrysavage@pmcmortgage.com.
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