I just wanted to get this out there for all of you who read my blog. Feel free to share it with your friends and family as this topic comes up on a regular basis with people I run into. It also lets us know the banking industry as well as the housing markets are improving. Lenders tightened up lending requirements following the 2007 housing crash because prices continued to slide and they didn’t want to have people walking away from new home purchases if the market continued it’s downward spiral. As home prices have increased and leveled off, lenders feel more confident that prices are stable and rising so they have relaxed requirements a bit. Underwriting, however hasn’t relaxed it’s rules, they are in fact more stringent than they use to be and ask for verification on EVERYTHING!
More home loans require smaller downpayments
WASHINGTON – Oct. 24, 2013 – More people are getting home loans with lower credit scores and smaller downpayments.
Last month, the average FICO score for a closed home loan was 732, down from 750 a year ago, shows data from mortgage tracker Ellie Mae.
The average downpayment was 19 percent, vs. 22 percent a year ago. What’s more, almost one-third of closed loans had FICO scores under 700, vs. 17 percent a year ago. The top FICO score is 850.
“We continue to see things open up ever so slightly month by month,” says Jonathan Corr, Ellie Mae president.
The standards to get a home loan remain tight, mortgage experts say. But lenders are reducing some restrictions as housing prices recover and as higher interest rates curtail their refinance business.
“We’re starting to see some of the banks … get more creative … to drive more volume to the door,” says Jeff Taylor, managing partner at mortgage analytics firm Digital Risk.
Earlier this month, Bank of America dropped its minimum downpayment requirement for non-conforming loans under $1 million to 15 percent from 20 percent. Non-conforming loans, which can’t be sold to Fannie Mae or Freddie Mac, are over $417,000 in most parts of the country.
Wells Fargo also reduced non-conforming loan minimum downpayments to 15 percent from 20 percent in July.
JPMorgan Chase, meanwhile, reduced downpayment requirements in Arizona, Florida, Nevada and Michigan – states that were especially hard hit by foreclosures. The bank’s minimum downpayment is now 5 percent, down from 10 percent, for primary homes and 10 percent, instead of 20 percent for second homes in those states. The change brings downpayment requirements in those states in line with others, says JPMorgan spokeswoman Amy Bonitatibus.
“These markets have shown strong signs of improvement,” Bonitatibus says. Improving home values lessen risk for lenders.
JPMorgan and Wells made their changes in July after a sharp interest rate spike in May cut into the refinance business.
While banks are easing some loan requirements, home lending standards remain tight and will likely stay there, says Cameron Findlay, economist at Discover Home Loans.
New lending rules expected to take hold in January require lenders to make home loans that meet federal standards or face greater liability from borrower lawsuits should the loans go sour. Findlay doesn’t expect lenders to do many loans that fall outside of those standards.
“We’re seeing tweaking of the underwriting standards, but it’s not a wholesale loosening,” says Guy Cecala, publisher of Inside Mortgage Finance. “The pendulum is still too far toward restrictive.”
Copyright © 2013 USA TODAY, Julie Schmit