Mortgage Market Easing For Buyers This Spring
Interest rates are hovering around historic lows, but are there enough homes to buy?
Some buyers this spring may have a harder time finding a house to buy than getting a mortgage.
As the spring sales season kicks into gear, a number of nonprofit, state, and federal mortgage market players are offering attractive deals to middle and lower income borrowers.
Banks are also starting to ease back, ever so gradually, on the crushingly high credit standards put in place after the Great Recession, mortgage industry experts say.
And the cherry on top are interest rates, which continue to hover around historic lows, reducing mortgage costs for all buyers, whatever their income levels.
The rate for a 30-year, fixed-rate mortgage held firm at a low 3.7 percent heading into Easter weekend, down from 4.41 percent last year, federal housing giant Freddie Mac reports. The rate on a 15-year mortgage is 2.98 percent, or down from 3.47 percent a year ago.
“There is more money in the market,’’ said Tom Gleason, executive director of MassHousing, a state authority that works with banks across the state to offer affordable mortgages to middle and lower income buyers. “The snow is melting and people are looking and ready to buy – they are anxious to buy.’’
Currently 150 banks, credit unions, and mortgage companies are certified to work with MassHousing, which enables local lenders to offer home loans with 3 percent down, compared to 10 or 20 percent down payments commonly required.
The MassHousing-backed mortgages, in turn, are available to a broad swath of buyers, who can make up to 135 percent of median income for the Boston area, or $126,000 a year, and still qualify, Gleason said.
The average income of buyers under MassHousing’s various lending initiatives is $75,000, with the typical mortgage weighing in around $250,000.
Borrowers still need high credit scores to get approved for the mortgages, though maybe not quite as high as the last few years. MassHousing borrowers now average FICO scores of around 730, down a bit from 745, Gleason said.
In a move that further increases the amount of mortgage money available, federal housing finance agencies Fannie Mae and Freddie Mac are now also offering 3 percent down mortgages after having stuck with 5 percent for several years.
The federal housing giants, who also work through local lenders, provide another option for home buyers. They have the ability to take on borrowers with lower credit scores in the 660 or even 640 ranges.
There are also growing mortgage options for low and moderate-income buyers, for whom Greater Boston’s steadily rising home prices present the biggest challenges.
The Massachusetts Housing Partnership offers the ONE Mortgage program for buyers earning at or below median income.
The average credit score of ONE Mortgage borrowers with average income of $50,000 is 720 and up, with the minimum down around 660, said Clark Ziegler, MHP’s executive director.
The 30-year mortgage, offered through local lenders, eliminates the need for costly mortgage insurance and requires just 3 percent down, with at least half coming from the buyer’s savings, he said.
For buyers earning less than the median, there is an interest payment subsidy as well. Combined with an already low, discounted rate, this helps reduce monthly mortgage payments by 20 percent over the first seven years, Ziegler said.
Ziegler said he is seeing steady growth in the number of mortgages banks are writing through the One Mortgage program, with the market starting to pick up with the arrival of more spring-like weather.
“More community lenders and smaller banks are having the appetite to lend to lower income, first-time buyers,’’ he said.
But that doesn’t mean it’s all Easy Street for buyers seeking a mortgage, according to Ziegler. Banks are still too often being overly cautious when evaluating borrowers and looking at the wrong things.
Would-be buyers who have run a tight ship financially and have purposefully avoided using credit cards can still get penalized for not having a credit record, for example.
“There is a forest and a trees problem,’’ Ziegler said. “There is a lot of focus on forms being right more than there is about the underlying risks of mortgage lending.’’
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