Mortgages in the US in summer 2009
July 20, 2009 12:15 PM   Subscribe

How hard is it for average folks to get a home mortgage in the US right now?

The banking crisis and credit crunch has obviously been big news for awhile and it's common knowledge that lending standards have tightened up a lot. Yet on the other hand I see lots of posts on creditboards about people with ~600 FICO scores that seem to be able to get mortgages -- and if I recall correctly, this was subprime territory even a few years ago. It seems like homes around my area are getting sold just fine, and I don't see any windows boarded up at the local mortgage companies.

So what is the lending climate like right now? Who is and isn't getting financed, compared to a few years ago? What aspects of a mortgage application are underwriters focusing on most heavily right now?

Answers should probably mention the kind of market or location since Omaha might be much different from Brooklyn.
posted by crapmatic to Work & Money (15 answers total) 7 users marked this as a favorite
I'm in the town with the lowest unemployment in the US right now. However, I just moved here a couple months ago from a town in FL with 11% unemployment.

In both places I was able to get preapproved for FHA/USDA loans in excess of $100,000 with a credit score of 620 and an income of ~$30,000 and ~$700 a month in expenses not counting food/utilities.

Didn't take 'em, but I almost did. We will be taking one here soon.

I realize that in most of the US, $100,000 won't buy you a lot to build on. In both of these towns, that was the case 3 years ago. Right now I can pick up 3/2's for $120k.
posted by TomMelee at 12:34 PM on July 20, 2009

In Chicago, it was relatively straightforward to get a mortgage when I went through it a couple months ago, and according to a friend who's doing it now, it's still possible.

A couple things:

1) You need to have skin in the game. On my condo, they demanded 20% down, and if I didn't want an extra point, I had to put 25%. If I was willing to take a higher-interest FHA loan, I could have put only 3.5% down, but the days of zero-down mortgages are over.

2) You need to document. I needed to show two years worth of tax returns, several pay stubs, printouts from my bank accounts showing my income and fixed monthly expenses. So-called "liars loans" are dead.
posted by Oktober at 12:38 PM on July 20, 2009

Average folks should be easily able to get mortgages. Below average folks, OTOH, probably not. If you and the spouse both hold jobs with good credit scores and are looking to buy a house in an average neighborhood then there should be no problems.
posted by JJ86 at 1:27 PM on July 20, 2009

My understanding in San Francisco is that it's not too hard for people with good credit to get a loan for 80% of the purchase price of a house. That's a lot of cash: $500k-$800k (or more), and over the conforming loan limit. However it's much harder to get a second loan to cover another 10% of the purchase price. My real estate agent friend tells me there's been a significant increase in seller financed transactions.
posted by Nelson at 1:36 PM on July 20, 2009

Data point - I am in a city whose job and housing markets have not been hit as hard as most places (Baton Rouge, LA). My husband and I were in the market for a house, and I was concerned that we need to wait and save more/up credit score/pay down debt/etc. Credit scores were in the mid-to-high 600s, we had a fair amount of debt, only 3.5% downpayment saved up, and average-to-good salaries (about $95K combined). He convinced me that we were ready, and we were able to get an FHA loan for about $230K.
posted by tryniti at 2:13 PM on July 20, 2009

…20% down, and if I didn't want an extra point, I had to put 25%. If I was willing to take a higher-interest FHA loan, I could have put only 3.5% down, but the days of zero-down mortgages are over.

This is consistent with my experience. You need to be willing to do 20% down or you're looking at very punitive interest rates on conventional financing, or at FHA loans that have higher rates and may look less attractive to potential sellers.

Also, despite what you may have heard about it being a "buyer's market," we made several offers that ended up in bidding wars with other buyers. There are a lot of people who want to sell, but relatively few people who are actually doing it, and pricing their property competitively. Those houses get snapped up pretty quickly, while other houses not priced competitively sit on the market for hundreds of days until the sellers either give up and pull them, or reduce the price. (Prices in our area are still falling, which has caused situations where someone won't decrease the price fast enough, and ends up losing more than if they'd just bit the bullet earlier on.)

In one place we lost a house we were interested in to someone with a cash offer, in another it went for above list price. Neither are terribly uncommon, although the cash is maybe a little less routine than the bidding war ending for a higher-than-list price.

The biggest lesson I got from our recent house hunt: there is no such thing as a bargain in real estate. Ever. Sometimes you just get screwed more softly than others.
posted by Kadin2048 at 2:15 PM on July 20, 2009

I just got a mortgage loan a couple of weeks ago, and have just had my bid accepted on a small house.

I'm in Louisville, which as of May 2009 has an unemployment rate of about ten percent. We've didn't get the full-on crazy housing boom that some parts of the country got, so we've not quite taken it on the chin with the collapse. That said, there's a ton of housing bargains to be found around the county.

I started looking at houses a couple of months ago out of idle curiosity, then went to my credit union to discuss options. I took in all the paperwork I could think of, using the list provided here as a guide. I was very specific about what I wanted to buy, how much I was able to put on the down payment, and how much per month I could afford to pay in mortgage. The loan officer said it would take about 3 to 4 days to know if I got pre-approved.

In less than 24 hours, the credit union notified me that I was pre-approved for a loan of about $85K (which is 95% of what I said I would need for the homes I was looking at). Apparently my credit score was darned near spotless (I knew it was good, but I didn't know it was that good). I have very little debt: a car loan of only $8K, and another $1700 on a single charge card. I'd also had a previous car loan from the same credit union member that had been paid back without so much as a hiccup, so that also helped matters.

I mortgage-shopped a week later, and wound up an FHA loan for the same amount at a better rate. I was approved in less than 24 hours for that one, too.

Oktober has it right. There are no more zero-percent down traditional mortgages. Some 0% deals are still available for qualified applicants under certain gov't programs, like for veterans, but that's pretty much it as far as I know. There's no more "stated income mortgages" (a.k.a. "liar's loans")--you must produce documentation of your income and be prepared to answer specific questions about your household expenses. They'll also want to know where the money for your down payment, pre-paid expenses, and closing costs are coming from: are you pulling from your savings, or borrowing that money from another source?

From what I can tell in conversation with realtors and loan officers, the average, employed person with decent credit can get a traditional mortgage. The "subprime" person is out of luck--he might qualify for a small mortgage, but he's not going to walk away with a $500K loan. The way my loan officer put it, no one's taking those kinds of chances anymore.
posted by magstheaxe at 2:17 PM on July 20, 2009

Data point: In North Texas, I got a 30 year conventional mortgage on a 175k house, putting 5% down, paying a point, at about 4.8% APR. Of course there's PMI because I didn't put down 20% but I'm trying to pay down the principal as fast as I can so I stop that. My credit was decent, high 600s, and I've got a pretty good salary.
posted by kmz at 2:25 PM on July 20, 2009

And oh, yeah, this is our first home, so I don't know how it used to be, but there was definitely a lot of documentation required. And to add to my above data point, I didn't have any debt other than my normal credit card balance that I completely paid off every month.
posted by kmz at 2:28 PM on July 20, 2009

Fundamentally, a mortgage is a secured loan. Lenders give you money for a house and put a lien on it. Their primary risk is that the value of the loan will drop below the amount owed.

As Arnold Kling explains in this Econtalk podcast, the subprime crisis featured very optimistic downturn projections. The downpayment is a protection to the banks. Even if you've got bad credit, 50 percent down is a pretty strong guarantee that the loan will be repaid.

As far as where I live, I have no clue about mortgages, except the local bank that never lowered standards is still around, and the mortgage broker my douchebag neighbor worked for is gone. I might infer from the number of For Sale / For Rent signs that financing is harder to come by, but it could just be that people don't have the cash on hand to make downpayments.
posted by pwnguin at 2:32 PM on July 20, 2009

In Omaha, here. The economy has been probably about on average, our unemployment rate is slightly higher than average right now.

Fiance' just got our mortgage last month. Due to my status as a freelancer, the loan was entirely in his name. Decent credit, lower-middle income, and one modest student loan. we ended up with a FHA loan, less than 20% down (with mortgage insurance), 5% APR. We were pre-approved for upwards of $200,000, though we found a house for much less. We found a lovely new starter home in a suburb of Omaha.
posted by ninjakins at 3:10 PM on July 20, 2009

Credit score in the 800s, wanted to combine our HomeEq and primary mortgage with just 7 years left (I worked it out that I could shave 13K off the total owed if I could get >5.25% interest, which I should have been able to do with our income and credit score). Two banks told me they didn't want our business because they didn't see where the benefit was for them. Whatever.
posted by nax at 5:43 PM on July 20, 2009

pwnguin- their risk is also having to sell a house. They don't want to do that.

nax- that's the free market. if there is no profit to them, it's not business. It's just a hassle. Why should they create more hassle for no profit?

The OMG no mortgages meme is only true for people with short memories of the mortgage market. If the rates are low, that means there's money out there. If they start getting higher, that's a sign that there is more demand for mortgages and less money available. What IS gone are the magic mortgages that people mistakenly thought the world owed them for the last 7 years or so.
posted by gjc at 6:44 PM on July 20, 2009

The risk in selling the house is getting less than you loaned for it. Banks really don't want to do that. Otherwise, there's little reason to cry about collecting the equity a debtor left for you. Basically, we're agreeing here.
posted by pwnguin at 9:39 PM on July 20, 2009

Taking this in a different direction, getting a loan for a condo is damn near impossible these days. My fiancée and I have been looking for months, and have had two places fall through because of financing concerns. We're both high-700 FICO's, and would be taking on a DTV of something like 25%, and we've been through four mortgage brokers who have basically told us that unless the association we're buying into is in preternaturally good shape (100% owner-occupied, large association reserves, no structural issues picked up by the inspector--in other words, something like 5% of the available properties in Boston), banks won't give us a pot to piss in. It's intensely frustrating, because if we were buying a house that cost $100K more than anything we're looking at (and was therefore really not affordable for us--but hey, we're pre-approved for it!), no one would think twice about financing it.
posted by Mayor West at 4:42 AM on July 21, 2009

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