He adds that market inventory has remained a concern for both realtors and lenders. “New housing starts are beginning to ramp up and we should continue to see those first time home buyers, that were sidelined during the meltdown, continue to buy and search for homes,” Hoover says.
Knowing your credit score is paramount in today’s market. “You should examine your credit score at least six months before even thinking about buying a house,” Hoover says.
Loan applicants should “know that their financial and credit life will be an open book. If they are unwilling or simply refuse to give personal information they will not get a loan,” says Steve Shelton of First Choice Lending Services, LLC. “
Shelton adds that borrowers should know buying a home isn’t hard. “A 580 credit score with a 3.5% down payment (their own money) will get them an FHA loan. They need to know if they have had financial hiccups on their credit that all hope isn’t lost. It only takes 45-60 days to change up to 100 points on their credit score. Most important, they need to know not to take on additional debt after applying for a home loan.”
Refinancing still may make sense for homeowners that will be in their home for five years or more,” says Hoover. “Rates are at six month lows and in the appreciating market, we are seeing many homeowners who have recovered equity lost during the downturn. That equity will allow them to consolidate debt and/or complete home improvements or repairs. Home equity loans are also attractive for homeowners that may need additional funds at a future time, as in for college expenses, business opportunities, or investments.”
Adjustable Rate Mortgages (ARMs) lost their following during the recession. But as housing equity has returned for many homeowners and the gap between fixed rate mortgages and ARMs has widened, increasing numbers of homeowners have been considering them.
ARMs generally have a fixed rate period of five or seven years and after that the rate resets annually. One in 10 home purchases issued in 2013 had an adjustable rate, according to a recent survey released by Freddie Mac. ARMs will continue to gain back some favor with mortgage borrowers this year, according to Frank Nothaft, Freddie Mac’s vice president and chief economist.
ARMS have been especially popular with buyers who need larger mortgages that are above the conforming limits set by Fannie Mae and Freddie Mac, according to Jordan Roth, senior branch manager for GFI Mortgage Bankers, Inc. in New York. They offer “a tremendous savings opportunity,” he says.
But ARMS aren’t for everyone, according to Roth. Before getting an ARM loan, buyers should consider how long they plan to own the house and the maximum payment amount they could afford if rates rise after the fixed rate period.
ARMs are expected to gain popularity as fixed mortgage rates are expected to climb this year, although they are not expected to skyrocket. Rates are expected to reach about 4.9 percent later this year, according to the Mortgage Bankers Association. While unpredictable events could cause rates to change overnight, industry observers say that rates are unlikely to go above five percent.
Despite the likelihood of slowly rising interest rates, they are not expected to be the level consumers faced in the early 1980s (12 percent was not unusual).
Industry observers suggest that lenders lost a big chunk of their refinance business as mortgage rates climbed. This year, they are expected to turn their attention to homebuyers and are expected to compete for their business.
As home values continue to increase, homeowners appear to be more comfortable borrowing against their home equity (Home Equity Line of Credit (HELOC)). More banks are actively pursuing the home equity loan market.
Today, homeowners can generally use an equity loan to borrow up to 89.9 percent Combined Loan to Value with many banks, according to Justin Frizzell of Synovous Mortgage, compared with a few years ago when the CLTV on HELOCs was 85 percent. Acquiring a HELOC generally requires a complete underwriting, just as a mortgage does.
An average $30,000 HELOC costs 4.92 percent, while home equity loans charge 6.21 percent interest on average. Both offer lower interest rates than most other forms of consumer credit, and the interest is typically tax-deductible. But they aren’t as easy to get as they once were. Credit score and loan-to-value requirements are considerably more stringent than they were prior to the housing crash. Lenders often require borrowers to have a combined loan-to-value ratio of no more than 90%, he says.
If a home appraises for $300,000 and the mortgage principal balance is $200,000, the homeowner might be able to borrow as much as $70,000 with a home equity loan or line of credit. The homeowner would retain 10 percent equity, or $30,000.
There are numerous mortgage companies in the Nashville area, including:
Ascend Federal Credit Union
Middle Tennessee Locations
The Bank of Nashville
First Choice Lending Services LLC
Pinnacle Financial Partners