As housing heads into the critical spring market, credit is finally beginning to thaw. Lenders are increasingly approving low-down-payment loans, and government-sponsored mortgage giant Fannie Mae is buying more of them.
It is a noticeable shift from the last four years, when 20 percent down on a home purchase loan was the only game in the neighborhood.
“In general lenders have been willing to do more than they may have been willing to do in the past,” said John Forlines, chief credit officer for Fannie Mae’s single family business. “Our requirements have not changed significantly, but other parties taking risk, the lenders and mortgage insurance companies in particular, have been more flexible than they may have been in the past.”
As the housing market improves, private mortgage insurers are starting to remove overlays on higher loan-to-value loans, meaning the percentage of the home value that is mortgaged. Low LTV’s and high credit scores were the rule recently for the private insurers, but that may now be loosening, making these loans cheaper than FHA.
“FHA is certainly becoming more expensive,” noted Craig Strent, CEO of Apex Home Loans in Bethesda, Maryland. “The increase in low down payments is reflective of first-time buyers coming off the sidelines and entering the market. We’re going to see more of this trend in the next couple of years as the economy improves and renters start to once again see the benefit of buying over renting. FHA has become more expensive and the mortgage insurance companies are the beneficiary of that, which is really not a bad thing as it means the private market is insuring the lower down payments rather than the government.”
Hat tip to Rob for sending this in:
Hat tip to Ray for sending this in:
The fiscal cliff deal also revived a provision that allows taxpayers to deduct their premiums for private mortgage insurance (which can run from $50 to $220 a month on a loan of $250,000). Most people know about the deduction for mortgage interest, but few have heard of the insurance deduction, says Rebecca Pavese, head of Palisades Hudson Financial Group’s tax practice.