Mortgage Rates May Be Low, But That Doesn’t Mean You’ll Be Approved
Right now, the big news is that mortgage rates are at their lowest in years. It is no surprise, then, that mortgage applications are way up — especially in terms of refinancing. (One of my goals for the New Year is to refinance the house.) But the trickiness comes not from applying for the loan and being star-struck by mortgages rates as low as 4.5%. It comes from actually getting approved for the home mortgage loan.
Mortgage lenders tightening lending standards
Mortgage lenders have been tightening lending standards to a certain degree since May of 2007. However, in recent months — since the full-on eruption of the global financial crisis — things have become even tighter. And mortgage lenders are stingy. The Subprime Blogger points out that one of the reasons that mortgage loans and refinancing are so hard to come by have to do with appraisals:
Today, when the application is submitted and the appraisal and credit scores are analyzed, it is a much different story. In today’s housing market, many appraisers are confirming that homes are not worth their stated value. December depicted this ugly picture as 80% of loan applications did not make it through the appraisal process. Appraisers are explaining that the amount of foreclosures and short sales have taken much of the value out of U.S. homes. When the lender finds this out, the borrower has very little chance to get the loan.
In my mind, this is a bit hypocritical. These mortgage lenders were the same people pressuring appraisers to overvalue homes so that they could get larger commissions on bigger home mortgage loans — or at least approve refinancing. These inflated home values represent one of the factors contributing to the housing bubble (and its subsequent collapse).
Another issue is credit score. You may be approved for a home mortgage loan or for refinancing, but you will not get the best interest rate unless you have a very high score. Right now, that score is likely to be more than 740 or 750. You may not even be approved if your credit score is below 680.
It is clear that mortgage lenders are over-reacting to the current situation, moving to an extreme. This mess was partially brought on by extremely lax lending standards, and it appears it will be lengthened, in part, due to extremely tight lending standards. It’s too bad a “happy medium” appears to be something we’ve forgotten about.
January 13th, 2009 at 3:05 pm
[…] come down, but little else happened. It’s hard to take advantage of low interest rates when you can’t get approved for your loan. And that is what has been happening. Lending standards have been tight, and instead of extending […]