It's Getting Easier to Get a Mortgage

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house mortgage application with ...
Casper1774 Studio/Shutterstock
You may not have noticed it, but recently, it's gotten easier to buy a new home.

Last year, a strong housing market combined with fears that the Federal Reserve would eventually begin tapering its purchases of mortgage bonds. Together, these factors helped drive up the cost of a 30-year fixed-rate mortgage from about 3.3 percent in January 2013 to nearly 4.6 percent by September.

Since then, mortgage rates have backed off those recent highs, bobbling back and forth between 4.5 percent or so, and, recently, 4.2 percent. This has helped to keep housing affordable for those who want to buy a home. But it did pose the bankers a dilemma: How could they get more people to want to buy homes in the first place, so that they could sell more mortgages?

Answer: Make it easier to apply for a mortgage.

Mortgage Down Payments Live Down to Their Name

Last spring, lending data website LendingTree.com (TREE) released a report showing that the average down payment demanded by mortgage bankers to obtain a 30-year fixed-rate mortgage had fallen 9.4 percent since mid-2011. At 16.1 percent, it was nearly 4 full percentage points shy of the old rule of thumb that a home buyer should put 20 percent down on a new home.

Six months later, average down payments had fallen to 15.73 percent of the value of a home. Now, LendingTree has put out an updated report showing that after down payment demands inched back up in 2013 (to 16.01 percent), they've begun to fall once more.

At last report, mortgage bankers on average want to see a 15.78 percent down payment -- a bit more than what we saw last fall, but still continuing the downward trend in down payments.

Why? One clue may be found in recent comments from Freddie Mac vice president and chief economist Frank Nothaft, who's been highlighting declines in existing-home sales, in new-home sales as well, and even in permits taken out to build houses, in a series of reports through April. If home-buying is starting to taper off, then the bankers may be looking for a way to goose that market a bit.

Peering Into the Bankers' Bag of Tricks

Demanding less money up front to obtain a loan is one obvious way to ease more buyers into the housing (and home mortgage) market. Another tool is loosening up lending restrictions.

According to LendingTree, "Average credit scores for borrowers matched with lenders on the LendingTree network have dropped 6 percent year over year." This, says LendingTree, indicates banks being "more willing to consider a wider pool of borrowers."

Company founder and CEO Doug Lebda put it this way: "As the housing market improves and refinance activity declines, lenders are adapting their guidelines to improve credit accessibility for borrowers. Relaxed lending guidelines translates to a larger pool of qualified homebuyers."

What It Means to You

Obviously, if you're in the market for a home today, this is great news for you. According to Lebda, "Lenders have started to accept lower down payments and credit scores from potential borrowers." With actual mortgage rates now range-bound, it's a bit cheaper to obtain a mortgage today than it was a year ago, and there's also less uncertainty about which way mortgage rates are moving. Indeed, in some markets -- North Dakota, Nebraska, and West Virginia now being the cheapest -- bankers are demanding down payments of not much more than 12 percent of the value of a home, in exchange for a mortgage.

Throw in the fact that bankers are less antsy about the risk their loans will ultimately get defaulted on, and it's also a bit easier to get that mortgage loan approved.

Granted, it's developments just like these that sucked America into a financial crisis that nearly destroyed the economy six years ago. But if that's what it takes to get you into a new home -- and a new mortgage obligation -- apparently, the bankers are willing to risk it.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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34 Comments

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johnny

Obviously the best time to get a mortgage is when you don't really need one or can more than afford one. When your bucks up you can depend on being bombarded by credit card companies, banks loan officers and just about anyone else, even long lost friends and relatives that have gotten wind of your un-need of borrowed money. including but not limiting the IRS's scrounging around for any crumbs you may drop.

June 01 2014 at 7:57 PM Report abuse +1 rate up rate down Reply
alantatanka

So typical of this "give it for free" administration. Don't worry, the taxpayers will pay for it.. I see another homeowners foreclosure scandle coming.....

May 19 2014 at 4:19 AM Report abuse -2 rate up rate down Reply
Bernice

I'd rather pay $100,000 for my next home then pay for a house that not even mines for the next 30 years. It's torcher paying for a car and rent these days. My 20 year plan is over. There's no starting over. Good credit forget it. It's personal, so be careful what you get yourselves into before you sign on the dotted line.

May 18 2014 at 8:58 PM Report abuse -2 rate up rate down Reply
TEXACO OIL

Nothing is easy.

May 18 2014 at 8:45 PM Report abuse +3 rate up rate down Reply
Bdsjmiller

Here we go again. Flippers rejoice

May 18 2014 at 7:32 PM Report abuse rate up rate down Reply
supermolar

of course-the federal gov't will be guaranteeing the bundled mortgage securities so there is basically no risk writing any risky mortgage the bank wants to write-the only risk is to the taxpayer who will be on the hook for all the defaults

May 18 2014 at 4:57 PM Report abuse -2 rate up rate down Reply
Jay McKay

Fool me once, shame on you. Fool me twice shame on me. It looks as if history is trying to repeat itself.

May 18 2014 at 3:57 PM Report abuse +1 rate up rate down Reply
laptop603

Look out and do not tell people it's easy. They will ask a bank for a loan, default, and blame banks again..." you said it was easy".....they'll say....

May 18 2014 at 2:14 PM Report abuse +1 rate up rate down Reply
Cecily

If you put less than 20% down, you have to pay for insurance every month that protects the lender should you default.

Also, every aspect of your income and debt history is examined to see if your income stream can support your debts for the next three years.

People who can pay their bills and prove their income, but can't accumulate enough assets to put down 20%, can get loans.

People who cannot prove their income cannot.

May 18 2014 at 12:56 PM Report abuse rate up rate down Reply
ectullis

Haven't we learned anything?

May 18 2014 at 11:52 AM Report abuse -1 rate up rate down Reply