Melissa Rose, senior mortgage banker with Federal Mortgage Funding in Scottsdale, Ariz., says the biggest changes have been in "stated" income loans. Sometimes called "liar loans," stated income loans allowed applicants to take out mortgages without verifying their incomes. While these loans may have been abused by some in recent years, they have been very important to self-employed people who can sometimes have difficulty documenting their incomes.
"If they have the income they can prove, it's much easier to get a loan than having spectacular credit. You really need a down payment. There are no more 100 percent products out there and mortgage insurance has thrown a lot of it out," says Rose.
Harold "Pete" Bonnikson, senior vice president of mortgage operations for E-LOAN, says that while lending standards have tightened, it is still possible to buy a house with little money down through a Federal Housing Administration, or FHA, loan. Insured by the Federal Housing Administration, FHA loans allow first-time buyers to put down as little as 3 percent. To help cash-strapped owners refinance and to help open more mortgages, limits on FHA loans have also been raised in some higher-priced areas from $417,000 to as high as $729,000.
"It is not as easy for most first-time homebuyers to get a loan as it may have been two years ago. FHA is playing a critical role in the mortgage market now, especially for first-time homebuyers," says Bonnikson.
Hovering around 6 percent, 30-year fixed mortgage rates are favorable by historical standards where rates have largely stood between 7 percent and 8 percent over the past 20 years. Because long-term rates are determined by the global bond market, not by the Federal Reserve, they tend to rise with inflationary risks. If the economy continues to stumble and the Fed continues to cut short-term rates, long-term mortgage rates may actually move in the opposite direction. Yun recommends that potential homebuyers lock in rates while they're still favorable.
"Consumers who are relying on what the Federal Reserve is doing will be surprised because mortgage rates at times may be doing exactly the opposite," says Yun.