Kellie Pali is the Broker/President of Creative Financial.
Lately, when asked about interest rates
she has called the current situation “Interest Rate
Limbo,” with everyone wondering how low the rates
can go.
In another time those low interest rates—the lowest
since the early 1950s when most home loans were
15-25 years—might have been the spark that ignited
the wildfire of another housing boom, setting off
bidding wars and competition among several buyers
for a single high value property.
Today, with a nervous economy, lowered consumer
confidence, and a significant tightening of mortgage
loan standards, there are many elements that collectively
could inhibit the emergence of a healthy housing
market, a factor that has traditionally been one of
the most important aspects in any sustained economic
recovery.
When it comes to today’s tougher lending standards
—and to today’s historically low interest rates—it
seems that much of what was old is, in fact, new
again.
Tricia Morris, Owner/President of Hawaii’s Premiere
Mortgage Company, says that “We are back to
doing business the way it was done in the ’80s and
’90s. Stated income loans are no longer available and
we are back to analyzing tax returns. Credit and cash
reserves requirements are higher. The funds needed
for a down payment are also greater. We are seeing
more family help for the first time homebuyer down
payments.”
Ivy Costa, a loan officer with Maui Mortgage
Group, sees that the major changes in lending are
guideline based. The guidelines have changed to ensure
that a more financially qualified borrower is borrowing
money, thus lowering the risk of high numbers
of defaults and foreclosures in the housing sector.
“In order to qualify for a loan you must now document
your income and assets and also show credit
worthiness, which are now set to a higher standard,”
Costa said.
“New requirements for credit, types of loans no
longer as available, etc. Credit is now a big deciding
factor to writing loans, negative items such as bankruptcies,
late mortgage payments and overall debt exposure
is being carefully evaluated,” she said.
It’s not all bad news. There are still good loans
available and opportunities that may not have existed
1-2 years ago.
Be prepared
The advice from mortgage professionals today is
to be prepared and be able to document the ability
to take on a loan.
“The best thing a homebuyer can do now is prepare
their credit,” said Costa. “Your credit will ultimately
decide the programs and pricing you can
qualify for. Some key elements in keeping your
credit in good rating is making payments on time,
keeping credit card balances low, avoid acquiring
or applying for more credit lines, save for a good
size down payment and don’t make any major
changes in your employment/income situation,” she
said.
That advice to be prepared also applies to refinancing
and to loans that may be having trouble.
When it comes to refinancing Morris tells her
clients that the first thing to do is to check the value
of their property. This can provide the information
as to whether the appraisal will be sufficient to
make the loan.
“We can do that at a minimal cost and avoid the
loan falling through at the last minute with a full
appraisal cost,” Morris said.
Morris recognizes that some loans may need to be
reworked to meet economic realities “Modifications
are happening and are a viable way to avoid a foreclosure.
They do take a fair amount of work on the borrower’s
part even if they are working with a modification
company.We have seen many go through and
they are viable for those who meet the requirements
and have no other choice. A refinance is the way to
go, for those that qualify for one.With a refinance,
your credit is preserved,”Morris said.
