The spring real estate season has not been too hot, leading some to worry that the housing recovery has stalled. At first glance, the data is a little worrisome. Based on reports through March, here's where things stand versus a year ago:
- Existing Home Sales: -7.5%
- New Home Sales: -13%
- Housing Starts: -5.9%
- Mortgage rates: +1%
Drilling down through the data, the news is actually not so bad. In fact, it's pretty good. Remember that the housing recovery was always expected to lag the general economic and stock market rebound because of the depth of the melt down and the inability to unload a physical asset like a home.
That said, part of the decline in existing home sales is related to fewer distressed sales; and while new home sales remain historically low, a growing population will eventually require more new homes. Economists believe that the impact from rising mortgage rates is mostly behind us and 30-year rates have steadied at about 4.3 to 4.6 percent, which is up from last May's 3.6 percent, but remains a historically low level.
Additionally, many homeowners are finally in a position to potentially sell again: Mortgage delinquencies fell to the lowest level since October 2007; and only one in 10 borrowers is underwater (owes more on their mortgages than their homes are worth). Finally, with investor buying declining, there is more room for first time homeowners to enter the market. If you are about to jump into the market, here's what you need to know about attaining a mortgage now:
“The process is slowly improving, but it is still labor intensive. Borrowers need patience and perseverance” according to Mike Raimi of PMAC Lending. Mortgages for new home purchases can take about three weeks to close, while refinancing can take longer – “anywhere from 30 to 60 days.”
If you are looking for a 30-year conventional mortgage with 20 percent down, the best rates are available for those with credit scores above 740. For every 20-point drop in score, the mortgage rate jumps by approximately an eighth of a percent. If your credit score is below 620, a conventional is not a viable option, unless you qualify for the government’s HARP plan. FHA will underwrite borrowers with scores below 600, but most lenders have higher standards and require a score of at least 600. Remember that credit scores do not have nearly as much impact on loans of 15 years and shorter.
Whether you are trying to refinance or buy a home with a mortgage, here's what you will need:
- W-2 (2 years)
- Tax Returns (2 years)
- Pay Stubs (2 months)
- Bank statements – all pages (2 months): You may also need to provide the lender with an explanation for any large deposits that have been made into bank accounts. This has more to do with beefed up anti-money laundering efforts than the mortgage process itself.
- 6 months of mortgage payments in cash reserves (sometimes less, but this is a good rule of thumb)
- Investment accounts: If bank accounts do not show adequate assets, lenders may ask for investment account statements.
- Donor letter: If a family member or friend is helping you with your down payment or providing cash for the re-fi, he or she may be required to provide a letter and may also have to present his or her account statements.
- Self-employed applicants: Must have 2 years of proof of self-employment and 2 years of tax returns. Gone are the days when self-employed borrowers can "add-back" tax preference items. While you may have used the tax code to your advantage, the bank will not cut you any slack - the numbers on the return are set in stone.