2010 Mortgage Outlook is Encouraging in a Tight Market

Dawn on the horizon

Interest rates remain low to start the New Year and the economy is beginning to show signs of stabilization in the mortgage sector. These elements add up to a promising outlook for those people interested in buying a home in the coming year. Some areas of concern remain, however, causing the credit market to remain tight. One of these concerns is the fate of the Fannie Mae and Freddie Mac government programs. These federal programs have been controversial since their inception, and their shaky financial standing in a debt strapped government is a real concern for the future. According to U.S. News, there are some things that borrowers should consider when deciding whether or not to move forward on their plans for a new mortgage. Borrowers can better position themselves for success and a better rate when armed with the right information.

Credit remains tight

The economy is recovering and the President is pushing for banks to help consumers obtain mortgages. Lenders are not likely to have short memories, however. The last few years have been stressful and economically dangerous in the banking sector. Don’t expect to find lenders reverting back to the easy credit days of 5 or 10 years ago. Borrowers need to take steps to build, repair, and keep their credit ratings as high as possible to get the best chance for approval.

Save, save, save

One effect of the tight credit market is the disappearance of zero down mortgage loans. The FHA will require a 3.5 percent down payment and borrowers will have to come up with 20 percent down to get the best rates available from banks. These requirements are nothing new for mortgage loans. The difference is that it will be less likely a borrower can get seller financing or roll the down payment into their mortgage. Secondary loans for down payments will be virtually non-existent. Borrowers will have to show that their down payments come from them and are the benefit of sound financial planning.

Credit score requirements may be raised

FICO reports that lenders are requiring a score of at least 730 to get the best mortgage rates and the minimum score to get a mortgage at all is approximately 620. In the past, scores in the mid 500’s were commonly approved for new mortgages. Borrowers will have to do a better job of explaining problems on their credit reports and show better proof of their assets during the approval process as well. Borrowers should get a copy of their credit reports from all three of the major credit bureaus and begin working on repairs now if they plan to get approved this year.

Federal rate hike expected

The time to act is now for people looking for the lowest rates. The economic recovery is good news, but comes with the expectation of higher interest rates to stave off inflation. The feds are likely to raise rates as early as February if the economy continues to rebound. The rate hikes will be small at first so that the fragile recovery isn’t crushed. However, every dollar counts over the course of a 30 year mortgage.

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