CEO, Long Companies
It’s not 2008 anymore, and finally there’s some good news for real estate.
If you’ve tried to buy a home since that year’s economic debacle, it might seem that you—and your credit score—need to be solid gold to qualify for a mortgage. The financial collapse was partly fueled by a risky reliance on wobbly “subprime” mortgages. After the collapse, lending practices became so tight they squeaked, and the real estate industry—and millions of well-qualified buyers—endured years of hard times.
Now for the good news. Maybe you’ve been turned down for a mortgage since 2008. It’s tempting to give up after a rejection, but please don’t. Things are changing, and your opportunities are growing fast.
First, credit rules are loosening. The average FICO credit score for approved loans is trending downward, dropping from just above 750 in September, 2012 to just below 725 this May. These are averages; actual scores for approved loans ranged from 620 to 850. The drop may seem small, but it re-opens the possibility of homeownership to millions.
Along with lower required credit scores, interest rates are bouncing along at the bottom of their historical range. Low interest rates offset the rising cost of homes and help keep homeownership affordable. Often, it costs less to own than to rent.
Remember when you needed a 20 percent down payment to finance a home? That was never totally true, and now it’s just a myth. Over the past 35 years, the median down payment for first-time buyers has been just 5 percent, and many lenders are now approving loans with as little as 3 percent down. These figures come from the National Association of Realtors®, which keeps a close eye on such things.
Plus, the Arizona Department of Housing is offering two very helpful programs to help with down-payment costs. The Pathway to Purchase Down Payment Assistance Program is available in 17 municipalities around the state—in areas hit especially hard by foreclosures—and helps with down payments on existing homes. The cities of Tucson, South Tucson, Yuma, select Phoenix cities and Sierra Vista are on the list.
A second ADOH program, the HOME Plus Home Loan Program, assists creditworthy renters who can qualify for a mortgage but don’t have the required down payment. HOME Plus is available for new construction and in areas not covered by Pathway to Purchase.
Both programs have reasonable limits on income and purchase price, and they’re not giving away free money. But they are worth looking into. Information is online—just type the program’s name into your web browser.
If you’re ready to go home-shopping, here are a few pointers:
- Know your finances. How much of a down payment can you comfortably afford? How about property taxes, homeowners insurance, maintenance and other expenses? This is a good time to draw up a budget that includes income, living expenses and debt payments as well as housing costs.
- Visit a few lenders and apply for a preapproved mortgage. You’ll learn how much you’re qualified to borrow, which will help focus your home search. Be sure to ask if you qualify for VA, FHA or other federal loan programs.
- Connect with the professionals. Working with a REALTOR®, as well as your lender, is the best way to keep your home search realistic, on track, and successful.
As CEO of a real estate company, I watch market trends closely, and what I’m seeing right now is very encouraging. That’s why I urge you to check your eligibility, even if you’ve been rejected before. It never hurts to ask, and the answer this time could be “Congratulations. You qualify.”