Recovering from the financial crisis of 2007-08 can be like recuperating from a car accident. You might look fine six years later, but your back still aches or your neck still hurts. That’s comparable to buying a house these days. Real estate agents are selling and lenders are lending, but the cascade of home foreclosures that dragged down the national economy several years ago can make it downright painful to go through the mortgage process. Locally, lenders and agents are trying to plow through tighter rules in order to keep the momentum going. Home sales were up 11 percent in 2013 compared to 2012 in the four-county area of Vanderburgh, Warrick, Posey, and Gibson. In that same region, they were 23 percent higher than in 2011.
“The mortgage lending process has changed significantly as a result of the financial crisis,” says Chris Weiberg, manager of mortgage secondary markets at Old National Bank. He also is a member of the Indiana Mortgage Bankers Association board of directors. “The average person is now required to place a larger down payment on a home. Additionally, borrowers are required to fully document assets, income, and employment in most cases. Before 2007, many loan programs offered options for reduced documentation.”
Most people attempting to finance a home quickly learn about Fannie Mae (FNMA) and Freddie Mac (FMCC). Their proposed reforms would require down payments of at least 20 percent and FICO scores of at least 680. Otherwise, your fees go up. The new Consumer Financial Protection Bureau also has weighed in with new rules, including a debt-to-income ratio of 43 percent or less. That means your total monthly mortgage payment, plus other recurring bills such as car loans, student loans, and utilities, should not exceed 43 percent of your monthly gross income in order to receive a qualified mortgage. The national average is already close to 40 percent.
For those who qualify, the financial crisis did serve one good purpose. It drove down interest rates, and that means a 15-year mortgage can still be found for less than 4 percent and a 30-year remains below 5 percent. So when Uncle Joe grumbles to you that he paid 12 percent interest on his mortgage in 1982, keep in mind that jumping through a few extra hoops might be worth your short-term pain and suffering.
For more information about the Indiana Mortgage Bankers Association, visit indianamba.org; Fannie Mae, fanniemae.com; Freddie Mac, freddiemac.com; or Consumer Financial Protection Bureau , consumerfinance.gov. Contact a mortgage lending institution for current interest rates.