Thursday, April 07, 2011

Prices are Low! Mortgages Cheap! But You Can't Get One

With home values continuing to fall, and mortgage interest rates at record lows, you might think it's a buyers market these days. You would be wrong. According to the Federal Reserve (via CNN), nearly a quarter of Americans who apply for home loans are being turned down.

    "Good borrowers with one or two blemishes on their credit are being denied credit," said Lawrence Yun, chief economist for the National Association of Realtors.

    The denial rates tell only half the story. Many potential buyers aren't even applying for loans because they assume they can't get one.

    "A lot of people know it's very difficult to get a mortgage and they're not even trying," said Alan Rosenbaum, CEO of GuardHill Financial, a New York-based mortgage broker.

    That shows up in credit scores for loans financed with backing from Fannie Mae and Freddie Mac. The average credit score has risen to 760 from 720 a few years ago. For FHA loans, the average score has gone to 700 from 660. Loans made to borrowers with sub-620 scores are almost nonexistent.

    Another factor keeping people out of the mortgage market is that lenders now require much more up-front cash. The median down payment for purchase is about 15%. During the housing boom, it approached zero.

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