The housing market is still struggling to gain a good pace. That’s a nice way of saying the market is still doing poorly. And as another sign of the bad conditions, mortgage rates have reached historic lows.
15-year fixed-rate mortgages averaged 3.13% last week, a new record low. And the average rate on a 30-year fixed-rate mortgage fell to 3.88%, less than 1% from the record low.
The low rates are a reaction to the decreased demand of homes. Depressed prices, high rents, and low mortgages are all incentives for borrowers to purchase homes.
The record rates make housing more affordable than ever. Yet home prices continue to stay low. So why aren’t more people buying?
While the rates make buying possible, actually getting a loan is still difficult. The banking industry has tightened up its standards for qualifying on a loan.
Potential buyers must meet criteria like a minimum credit score, putting 20% down, and earning enough income to make payments. Additionally, most banks now want a loan-to-value ratio of 80%. Banks want the home value to exceed the loan balance so if the borrower defaults, the bank can sell the home and recover its losses.
And even with that criteria met, borrowers with blemishes on their record can have trouble getting a loan. Short sales will disqualify you for a few years, and bankruptcies will hurt your credit and your chances of a loan offer.
While many Americans can afford housing in today’s market, the stringent conditions of many banks keep those families out.
So what can you do to increase your chances of qualifying?
If your credit is low, it could be worth hiring a credit repair service to increase your score.
Have a bankruptcy on your record? You might have to stick it out and endure the waiting period, which could vary from one to seven years. And after a bankruptcy, your credit must be flawless. Even one late-payment on a credit card could disqualify you from some loan-programs.
If it’s a problem of not making enough income, you may be looking at too expensive a home. Areas like New York, San Francisco, and Chicago will always be higher-than-market. If it costs too much downtown, look for nearby towns and suburbs.
While getting loans could be difficult, the money is there. Bob Ryan, acting commissioner for the US Department of Housing and Urban Development, recently said that mortgage money “is flowing, it’s stable, it’s tightened from the boom years, but it’s there.”
If you can get through the restrictions, becoming a homeowner could be cheaper than ever. But until more Americans jump into the housing market, rental properties remain a lucrative investment and a strong industry for the future.