What Good Is A Low Rate If You Can’t Qualify?

Are you on the fence?

Many stories in the current mainstream media are talking about declining house values and the possibility of a recession (or even a depression) which could possibly lead to lower interest rates.

Do you think home values and interest rates are headed lower?

Maybe you find yourself in the group of people who are thinking about buying a new house, but are worried about “buying at the wrong time” because home values could still continue to erode.

Or maybe you are thinking about refinancing your current house, but your whiz-bang-neighbor-who-happens-to-be-a-mortgage-guy says that interest rates could go down “sometime after the election”.

Declining home values and interest rate fluctuations are things largely out of your control.  At best, you can try to predict them - and you probably have about as good of a chance at being right as most of the “experts” that you see in the media.

So while home values and interest rates may go up or down (or stay the same) over the next year or two - guess what is almost certain to happen?

Mortgage guidelines are tightening and making it more difficult to qualify for a loan.

And guess what?  Home values and interest rates are only important if you can actually qualify to get a loan in the first place.

A couple of recent announcements in guideline changes include:

Effective December 13, 2008, Fannie Mae has reduced the loan-to-value requirements in a cash-out refinance from 90% to 85% on a primary residence and from 80% to 75% on second homes.

Effective February 2, 2009 Freddie Mac no longer is buying stated loans and has established the maximum debt-to-income ratio allowed is 45%.

For the past 18 months or so, mortgage guidelines have been tightening and I think it is safe to say that this trend will continue for the foreseeable future.  I also think it is safe to say that since Fannie Mae and Freddie Mac own or guarantee approximately half of all of the mortgages in the US, if they continue to tighten their guidelines, others such as FHA, VA and various portfolio lenders will follow suit.

What do tightening guidelines mean to you if you are on the fence?

It might be time to get off the fence and get a loan while you can still qualify!

October 21, 2008