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Qualifying for a Mortgage in 2013

From 2002 to 2008, houses were being bought like cars. Mortgages were being approved for people who couldn’t afford the monthly payments. Freddie Mac and Fannie Mae perpetuated the madness by buying the very Mortgage Backed Securities that contained the toxic mortgages they were supposed to protect the public from. As a result, in the fall of 2008, the house of cards finally fell. The government bailed out some banks while hundreds more folded almost overnight. They threw Fannie and Freddie into conservatorship until they could sort out this historic mess that sent our economy into the greatest recession of our time.

Mortgage Cards Falling
Source: Emma Kate

Capital to fund mortgages literally dried up overnight. Since then we’ve faced harsher restrictions on obtaining mortgage loans. Freddie Mac and Fannie Mae have stepped back into their original role — only guaranteeing the very safest mortgages. And the Federal Reserve has been alleviating the situation by keeping mortgage rates artificially low through quantitative easing and buying Mortgage Backed Securities when no other investor in their right mind would consider doing the same.

Can I get a Mortgage?

The question for prospective home buyers is a simple one: “Do I qualify for a mortgage loan?” The mortgage industry transformed from a willing supplier of loans to categorical denier. After the 2006-2008 housing collapse, home buyers were slapped with no wiggle room restrictions like high down payments, lower debt-to-income ratios, and “perfect” credit scores.

However, with the turnaround of the markets in late 2012 lenders and banks have been loosening their loan restrictions little by little. It’s an almost unperceivable move, but look closely at the Federal Reserve’s recent actions. This summer, they’ve decided to cut back their support of the mortgage market, or in Ben Bernanke’s words, “Taking its foot off the gas pedal.” The third installment of quantitative easing was cut back due to positive economic indicators. This was one of the main reasons why mortgage rates climbed a few points in June – signaling a rebound for the housing and mortgage markets.

Is it Easier to Get a Mortgage Today?

Take a look at the data for yourself:

Mortgage Loans in Austin TX
Source: Dan Green

From recent surveys by the Federal Reserve, it was reported that very few lenders are still tightening mortgage guidelines. With an improving economy and rising home values, it’s easy to see that the outlook on the market is growing optimistic. For home buyers, it’s a great time to be searching for a new house. Nearly 10% of banks surveyed by the Federal Reserve reported their mortgage guidelines loosening. [Source]

Moving Forward

For many home buyers, it may not feel like mortgage standards are loosening, but they are. Compared to a year ago, there are less documentation requirements and approval rates have been rising … not to mention that mortgage rates are still ridiculously low. Even though they rose a little this summer, they still represent cheap money compared to what we were faced with in the early 2000’s.

If you’d like to see how well the real estate market is doing in Austin, contact us today. We’d be happy to answer any of your questions!

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