What’s in store for those seeking mortgages in 2016?
A lot has been changing in the mortgage world, and there are likely even more pivots to come in the months ahead. So where are the good loans? Will they be affordable? Is it a good or bad time to get real estate financing?
The Good News
1. Easier Qualification: Low down payment mortgage loans have already become much easier to get. In fact, banks have been aggressively marketing and competing against each other to make low down payment home loans, even to those with credit scores in the low 600s. We’ve even seen the return of stated income loans, and 100% mortgages. As refinance activity dries up, we should expect lenders to push the limits of underwriting and create new loan programs in order to keep up business, and avoid making even more layoffs.
2. Easier For Investors: Mortgage loans can still be much easier to get for real estate investors than regular buyers. This is thanks to new lenders that emerged after 2008, or have reentered the business, and that get how investors work. Asset based loans, in particular, have seen more options cropping up, with some very aggressive terms might I add. We already saw some of these lenders offering up to 90% funding for rehab loans, based on the ARV in 2015. Investors really can’t ask for more. This is on top of 100% transactional funding, and new social financing coming down the pipe from Fintech companies. If until regulations are changed, it’s unlikely this trend will change. There are just too many reasons for those with capital to fund investors versus making overly regulated consumer home loans.
The Bad News
Despite ‘experts’ proclaiming that the Fed rate hike wouldn’t immediately impact mortgage rates or real estate buying activity, Bankrate.com already reported mortgage rates had been lifted by lenders as of December 20th. With more rate hikes anticipated in the near future, the clock is definitely ticking for both homebuyers and buy-and-hold real estate investors. At the same time, we are facing the simultaneous rise of rents, rental qualifications, and home prices. Homebuyers and investors should expect to have to pay substantially more for the same properties if they drag their feet. On the bright side, Bankrate reports that CD rates have jumped up almost 1% within just days of the first Fed rate hike.
Commercial Real Estate Loans Get Put Under the Microscope
The Wall Street Journal reports that U.S. regulars began tough talk about cracking down on commercial real estate loans at the end of December. They are concerned about slack underwriting and the amount of commercial loans making it onto bank books. Analysts fear regulators will increase deposit demands on banks and curb lending. Further investigation could reel in some recent alternative strategies. such as funding and buying loans through real estate crowdfunding intermediaries. This might be good for other non-bank lenders, but pay attention to how this plays out when making plans for the year.
Owner Financing is Scarce
Owner financing has dried up due to Dodd-Frank. However, this is more due to the lack of understanding of the rules, than because it cannot be offered. It is possible for those that get it, and do it right. The biggest challenge is going to be for homebuyers that are looking for owner financing. It is out there, but mind your due diligence.
