Newton Kansan
Aug 07, 2010 @ 08:00 AM
Mortgage rates are reaching historic lows and have been on a steady decline for nearly two months.
While it may seem like the perfect time to buy a home or refinance, the pool of qualified borrowers has been shrinking just as fast as the rates fall.
Early this month, a 30-year fixed-rate mortgage was available at 4.54 percent, down .02 percent from the previous week. At the same time last year, the same mortgages were at 5.25 percent. During the life of a mortgage, those fractions of a percent can mean thousands saved for the borrower.
But home sales in June slowed, even with the declining mortgage rates, according to Freddy Mac, which tracks statistics on mortgages, home prices and sales.
The slump in sales is being attributed to the inavailability of credit. More potential buyers are being shut out of the market, not by too-high prices and rates, but because lenders are using heightened scrutiny in determining who qualifies for home mortgages.
Melvin Schadler, executive vice president and lead real estate mortgage loan officer at First Bank, said he’s seen an increase in new loan applications and refinance applications from homeowners hoping to take advantage of low rates.
“That’s the majority of activity — refinance activity,” Schadler said, adding by his guess, about 90 percent of the applications the bank has received in recent weeks are for refinancing.
He said he thinks the low rate of new loan applications is due to more stringent qualifications for first-time buyers and to low confidence in the economy.
Though not all potential borrowers are qualified, he said the bank has rejected surprisingly few applications. Even though the criteria for loan approval has gotten more stringent, he said more potential borrowers are removing themselves from consideration before submitting an application.
That awareness is attributable to an increase in transparency in the lending industry, which allows borrowers to determine up front if they are likely to qualify, Schadler said.
Schadler also said modifications to the lending system also have changed who will qualify for different rates. The higher a borrower’s credit score, the better rate that person can qualify for.
“It may not make great sense for somebody with a 620 to refinance because they’re not going to get the same rate as someone with an 840,” he said.
Though rates have been on a downward slope for weeks, Schadler said he hopes they will level out.
“I would hope its bottoming out, not because I don’t want people to get good deals,” he said, “but because it is a sign the economy is not recovering.”
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source: www.thekansan.com
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