Many things have changed in the home loan business in the past several years. The government has made some policy changes that generally are making it easier to buy a home in 2018. Here are some of the things that have changed that could help you to become a home owner this year:
It Is Getting Easier to Get a Home Loan
After the last financial downturn, lending standards tightened a lot as the federal government cracked down on mortgage companies. They were alarmed at the relatively lax policies that led to people getting loans they could not afford. But some experts say the government went too far in tightening lending guidelines.
Today, things have gotten easier as the federal government is making it easier for lenders to issue loans to people with lower down payments and lower credit scores. Today conventional loans are available with as low as a 3% down payment. Also, the maximum debt level has gone up as well.
Debt Limits Are Higher
In 2017, Fannie Mae reported it would buy loans with borrowers who had DTIs as high as 50%. This was a big increase from the old limit of 45%. This is important for first time home buyers who have more debt. You may be able to get a loan even if you have a lower credit score because of a lot of credit card and student loan debt.
Mortgage Rates Are Still Low
As of today, mortgage rates are still very competitive which is excellent when you consider that the economy is doing fairly well. The Fed has raised rates in recent months, but mortgage rates are still lower than they should be. Some industry insiders expected mortgage rates would be 4.5% by now, but we are still well below that.
We do not recommend waiting for rates to drop lower than they are; it is likely this the floor for mortgage rates for the near and medium term. The US government is going to continue to raise rates, so it is only a matter of time before mortgage rates increase as well.
Big Down Payment Isn’t Needed
Many people still think you need 20% down to buy a home. This isn’t true at all. It is true that you need to put money down in most cases, unless you get a USDA or VA loan. That said, the US government allows people with FHA loans to put down only 3.5%, and conventional loans can be had with a 3% down payment.
The US government exerts its influence to encourage lenders to accept lower down payments. The government knows that a robust housing and mortgage market is essential to the health of the economy. This means good news for many first-time buyers. People who buy a home for the first time often struggle to come up with a down payment. Most people can handle a 3-5% down payment.
You Can Get a Loan with a Low Credit Score
After the mortgage crash, it was hard to get a loan unless you had a credit score above 700. These days, the US government is making it easy to get a loan. You generally need to have a 640-credit score to get a conventional loan. But people with lower credit scores are not closed out of buying a home. The US government has set the minimum credit score for FHA loans at 500, and 580 with a 3.5% down payment. If you can show that you are in a steady financial position for the last one or two years, having a credit score in the low 600s or into the 500s is not going to prevent you from buying.
Tax Law Changes Still Have Tax Write Offs for Homeowners
The recent tax law changes by Congress has changed some of the write offs for tax purposes for home owners, but many of them are still in place. You still can write off mortgage interest for your first mortgage, but the new limit is $750,000, while it was $1 million before.
For most people across the country, this change will not affect them; the vast majority of Americans do not live in homes worth more than $750,000. There also is a limit on the state and local tax deduction of $10,000. Again, this will not affect most home buyers and home owners across the US. If you are buying a home in a typical real estate market, you will still be able to write off the same things as before for tax purposes. Only if you are in a high cost area in CA, NJ, NY etc will you have limits on what you can write off on your taxes.
The US government tries to make it easy for people to buy their own home. With the above policies in 2018, buying a home should be easier than any time in the last 10 years for most people.
References: Retrieved from Top 10 Things to Know for First Time Homebuyers in 2018.