Signs that the housing crisis of 2007 was ensuing: Zero down home loans, easy flipping houses, easier mortgages...
And we are starting to see that today.
The feds and banks have gotten a little lax on requirements and eligibility for home loans over the last couple of years and we have seen a good increase in home values. Is this a bad thing? Not necessarily.
Lenders, in general, are starting to relax on eligibility requirements for home loans as after the housing crash it was near impossible to get a home loan. Strict rulings, high credit scores, and a large downpayment were really the only way many Americans could afford a home. So we worked for a couple years getting those foreclosures and short sales off the books and things started to look up. FHA loans went from 5% down to a 3.5% down payment and credit score requirements started dropping. This made it easier for low to moderate income applicants to afford a home. However, lenders were still wary about whom they let buy a house. They wanted to make sure they had a stable income, decent credit history, adequate payment history, etc... These are all good things!
Read more: How Much Should We Spend on a Mortgage?
It's when lenders start getting too lax, pushing the envelope and trying to get anyone and everyone into a house, that we see some serious issues.
But now, easy credit is back... or at least on the horizon. A full-blown repeat of the housing crisis is probably not likely, however, growth for the first quarter came in under 1%, which is actually pretty close to a recession. Home prices are rising a lot relative to income. At nearly 6% a year rise in value, incomes only grow 2%-3% creating more risk for potential buyers. This may tempt lenders to loosen their standards and do anything possible to get people into a home (home loan).
The government is not helping either with the "push" to promote homeownership. "The Dodd-Frank rules meant to encourage banks to better vet borrowers" may not apply to government guaranteed loans. This is a big problem as these loans make up 80% - 85% of the mortgage market. [Source]
The key here is balance and guarded loans. People still need to be their own advocates and not trust just any loan officer promising the moon. A good loan officer would be honest and forthcoming with a borrower stating what they can afford and being honest when they just can't make it work. More ethical loan officers and lenders in the market can keep a hold on the market, maintaining low rates and responsible borrowers.
Think you're ready? Give me a call anytime! Let's talk about your options and how much home you can afford. Marcus@MarcusBrown.com 503-957-1179
Image Credit - Derek Jensen