Shutdown sign

Report: Government Shutdown Delaying Some FHA and VA Loans

Shutdown sign
A shutdown notification outside the National Archives building.

Apparently, the partial government shutdown is affecting some home buyers who use FHA and VA loans to purchase a home. Recent reports showed that some borrowers with FHA and VA loans have experienced delays and other “snags” as a result of the government shutdown. Here’s what you need to know about it.

‘Non-Essential’ Government Workers on Furlough

The ongoing government shutdown that is dominating the news cycle right now started on December 22, when Congress failed to pass a funding resolution. It is referred to as a “partial” shutdown, because most of the government was already funded and is therefore unaffected by the current impasse.

Many government agencies are now down to just “essential personnel.” Many workers who are considered to be “non-essential” have been put on furlough, while others are being forced to work without pay.

(Side note: If you’re concerned for the president’s financial wellbeing during these hard times — don’t be. Article II of the Constitution says that the president’s compensation “shall neither be increased nor diminished during the period for which he shall have been elected.” So he’ll get by. As for all of those other federal workers who are now falling behind on their bills, they’re less fortunate.)

Government Shutdown Affecting Some VA & FHA Loans

Which brings us back to FHA loans. These mortgage loans are generated in the private sector, the same as “regular” mortgage products. But they receive insurance backing from the federal government. The loans are originated and funded by mortgage lenders, and backed by the government. (At least, when the government is functioning.)

Similarly, VA loans used by military members and veterans receive a government guarantee through the U.S. Department of Veterans Affairs.

The FHA loan program is managed by the Department of Housing and Urban Development (HUD), and HUD is essentially closed right now. A visit to the department’s website on January 9 revealed the following message on a bright red background:

“Due to the lapse in Congressional Appropriations for Fiscal Year 2019, the U.S. Department of Housing and Urban Development (HUD) is closed. HUD websites will not be updated until further notice.”

The U.S. Department of Veterans Affairs website inspires a bit more confidence. As of January 9, their home page stated the following:

“The Department of Veterans Affairs is fully funded for fiscal year 2019, and in the event of a government shutdown, all VA operations will continue unimpeded.”

So, is the government shutdown affecting people who are trying to use an FHA or VA loan to buy a house? Apparently so. The National Association of REALTORS® recently surveyed its members on this issue, 11% of whom reported an impact on current clients. Another 13% reported a delay due to IRS income verification (which is typically required for mortgage loan processing), while some experienced closing delays for FHA and VA loans.

To quote the survey report:

“Among those impacted by the shutdown, 17 percent had a delay because of a USDA loan, 13 percent had a delay due to IRS income verification, nine percent had a delay due to FHA loans, six percent had a delay due to a VA loan.”

A related report from CBS News explained:

“If you’re getting a Federal Housing Administration or Department of Veterans Affairs loan, it’s likely you can expect delays in the underwriting process, and it’s possible your closing date will be pushed back as well.”

Related: Average closing time for mortgages

It’s important to remember that the government does not actually provide funds to home buyers. Mortgage lenders do that. The FHA merely insures the loans, while the VA partially guarantees them. But their involvement is still needed to complete the process, and that’s where some borrowers are reporting delays and snags.

Hopefully, the current shutdown will be resolved in the near future. In the meantime, home buyers who plan to use an FHA loan (or some other government-backed mortgage program) will have to be flexible.

Real estate closing

Average Time to Close on a Mortgage Loan: Around 46 Days

How long does it take to close on a mortgage loan these days? This is one of the most common questions we receive from home buyers and mortgage shoppers. It seems a lot of folks are concerned with timing — and rightfully so.

According to a recent report, the average time to close on a mortgage loan was 46 days toward the end of 2018. It has remained fairly consistent over the past year or so. The average time to close in 2019 will probably fall within that same range, or perhaps a bit less due to the ongoing digitization of the lending process.

Average Time to Close on a Home Loan: 46 Days

In December 2018, Ellie Mae published its latest “Origination Insight Report” with data through November 2018. It showed that the average time to close among all mortgage loans was 46 days for that month.

Some background might be helpful:

Ellie Mae is a company that provides software and related services to the mortgage lending industry. Their insight reports are based on “application data from a robust sampling of approximately 80 percent of all mortgage applications” that are processed through their software applications. So the insights yielded from these reports give us a pretty good idea of what is happening across the entire industry.

The report that they published in December stated:

“The average time to close increased slightly in November, up one day to 46 days. The average time to close a refinance held at 43 days while the average time to close a purchase increased to 48 days.”

(When averaged and rounded up, those two figures for home buyers and refinancing homeowners result in an average of 46 days for all borrowers.)

In this context, the “time to close” is the length of time between (A) the initial loan application and (B) the actual funding. Mortgage loans are typically funded on, or within a couple days of, the closing date.

Faster for Some, Slower for Others

To be clear, we are talking about the average time to close here. The actual time it takes to close on an individual mortgage loan can vary quite a bit, due to a number of factors.

Some borrowers sail through the mortgage underwriting process, which takes place prior to closing and funding. Other borrowers might encounter some snags along the way.

For example, the underwriter might identify some issues that need to be resolved before the loan can close and be funded. These are commonly referred to as “prior-to-funding” requirements or conditions.

For instance, the underwriter might need the borrower to provide a letter of explanation about a gap in employment, a large bank withdrawal or deposit, etc. Once the issue is resolved to the underwriter’s satisfaction, the loan can move toward closing and funding.

Related: Common conditions for underwriting

This is why the closing timeframe can vary from one borrower to the next. Still, the average time to close on a mortgage loan during 2018 was around 42 – 46 days. It will probably hover within that range through 2019 as well.

Coming Soon: A More Digitized Mortgage Process?

During 2018, there were a lot of developments in the mortgage lending industry that could reduce the average time to close going forward. The industry is adopting new technologies and procedures that are designed to streamline the overall lending process.

When compared to other industries, the mortgage industry is lagging behind in this kind of digitization. And that’s understandable, when you look at the amount of paperwork and verification that’s required to close a typical home loan. But it will happen, because consumers demand it.

We’re already seeing signs that the industry is moving in that direction. In a July 2018 Forbes article, Aly Yale wrote:

“Thanks to a new strategic partnership, homebuyers in 15 states can now see faster (and fully digital) closings on real estate transactions … digital notary platform Notarize has partnered with Title Resources, a national title company, to offer electronic notarizations to its customers.”

That particular partnership could help pave the way to a 100% digital closing process in those states where it’s available. It might also set a standard for where the industry needs to go.

Texas highlighted on map

All Texas Counties Get Higher Conforming Loan Limits for 2019

The conforming loan limit for Texas has been increased for 2019. Next year, all 254 counties across the state of Texas will have a conforming loan limit of $484,350. That’s for a single-family home purchase. Multifamily properties such as duplexes and triplexes have higher limits.

Higher Loan Limits for Texas in 2019

Last month, the Federal Housing Finance Agency (FHFA) announced that it was going to increase conforming loan limits for nearly all counties across the country. The new “baseline” limit will go up to $484,350 in 2019. Higher-cost real estate markets like San Francisco and New York City will have loan limits of up to $726,525.

According to their November 27 press release:

“The Federal Housing Finance Agency (FHFA) today announced the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2019. In most of the U.S., the 2019 maximum conforming loan limit for one-unit properties will be $484,350, an increase from $453,100 in 2018.”

In Texas, all counties will have the baseline loan limit of $484,350 in 2019. While there are plenty of expensive homes in real estate markets across Texas, there are no “high-cost” areas in terms of median house values. So it’s the same limit for all 254 counties.

Conforming vs. Jumbo Mortgages

So what is a conforming loan exactly?

When a mortgage loan meets the size restrictions used by Freddie Mac and Fannie Mae, it is referred to as a conforming loan. It can therefore be sold to those two government-sponsored enterprises via the secondary mortgage market.

When a person borrows more than the conforming loan limit for their county, they are using a “jumbo” loan. The qualification requirements can be stricter for jumbo mortgage products, because there is a larger amount of money being borrowed and therefore a higher level of risk. For example, lenders often require larger down payments, higher credit scores, and higher income levels for borrowers who are seeking a jumbo mortgage loan.

A conforming loan, on the other hand, might have a lower bar for approval since it can be sold to Freddie Mac or Fannie Mae.

Median Home Price Is Well Below the New Limit

Conforming loan limits are based on median home values. They can vary from one county to the next because of their connection to house prices.

But in Texas, every county will have the same conforming loan limit in 2019. That’s because median home prices for most counties across the state fall below the new baseline loan limit of $484,350.

As of December 2018, the median home value for Texas was around $190,400. That’s obviously well below the 2019 conforming loan limit mentioned above. Even in the state’s more expensive real estate markets, like Austin, the median house price still falls below the new loan limits for 2019.

This means that a typical borrower in most cities across Texas should be able to finance a home purchase within the conforming loan limit range. But jumbo mortgages are still available for those borrowers who need a higher level of financing (and can meet the stricter qualification criteria).

VA and FHA Loan Programs in Texas

The conforming loan limits above apply to conventional mortgage products. “Conventional” means they are not insured or guaranteed by the government. The two main government-backed loan programs (VA and FHA) should also get higher limits for 2019.

The VA loan limits for Texas will be aligned with the conforming figures mentioned above. That’s because the Department of Veterans Affairs typically uses the limits established by the FHFA.

As for the FHA loan program, we are still awaiting an announcement from the Federal Housing Administration. They typically announce their new loan limits in December, for the year following. We expect to see that announcement within the next two or three weeks.

Update: On December 14, HUD announced that it was raising FHA loan limits for most counties across the country.

Coming attractions 2019

Outlook: Three Mortgage-Industry Trends That We Might See in 2019

Coming attractions 2019

A new round of mortgage industry forecasts and projections suggest that higher interest rates could lead to a purchase-dominated mortgage market in 2019. Meanwhile, mortgage qualification standards have eased, and this could bring more borrowers into the market next year.

Three Mortgage Trends We Could See in 2019

As we move into the holiday season, many home buyers are looking ahead to 2019. And many of them share the same questions: What will mortgage rates do in 2019? Will it be a good time to buy or refinance a home? Here are some recent trends that could carry over into next year.

Prediction #1: Thirty-year mortgage rates could hover around 5% in 2019.

At the start of 2018, the average rate for a 30-year fixed mortgage was 3.95%. That’s based on the long-running survey conducted by Freddie Mac. As of November 8, that average had risen to 4.94%. So today’s mortgage rates are about one full percent higher than they were at the beginning of this year.

As for forecasts and projections, some analysts expect 30-year loan rates to hover around 5% for much of 2019. The Mortgage Bankers Association (MBA) recently predicted that the average rate for a 30-year fixed home loan would start 2019 at 5.0%, and then hover around 5.1% for the rest of next year.

The economic research team at Freddie Mac offered a similar prediction for mortgage rates in 2019. In an October 2018 report, the group stated:

“We anticipate that the 30-year fixed-rate mortgage will average 4.5 percent in 2018, rising to 5.1 percent in 2019 and 5.6 percent in 2020.”

So their long-range outlook mirrors the forecast issued by the MBA. Analysts from both organizations expect long-term home loan rates to hover in the low 5% range for much of next year.

Did you know? While there are different types of home loans, the 30-year fixed-rate mortgage is by far the most popular financing among borrowers today. That’s why you see it mentioned so frequently within news reports, forecasts, etc.

The key takeaway here is that there appears to be some consensus among experts that mortgage rates will remain fairly stable throughout 2019.

Prediction #2: Purchase loans will dominate the market, as refinancing activity declines.

When mortgage rates trend upward, refinancing activity tends to decline. And we’ve already talked about the steady rise in rates that has occurred during 2018.

As a result of that trend, the mortgage market in 2019 will likely be dominated by purchase loans (i.e., those used by home buyers). Mortgage refinancing activity, on the other hand, will likely decline through the end of 2018 and into 2019.

According to a November 2018 press release from the analytics firm Black Knight, almost 1.9 million homeowners across the country still “have an interest rate incentive to refinance” their homes. But the window has closed for many more. The company’s data revealed that roughly 6.5 million homeowners “have now missed their opportunity to refinance their mortgages due to rising rates.”

Bottom line: Some homeowners in the U.S. could still benefit from refinancing. But if rates continue to rise, that number will shrink. In 2019, the mortgage market will probably consist primarily of purchase loans, with a smaller percentage of refinance loans.

Related: 4 things the housing market might do

Prediction #3: Mortgage lending standards will be more relaxed, compared to previous years.

Mortgage lending criteria have eased over the past year, and this could have an impact on the 2019 mortgage market as well. The short version is that it’s generally easier to qualify for a home loan today, compared to previous years.

There are several reasons for this. For one thing, Freddie Mac and Fannie Mae have eased the criteria they use when purchasing mortgage loans from lenders. They’re allowing higher debt-to-income ratios, and higher loan-to-value ratios. This means borrowers today can qualify for a mortgage loan with a higher level of household debt, and with less money down. Generally speaking.

An October 2018 report by the property analytics company CoreLogic stated:

“Mortgage credit underwriting eased for both conventional and Federal Housing Administration (FHA) home-purchase loans during the Q2 2018 compared with a year earlier … In the last few years, GSEs have expanded their credit box to creditworthy borrowers by increasing the maximum debt-to-income (DTI) and loan-to-value (LTV) ratios.”

Note: The GSEs in the above quote are the two government-sponsored enterprises, Freddie Mac and Fannie Mae. Their purchasing criteria tend to “trickle down” to the primary mortgage market, where they affect borrowers.

We recently reported that mortgage loan denial rates have declined steadily over the last seven years or so. This is partly due to an ongoing “easing” trend within the industry.

To be honest, it’s fairly easy to “forecast” this particular trend because it’s already happening. And it’s something that will probably carry over into 2019. That’s good news for borrowers.

Disclaimer: This article includes predictions and forecasts provided by third parties outside of our company. We have presented them here as an educational service to our readers. The Home Buying Institute (HBI) makes no claims or assertions about future economic conditions.

application rejected

Too Much Debt: the #1 Reason for Mortgage Rejection Last Year

Editor’s note: This is the second article in a two-part series. In part one, we explained how the overall rate of mortgage loan rejection has declined steadily over the last few years. This report focuses on the leading cause of application denial.

According to a recent housing report, the “debt-to-income ratio” was the most common cause of mortgage rejection in the United States during 2017. It led to more home loan denials than any other single factor. That’s partly because Americans are carrying more debt these days, on average.

Debt-to-Income: Leading Cause of Mortgage Rejection

In October 2018, the real estate analytics company CoreLogic put out a detailed report relating to mortgage denial in the U.S. The good news was that the rate of loan denials dropped steadily from 2010 to 2017. This means that a higher percentage of borrowers have been reaching the “finish line” and successfully closing on their loans, compared to previous years.

This report also listed the most common reasons for mortgage loan rejection. Excessive debt topped the list.

This kind of data is publicly available, thanks to the Home Mortgage Disclosure Act (HMDA). This federal law requires lenders to report a variety of details about the individual loans they make. The information goes into a database, where it can be mined for insight. Among other things, the HMDA asks lenders to provide the reason for denial, in cases where they turn down or reject a mortgage loan application.

CoreLogic analyzed HMDA data to produce its recent report. To quote that report:

“According to the 2017 HMDA data, 30.3% of denied applications attributed ‘debt-to-income ratio’ as the primary reason for mortgage loan denial, up from 28.8% in 2016 and 28.2% in 2015. In fact, since 2015 it has become the number one reason that lenders have turned down purchase-mortgage applications.”

In earlier years, a poor credit history was the number-one reason for mortgage rejections nationwide. But the debt-to-income ratio has surpassed credit history over the past few years, making it the top reason why loan applications get turned down.

Definition: The debt-to-income ratio, or DTI, is a numerical comparison between (A) the borrower’s gross monthly income and (B) the amount of money he or she spends on recurring monthly debts. The combined or “back-end” DTI, which lenders are most concerned with, includes all types of recurring debt such as auto loans, credit cards, and the mortgage loan itself.

While mortgage lenders consider a variety of factors when reviewing loan applications. They examine bank balances, employment history, credit scores and more. They also use the DTI to ensure that a person isn’t taking on too much debt relative to their income. And based on this report, it’s the debt-to-income comparison that leads to the most mortgage rejections.

Related: How much debt is too much?

DTI Standards Are More Relaxed Today, as of 2018

Here’s some good news to counter the doom and gloom above. The standards for debt-to-income ratios have actually eased over the last couple of years. These days, mortgage lenders are allowing borrowers to have a higher level of debt.

This is largely due to policy changes made by Freddie Mac and Fannie Mae. Those are the two “government-sponsored enterprises,” or GSEs, that buy loans from lenders and sell them to investors. Fannie and Freddie are now regulated by the government, and they have strict criteria for the kinds of loans they can purchase. One of those criteria has to do with the debt-to-income ratio.

Over the last couple of years, Fannie and Freddie have increased their maximum allowable DTI for the loans they purchase. The limit rose from 45% to 50%, allowing borrowers to qualify with higher debt levels than before.

Meanwhile, however, the average level of household debt in America continues to rise. According to an August 2018 Reuters report:

“Americans’ borrowing reached $13.29 trillion in the second quarter, up $454 billion from a year ago, marking a 16th consecutive quarter of increases, a New York Federal Reserve report released on Tuesday showed.”

So while the DTI limits are higher now than in previous years, so too is the average level of debt among borrowers. This is likely the leading cause in the rise of DTI-related mortgage loan rejections.

application rejected

Mortgage Denial Rates Have Declined Over the Past Seven Years

Editor’s note: This is the first in a two-part series. This article explains how the overall rate of mortgage loan denial in the U.S. has declined steadily in recent years. Part two examines the leading cause of rejection, which is the debt-to-income ratio.

There’s some good news on the mortgage front. A recent industry report showed that the rate of mortgage loan denials has dropped steadily over the last seven years or so.

That means a higher percentage of mortgage applicants are being approved for financing these days. It’s the latest sign of a general easing trend within the lending industry.

Mortgage Loan Denials Have Declined Steadily

Earlier this month, the property information company CoreLogic published a detailed report on mortgage denial rates in the U.S. The overall percentage or rate of mortgage denials nationwide dropped steadily from 2010 to 2017.

The rejection rate peaked at nearly 19% during 2007. That was back when the housing market and mortgage industry was starting its meltdown, and lenders were drawing back. The denial rate would eventually drop to 10% ten years later, in 2017.

According to the report: “[Mortgage] denial rates have steadily declined through the housing recovery and a growing economy – and were lower in 2017 than in 2004. In 2017, only about 1-in-10 applications were turned down.”

Terminology: In this context, a loan “denial” occurs when a person applying for a mortgage gets turned down by the lender for whatever reason. The denial rate shows the percentage of applicants who were turned down, based on total loan application volume for that period.

To produce their report, CoreLogic used data obtained through the Home Mortgage Disclosure Act (HMDA). Among other things, the HMDA requires lenders to report a variety of loan-level information, including the reasons for loan denials in many cases. This act is primarily designed to prevent discrimintation by lenders. But it also yields valuable insights into various mortgage-industry trends, including denial rates.

It’s worth noting that in 2017, the loan rejection rate was the lowest it had been in over a decade. To put it differently, the application success rate for 2017 was the highest it has been in over ten years. That means a higher percentage of borrowers are getting approved for home loans these days.

An Easing Trend in the Lending Industry

The report mentioned above did not speculate as to why the rate or mortgage denials has declined in recent years. But it probably has to do with the overall “easing” trend within the lending industry. This is something we’ve reported on in the past. Over the past few years, it has become easier for borrowers to qualify for home loans.

For instance, Freddie Mac and Fannie Mae are now allowing higher debt levels among borrowers, for the loans they purchase from lenders. This has made it easier to qualify for financing, particularly for those borrowers with relatively high levels of debt. Standards have become more relaxed in other areas as well.

It’s logical that a general easing of borrower qualification requirements would lead to a higher closing rate, and a lower rate of denials. That’s likely the case here.

There are many reasons why a mortgage application might get turned down. They range from debt-related problems to credit issues. Having insufficient income for the desired loan amount is another factor that often leads to rejection. Borrowers must be able to demonstrate that they have enough income to make their monthly payments.

As it turns out, having too much debt is one of the most common reasons for home loan denial in the U.S. And that’s not surprising, when you consider that Americans are carrying more debt these days.

Median Down Payment for Home Buyers Hits All-Time High in 2018

According to a report published in September by ATTOM Data Solutions, the median down payment among home buyers in the U.S. hit an all-time high during the second quarter of 2018.

The nationwide median was $19,900 during the second quarter. San Jose, California topped the charts with a (mind-blowing) median down payment of $306,000. Three other California metro areas rounded out the top four, followed by Boulder, Colorado.

Home Buyer Down Payments Reach All-Time High in 2018

According to the report published last month, the median down payment for single-family home and condo purchases was $19,900 during the second quarter of 2018. That was an increase of 19% over the previous quarter, when the median was $16,750. It also marked “a new record high going back as far data is available,” said the report.

This analysis included 103 metropolitan areas across the United States. Out of those 103, the metro areas with the highest median down payments in Q2 2018 were:

  • San Jose, California ($306,000)
  • San Francisco, California ($220,000)
  • Los Angeles, California ($130,000)
  • Oxnard-Thousand Oaks-Ventura, California ($115,400)
  • Boulder, Colorado ($107,750)

The numbers in parentheses might look like home values, at first glance. But they’re actually the median down payments among home buyers during the second quarter, for each of those metros. (So yes, a typical down payment on a house in San Jose is higher than the average home value for the U.S. The word “anomaly” comes to mind.)

This report also identified another group of metro areas with median down payments of $60,000 or higher, during the second quarter. They included:

  • San Diego, California ($90,400)
  • Boston, Massachusetts ($79,925)
  • Seattle, Washington ($70,100)
  • Fort Collins, Colorado ($68,050)
  • Among others

But home buyers in these metro areas who can’t afford such a large down payment shouldn’t fret too much. In fact, depending on the kind of loan program you use, your minimum required investment could be significantly lower than the figures mentioned above.

Median and Minimum Are Two Different Things

To be clear: the numbers shown above do not represent the minimum down payment required for different mortgage programs. These are just the median figures.

By definition, the median is the midpoint for a data set. So in this case, half of all home buyers in each metro area made down payments above the median figure, while the other half put down less money than that amount.

Minimum down payments are a totally different story. For instance, borrowers who use a conventional home loan to buy a house could qualify for a down payment as low as 3% of the purchase price. Similarly, the Federal Housing Administration (FHA) loan program allows eligible borrowers to make an upfront investment as low as 3.5% of the purchase price.

So why are the median figures so much higher than these minimums? Some borrowers choose to make larger down payments, and for a couple of reasons:

  • Some do it because they want to minimize the loan amount and the size of their monthly payments.
  • They also do it to avoid paying mortgage insurance, which is usually required when the loan-to-value ratio rises above 80%.

Borrowers who make these larger upfront investments push the median and average down-payment figures higher than the minimum requirements mentioned earlier.

Conclusion: Rising home values have forced home buyers to make larger investments on their purchases, in terms of the actual dollar amount. Nationwide, the median down payment for single-family home purchases (where a mortgage loan was used) rose to $19,900 during the second quarter. That was an increase of 19% over the previous quarter. But it’s possible to make a smaller investment, as little as 3% for a conventional loan and 3.5% for FHA.

New Document Rules Could Help Self-Employed Mortgage Shoppers Get Approved

A bipartisan Senate bill introduced in August 2018 could make it easier for self-employed and “gig economy” workers to qualify for mortgage loans, by allowing lenders to use more documents during the underwriting process.

Self-employed home buyers tend to encounter more hoops and hurdles when shopping for a mortgage loan, and much of it has to do with documentation. Self-employed workers sometimes lack the income-related documents of a person with traditional employment. And this can make it harder for them to prove their income.

A new piece of legislation working its way through the Senate could change that. If passed, it would allow mortgage lenders to use additional documents (like the IRS form 1040) when reviewing mortgage loan applications from self-employed borrowers.

More Documents Allowed for Self-Employed Mortgage Shoppers

In August 2018, U.S. Senators Mark R. Warner (D-VA) and Mike Rounds (R-SD) introduced a bill that is officially known as the Self-Employed Mortgage Access Act of 2018. And its name signals its intent. The proposed legislation is designed to boost mortgage access among self-employed workers and “other creditworthy individuals with non-traditional forms of income.”

It would do this, in theory, by allowing lenders to use a broader range of documents when considering loan applications.

The Self-Employed Mortgage Access Act would allow mortgage lenders to use the following documents:

  • IRS Form 1040 Schedule C for sole proprietorships
  • IRS Form 1040 Schedule F for farming industry workers
  • IRS Form 1065 Schedule K-1 for partnerships
  • IRS Form 1120-S for S Corporation workers

We should clarify at this point that self-employed mortgage shoppers can qualify for financing — even under today’s guidelines. It happens all the time. But they often have to jump through additional paperwork hoops along the way.

Banks and lenders frequently request profit-and-loss (P&L) statements from self-employed mortgage applicants, as well as other documents that traditionally employed borrowers do not have to provide. The changes being proposed in this bill could simplify the path to mortgage approval.

According to Senator Warner, one of the bill’s proponents:

“An increasing number of Americans make their living through alternative work arrangements, like gig work or self-employment. Too many of these otherwise creditworthy individuals are being shut out of the mortgage market because they don’t have the same documentation of their income — paystubs or a W-2 — as someone who works 9-to-5.”

This bill is designed to alleviate some of those document-related issues, thereby increasing mortgage access for self-employed borrowers.

Supported by Key Industry and Consumer Groups

Most legislation proposed at the federal level has to be approved by members of both the Senate and House, and then be signed into law by the president. To date, this bill has only been introduced within the Senate. So it has a ways to go.

But it also has some momentum behind it, which could lead to an eventual passage. For one thing, it is being supported by key industry groups (i.e., lobbyists) such as the Mortgage Bankers Association. Even a few consumer advocacy groups have voiced their support.

Barry Zigas, Director of Housing at the Consumer Federation of America, said the Self-Employed Mortgage Access Act “would provide common sense direction to the [Consumer Financial Protection Bureau] in its application of the statutory requirements and give lenders and consumers alike an easier, less burdensome way to meet these tests.”

Typically, when a piece of legislation has broad support and few detractors, it eventually becomes law. But only time will tell. We are monitoring this bill and will report on any new developments as they arise.

The key takeaway here is that, if passed, this bill could ease the requirements for self-employed borrowers seeking a mortgage loan. It would allow them to provide alternative documents to verify their income. And that seems like a positive change.

Two Best Ways to Improve Your Credit Score Before a Mortgage Application

A new report from the credit score developer FICO reveals two of the best ways home buyers can improve their credit scores before applying for a mortgage loan. Pay your bills on time, and reduce your “amounts owed.”

We’ve known for some time that “payment history” and “amounts owed” are the two biggest factors that can influence a person’s credit score. But now we have some in-depth analysis to support that claim.

Why Credit Scores Matter to Mortgage Applicants

Your credit score is a three-digit number that’s computed from the information contained within your credit reports. Those reports are a record of your borrowing history dating back several years, and they include things like credit cards, auto loans, mortgages, etc.

FICO scores are produced by the company of the same name. They are commonly used by banks and lenders when reviewing loan applicants, such as home buyers applying for a mortgage loan.

The FICO scoring range goes from 300 to 850. A higher number is better. Home buyers with higher credit scores tend to qualify for lower mortgage rates. They also have an easier time getting approved for loans in the first place.

On the other hand, borrowers with lower scores tend to pay more in interest and might have a harder time qualifying for financing.

The bottom line: if you’re planning to use a mortgage loan in the near future, you should know (and care about) your credit score. It will affect everything from your ability to quality for financing, to the interest rate that’s assigned to your loan.

Improving Your FICO Score

But what if you’re one of the folks with a relatively low score? How can you improve your credit score before applying for a mortgage loan? Two of the best strategies are to (A) pay your bills on time going forward, and (B) consider reducing your debt load or “amounts owed.” These factors weigh more than any other when it comes to the automated credit-scoring formulas.

FICO scoring factors

Which brings us back to the FICO report mentioned earlier. They company analyzed FICO score distribution data among home buyers who used a mortgage loan to buy a house. The resulting report offered a wealth of insight into how these score are generated, and how they affect consumers who are shopping for a home loan.

They also highlighted two ways a person could improve a credit score before applying for a mortgage loan. One strategy is for consumers with higher recurring debt balances to reduce those debt loads. High credit card balances were singled out, in particular, because those can have a negative impact on a person’s credit score.

As the report stated:

“Our analysis found that consumers with a FICO® Score increase were more likely to have reduced their amounts owed. ‘Amounts owed’ makes up about 30% of the FICO® Score calculation; not having high revolving balances and paying down installment debt are two indicators of a healthy credit profile.”

That company explained that those consumers with an increase in their credit scores reduced their credit card balances by an average of 49%.

Here’s the part that relates to payment history:

“We also found that as of April 2018, consumers with a decrease in [their scores] were much more likely to have had a missed payment in the past year. ‘Payment history’ is the most important category within the FICO® Score, comprising ~35% of the total score calculation.”

It bears repeating: How you pay your bills counts more than any other factor, when it comes to calculating that three-digit number. Consumers who regularly miss payments on things like credit cards and car loans tend to have lower scores, while those who stay on top of their bills usually have higher numbers.

One Piece of a Bigger Picture

Credit scores are one of the most important qualification criteria for home buyers seeking a mortgage loan. But they’re also part of a bigger picture. Banks and mortgage lenders look at a variety of factors when considering applicants for a loan.

In addition to credit scores, they also look at the amount of money a person earns relative to the amount they spend on their recurring debts. The debt-to-income ratio, as it’s known, is another important factor that can determine whether or not you qualify for a mortgage loan. Income stability is another key factor when it comes to getting a home loan.

That three-digit number is important for mortgage applicants. But it’s not the only consideration.

Disclaimer: This article offers tips on how to improve a credit score before shopping for a mortgage loan. That information was adapted from a report provided by the FICO credit-scoring company. Their information and findings are deemed reliable but not guaranteed. The publishers of this website make no claims about the efficacy of the above-mentioned strategies and advise consumers to conduct additional research.

Mortgage Rate Forecasts for 2019 Predict Only a Slight Increase

A new round of mortgage rate forecasts for 2019 suggest that the average rate for a 30-year fixed home loan could hover within the 4.6% to 4.7% range next year. That’s only slightly higher than where we are right now, as of late summer 2018.

New Mortgage Rate Forecasts for 2019

Over the last month or so, three prominent housing organizations issued mortgage rate forecasts that look ahead into 2019. The groups included Freddie Mac and Fannie Mae — the two government-sponsored enterprises that buy loans from lenders — as well as the National Association of Home Builders (NAHB).

While their mortgage rate forecasts for 2019 varied slightly, it appears that all three groups expect to see some stability in terms of rate movements. Analysts with Fannie Mae and the NAHB don’t expect average rates to rise very much at all over the coming months. Freddie Mac’s team sees them rising gradually over the next year or so.

Did you know: There are many different types of home loans. But long-range forecasts are usually issued for the conventional 30-year fixed-rate mortgage, in particular. That’s because it is the most popular loan type among borrowers, by far.

Here’s a look at those three mortgage rate forecasts for 2019:

  • Fannie Mae’s latest forecast was published in July 2018. They predict that the average rate for a 30-year fixed mortgage will start 2019 at around 4.6% and stay within that range for much of the year.
  • The National Association of Home Builders also issued an updated forecast in July 2018. In it, they predicted that 30-year mortgage loan rates would average 4.71% in 2019. That’s basically in line with Fannie’s long-range outlook.
  • Freddie Mac’s new forecast, also published in July, calls for gradually rising rates over the next year or so. Their quarterly outlook predicted that 30-year loan rates would average 5.0% during the first quarter of 2019 and rise slightly throughout that year.

In July, Freddie Mac’s Economic and Housing Research Group issued the following statement:

“The 30-year fixed mortgage rate has been slightly declining since mid-June and was 4.53 percent in the second week of July. Rates have stepped back because of declining long-term Treasury yields, which continue to be pushed down by anxieties from a potential trade war. Our forecast has the 30-year fixed-rate mortgage averaging 4.6 percent this year, and rising to 5.1 percent next year.”

General Consensus: Big Jump in Rates Appears Unlikely

Granted, these are just forecasts. They are an educated guess based on current trends within the housing market, Wall Street, and the broader economy. So there’s a chance they could become inaccurate over time.

In fact, we’ve seen some inaccurate predictions in the past. At the end of 2016, some of these same groups were predicting that rates would rise steadily throughout 2017. But they actually dropped during the first half of that year and then hovered within a narrow range.

It’s the general consensus here that’s more noteworthy. And the consensus outlook seems to be that mortgage rates will remain relatively stable through the latter part of 2018 and into 2019. These analysts don’t expect to see a big jump in rates, or at least not a sustained hike.

Home Prices Still Rising in Most Cities

Based on these mortgage forecasts, home buyers might not need to worry about a big jump in mortgage rates any time soon. But rising home values are a very real concern.

House values in most U.S. cities are expected to rise gradually throughout 2019. This could reduce affordability and buying power for many people. So postponing a home purchase could mean that you’ll end up paying more.

In mid-August 2018, the real estate information company Zillow wrote the following:

“The median home value in the United States is $217,300. United States home values have gone up 8.3% over the past year and Zillow predicts they will rise 6.6% within the next year.”

Disclaimers: This article includes mortgage rate forecasts and housing predictions issued by third parties not associated with our company. We have presented them here as a service to our readers. As a general policy, the Home Buying Institute does not make projections or assertions about future housing trends.