HARP and HAMP Program Deadlines Pushed from 2015 to 2016

The federal government’s Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP) were originally set to expire in December 2015. The Federal Housing Finance Agency (FHFA), which oversees the venture, announced today that the popular mortgage refinancing and modification programs will be extended through the end of 2016.

According to a recent announcement, homeowners now have until December 2016 take advantage of these government-backed programs.

FHFA Director Melvin Watt announced the deadline change earlier today, when speaking to members of the Greenlining Institute 22nd Annual Economic Summit.

According to Mr. Watt:

“…we have also made decisions about the status of modification and refinance programs that are currently scheduled to end on December 31, 2015.  This enables me to announce today that FHFA has decided to extend the Enterprises’ participation in the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP) for an additional year, until the end of 2016.”

These programs are very popular among homeowners who are trying to reduce their mortgage costs and/or avoid foreclosure.

Home Affordable Refinance Program (HARP)

The Home Affordable Refinance Program, or HARP, was launched in 2009. It is one of the two main programs that make up the Obama Administration’s “Making Home Affordable” program (HAMP is the other one).

Through this program, homeowners who might not otherwise qualify for a mortgage refinance due to equity losses or other factors can refinance their homes and secure a lower interest rate. Homeowners can also use HARP to switch from an adjustable-rate mortgage (ARM) loan to a more stable and predictable fixed-rate loan.

There are other refinancing programs available for homeowners in 2015 and 2016. But HARP is unique. According to an FHFA fact sheet, it is currently the only program that offers refinance loans to homeowners with negative equity. Upside down homeowners (those who owe more on their mortgage loans than their homes are worth) are often able to refinance through HARP. Traditional refinancing programs, on the other hand, are generally not available to such borrowers.

As for eligibility, HARP is limited to homeowners whose existing mortgage was sold to Freddie Mac or Fannie Mae on or before May 31, 2009.

Additionally, homeowners seeking a HARP refinance loan must be current on their mortgage payments. Borrowers must not have had any late payments within the last six months (at the time of application), and no more than one late payment within the last year.

The HARP deadline has been extended several times in the past. The program was originally scheduled to expire in December 2015, but the deadline has been pushed back until December 2016. This gives eligible homeowners another year to take advantage of the program, by lowering their mortgage rates and possibly switching from an ARM to a fixed-rate loan.

Home Affordable Modification Program (HAMP)

The Home Affordable Modification Program, or HAMP, is another key part of the federal government’s long-running “Making Home Affordable” initiative.

HAMP is designed to help homeowners who are at risk of foreclosure, by giving them more affordable and sustainable monthly payments on their loans. It is open to homeowners who have already defaulted on their mortgage loans, as well as those who are at risk of defaulting in the near future. It is essentially a government-backed foreclosure avoidance program.

To be eligible for HAMP in 2015 or 2016, the homeowner’s existing home loan must have been originated on or before January 1, 2009. As with HARP, the borrower’s current loan must be owned by Fannie Mae or Freddie Mac (or be serviced by a participating mortgage company).

The deadline for HAMP was also extended until December 2016.

Learn more: Homeowners who want to learn more about the government refinancing or modification programs can visit KnowYourOptions.com (a website owned and operated by Fannie Mae) or MakingHomeAffordable.gov, which is the official program website.

Home Buyers With No Credit Scores Could Face Additional Hurdles

Yesterday, the Consumer Financial Protection Bureau (CFPB) Office of Research published a report that showed one in ten adults in the U.S. have no credit scores.

For some folks, this is a non-issue. If you tend to pay cash for everything and avoid lenders altogether, your credit score is basically meaningless to you. But for home buyers who need a mortgage loan to finance their purchase, having no credit score could create additional hurdles during the mortgage application and approval process.

When a Home Buyer Has No Credit Score

Consumer credit scores are computed based on information found within a person’s credit reports. The reports compile financial data relating to credit card use, auto loans, and other forms of borrowing. Credit-scoring systems like FICO and VantageScore turn this data into a three-digit number.

Mortgage lenders use these scores to determine the risk and “creditworthiness” of a particular borrower, and also when assigning the interest rate on a loan. The problem for some home buyers is that they don’t have enough of a credit history to produce a score.

According to the CFPB study released yesterday:

“If a consumer does not have a credit record with one of the NCRAs or if the record contains insufficient information to assess her creditworthiness, lenders are much less likely to extend credit. As a result, consumers with limited credit histories can face substantially reduced access to credit.”

As mentioned, mortgage lenders use credit scores such as FICO and VantageScore when deciding whether or not to lend, and how much to charge. Borrowers with higher scores are viewed as a lower risk to the lender, and therefore have an easier time qualifying for home loans. On the flip side, borrowers with lower scores have a harder time getting approved for mortgage loans, and they usually end up paying higher interest rates if they do get approved.

Then there are those home buyers who don’t have a credit score at all. The Consumer Financial Protection Bureau puts these people into two broad categories — “invisible” and “unscorable.”

  • Invisible: According to CFPB, these are people who have no records maintained by the Nationwide Credit Reporting Agencies (NCRAs), and therefore no score.
  • Unscorable: These are consumers who have a credit record that doesn’t contain enough information to produce a three-digit score. Mortgage lenders refer to this as a “thin file.”

In both of these cases where a home buyer has no credit score, the mortgage lender might have to look at alternative data to make a lending decision. And there have been some recent advancements in this area.

Using ‘Alternative Data’ to Make a Lending Decision

It has long been known that many consumers don’t have credit scores. The CFPB simply added some hard data to the conversation. The U.S. credit-reporting companies (Experian, TransUnion and Equifax) have been exploring ways to use “alternative data” to fill credit reports and generate scores.

In a traditional report, the data used for scoring comes from credit card accounts, student loans, auto loans, retail charge cards and the like. The alternative approach is to use utility payments, rent payments, and other non-credit and non-loan types of payment history. This would at least show lenders how responsible (or irresponsible) a person has been with his or her obligations in the past, even in the absence of loans and credit cards.

The idea is to give mortgage lenders some way to measure risk, for home buyers and loan applicants who do not have a credit score for one reason or another.

FICO, the company that created one of the most widely used credit-scoring systems in the U.S., recently announced it was starting a pilot program to increase the number of consumers who could be assigned a credit score based on alternative data, such as utility and phone bills.

According to Jim Wehmann, executive vice president of scores at FICO:

“FICO’s focus is on expanding access to credit; not simply scoring more people. Our approach also addresses a paradox for people seeking their first traditional credit product – you often need a credit history before you can get traditional credit.”

These and similar efforts could benefit financially responsible home buyers who don’t have credit scores.

Editor’s note: Mortgage shoppers without credit scores should not be discouraged by all of this. Lenders have been working with such borrowers for many years, for as long as the scoring systems have been in place. As mentioned in this story, there are alternative methods for determining a person’s creditworthiness. While it might create some additional hurdles, it is rarely a cause for rejection on its own.

Arizona Down-Payment Assistance Program Turns Renters Into Homeowners

Arizona was one of the states hit hardest during the housing crash. But it’s now well on the road to recovery. Home prices across the state have been rising steadily for several years now. Prices have risen so much, in fact, that many Arizona home buyers are having trouble affording down payments. The Arizona Housing Finance Authority (AzHFA) has stepped in to help such residents, by offering a down payment assistance grant program for qualified Arizona home buyers.

The new program is called Home Plus, and it’s aimed at renters who want to buy a house but lack the funds needed for a down payment. AzHFA officials are quick to point out the program is designed for creditworthy individuals who can afford the monthly payments associated with a mortgage loan.

Here are some additional details for Arizona home buyers seeking down payment assistance:

Home Plus: Down Payment Assistance for Arizona Buyers

Working with various partners, the Arizona Housing Finance Authority provides 30-year fixed-rate mortgage loans to qualified home buyers. The loans come with a down payment assistance grant equal to 4% of the amount being borrowed. (Example: For a mortgage loan of $200,000, an eligible borrower could qualify for a grant of up to $8,000.)

Military service members could qualify for an additional 1% in down payment assistance money, for a total of 5% of the loan amount.

According to AzHFA, the money is provided in the form of a “non-repayable grant” and can be used for both the down payment and closing costs. This is a key point, because closing costs can easily add up to thousands of dollars and must be paid out of pocket in most cases.

The assistance offered through this program will make homeownership possible for financially responsible Arizona home buyers who lack the upfront cash needed for down payment and closing costs.

Program Highlights and Eligibility Requirements

Arizona home buyers who wish to apply for down payment assistance must meet the requirements outlined below, at a minimum.

  • The home being purchased must serve as the borrower’s primary residence (as opposed to a second home or vacation property).
  • The borrower’s income should not exceed $88,340.
  • The price of the home being purchased must not exceed $353,360.
  • All home buyers participating in the program must complete an educational course prior to closing. Web-based home buying courses offered by mortgage insurance companies like Genworth Financial and MGIC are acceptable, as are the courses offered by other HUD-approved education providers.
  • The mortgage loan must be provided by one of the Arizona Housing Finance Authority’s approved lenders. Participating lenders will help home buyers navigate the process and register for the down payment assistance grant.

This program offers 30-year fixed-rate mortgages. Borrowers can choose between an FHA-insured loan, a “regular” conforming loan, or the VA and USDA programs. A credit score of 640 or higher is required in most cases, with a 680 score requirement for borrowers who make smaller down payments.

More information: For a list of approved educational courses and mortgage lenders, and for other important details, visit https://housing.az.gov/. Interested parties can also contact Dirk Swift, the program administrator, at (602) 771-1091, or by email: dirk.swift@azhousing.gov.

Please note that the Home Buying Institute is merely reporting on this program. We do not have any additional information regarding down payment assistance grants for Arizona home buyers, or the specific requirements for such programs. For more information, please use the reference and contact information provided above.

Latest Mortgage Rate Forecast Suggests Possible Increase in Fall 2015

What will mortgage rates do through the spring and summer of 2015, and into the fall? That’s what many home buyers and homeowners want to know. After all, rates have been hovering near historic lows for months now. But how long will the party last?

To get some insight into the matter, we turned to one of the most well-informed mortgage rate forecasts available anywhere, the “U.S. Economic and Housing Market Outlook” provided by Freddie Mac.

Mortgage Rate Forecast: Is September 2015 a Key Date?

Each month, Freddie Mac publishes a housing and mortgage market forecast. The company’s economists look at current conditions and offer some well-educated guesses as to where the market is headed. They make predictions for 30-year mortgage rates, among other things.

According to their latest forecast, issued earlier this month, the folks at Freddie Mac feel that mortgage rates will inch upward between now and the end of 2015. They mentioned September 2015, in particular, as a possible milestone for rate movement.

Why September? Because that’s when the Federal Reserve is expected to raise the federal funds rate, which they’ve kept near 0% for the last few years. If the Fed does indeed take this action, it could lead to a rise in long-term interest rates, including those applied to 30-year mortgage loans.

According to the Office of the Chief Economist at Freddie Mac:

“Mortgage rates will likely stay low over the next few months as market participants await the Federal Reserve’s decisions on whether and when to raise its short-term policy rate … our forecast calls for mortgage rates to drift slightly higher over the next six months, increasing more around September when we anticipate the Fed will begin raising rates.”

Of course, no one can predict the future with complete accuracy. This is especially true when dealing with the Federal Reserve, a famously tight-lipped group. The bottom line on this is that there’s a good chance mortgage rates will climb between now and the end of 2015, especially if the Fed lifts the funds rate in the fall. If this occurs, home buyers and refinancing homeowners could face higher mortgage costs.

Where We Are, And Where We Are (Possibly) Going

Yesterday, Freddie Mac reported the average rate for a 30-year home loan fell to 3.65%, down slightly from the week before. Thirty-year loan rates have been hovering in this range for weeks, and they’ve been below 4% all year. But the company’s mortgage rate forecast issued in May 2015 hints at higher borrowing costs down the road.

Economic and mortgage forecast
Freddie Mac’s long-range economic outlook (enlarge)

If the outlook chart shown above is any indication, the average rate for a 30-year mortgage loan could climb above 4% by fall 2015. That’s still relatively low, compared to historical averages, but it’s an increase nonetheless. And that’s enough to put it on the radar of future home buyers and mortgage borrowers.

In many parts of the country, rising home prices are a bigger concern for home buyers than rising mortgage rates. Home prices rose significantly over the last two years, especially in California, the Southwest, and in major metro areas across the country. While home-price appreciation has slowed, economists are still predicting additional gains through the end of 2015 and into 2016. This is something buyers should keep an eye on.

Disclaimers: This story contains mortgage-rate forecasts and predictions through fall 2015. Forward-looking statements such as these should not be viewed as facts. They are the equivalent of an educated guess. This story contains third-party data that is deemed reliable but not guaranteed.

New Mortgage Documents for 2015: Loan Estimate and Closing Disclosure

Two new mortgage documents are coming on August 1, 2015. The Loan Estimate form and the Closing Disclosure forms are designed to give consumers a clearer picture of their borrowing costs.

Mortgage shoppers should see the full cost of a loan at the time they apply, and have a more detailed breakdown a few days before closing. These have long been the marching orders given by federal financial regulators. And for the most part, they’re followed. Lenders typically provide a Good Faith Estimate (GFE) form when a person first applies for a home loan, followed by a “HUD-1” Settlement Statement shortly before closing day.

But starting in August 2015, these all-important mortgage documents are being replaced. The Consumer Financial Protection Bureau (CFPB), one of several government agencies that regulate the mortgage lending industry, has set a date for the implementation of two new mortgage documents. These forms are very important to borrowers, and for two different reasons:

  • The new Loan Estimate form helps borrowers understand the full cost of the mortgage, including fees and interest. It can be used during the shopping process to compare “apples to apples.”
  • The new Closing Disclosure form helps borrowers know what to expect on closing day, and how much cash they’ll have to bring to the table.

Here’s what you should know about these new mortgage documents coming in August 2015:

The ‘Loan Estimate’ Form Helps You Comparison Shop

As its name implies, the new Loan Estimate form is designed to give borrowers an approximated view of the full cost of the mortgage loan.
2015 Loan Estimate Form
In this context, “full cost” means that the form shows the various fees and charges that can inflate the amount of money due at closing.

View a sample Loan Estimate form (PDF)

Many home buyers are surprised by the different lending fees that can pile up along the way. There’s a fee for everything, from the initial application to the final document preparation. The Loan Estimate form offers an estimated breakdown of these various charges that will be due at closing.

More importantly, it shows the amount being borrowed, the interest rate being assigned to the loan, and whether or not there are prepayment penalties.

This form standardizes the loan estimating process, which makes it easier for consumers to comparison shop when getting quotes from different lenders. Lenders must provide this document within three days of the application.

The new Loan Estimate form replaces the early Truth in Lending Statement and the Good Faith Estimate, two documents that often contained duplicate information. By rolling two documents into one, and by presenting the information in a more consumer-friendly manner, CFPB hopes to reduce confusion and better prepare borrowers for the closing process.

The ‘Closing Disclosure’ Form Prepares You for Closing

The new Closing Disclosure form helps borrowers prepare for the actual costs that will be due at closing. Think of it as a finalized, and therefore more accurate, version of the Loan Estimate.
2015 Closing Disclosure Form
Borrowers must receive the Closing Disclosure at least three business days before the scheduled closing date. This gives them time to review the document and prepare a check for the total amount needed to close the loan.

Here again there are two documents being replaced by one, in an attempt to simplify and streamline the communication process. The new Closing Disclosure coming in summer 2015 will replace both the final Truth in Lending statement and the HUD-1 settlement statement.

View a sample Closing Disclosure form (PDF)

As with the previous document, the goal here is to reduce confusion and provide clearer information to consumers. The revised 5-page form provides a detailed breakdown of the money due at closing, and it shows where that money is going.

Educating Consumers and Avoiding Surprises

The creation of these new mortgage documents was driven by three overriding goals. The CFPB wanted to (1) improve consumer understanding of the mortgage process, (2) simply comparison shopping, and (3) help people avoid “costly surprises at the closing table.”

I have carefully reviewed these documents, and they do seem like they will help in these three areas. If borrowers read these forms carefully (and ask questions when needed), they will have a much better understanding of their closing costs and overall loan structure.

The Product of Much Research and Planning

These new mortgage documents were not designed on a whim. They are the result of extensive planning and research. The CFPB actually conducted what amounts to usability testing, to see how consumers would react to the revised forms. Their research showed that consumers understood the new Loan Estimate and Closing Disclosure forms better than their predecessors. This was true even for people who had never been through the mortgage process before.

During the overhaul process, CFPB solicited feedback from mortgage professionals and the general public. They also held review and discussion panels to gather additional feedback. It seems their efforts have paid off. According to their research, “participants who used the CFPB’s new forms were better able to answer questions about a sample loan – a statistically significant improvement of 29 percent.”

While some in the mortgage industry malign the new documents as overzealous bureaucracy and micromanagement, the Home Buying Institute applauds CFPB’s efforts to simplify the mortgage disclosure process for consumers. It’s a step in the right direction.

2015 Loan Limits for San Jose and Santa Clara County

Loan limits affect all mortgage borrowers, even those who use government-insured lending programs like FHA and VA. These caps vary by county, and they get updated (or at least reviewed) every year. Here’s an update on the 2015 loan limits for San Jose and the rest of Santa Clara County, California.

What Is a Loan Limit Anyway?

A loan limit is exactly what it sounds like. It limits the size of a mortgage loan that can be borrowed. There are different limits or “caps” for different types of mortgage products. For example, there’s a cap on how much you can borrow when using a Federal Housing Administration (FHA) loan, and a different cap if you plan to use a conventional mortgage product that’s not insured by the government.

Additionally, loan limits vary by county and get updated annually. So you have to make sure you’re looking at the current, local numbers for the county in which you reside — in this case Santa Clara County.

You can borrow above these limits if you need to, but you’ll be entering “jumbo” loan territory. Lenders typically charge higher interest rates and require larger down payments for borrowers seeking a jumbo loan product. So it’s helpful to know where the line is drawn.

2015 Conforming Loan Limits for San Jose

Conforming loan limits apply to “conventional” or regular mortgage products that are not insured by the federal government. This puts them in a different class from FHA and VA loans, which are backed by the government. Conforming limits are established by the Federal Housing Finance Agency (FHFA). They are reviewed, and sometimes adjusted, every year.

Here are the 2015 conforming loan limits for Santa Clara County:

  • One unit: $626,500
  • Two unit: $800,775
  • Three unit: $967,950
  • Four unit: $1,202,925

In this context, a “one unit” property is a regular single-family home. “Two unit” refers to a duplex-style house, and so on.

Anything above these limits would be considered a jumbo loan. Jumbo products cannot be sold into the secondary market via Fannie Mae and Freddie Mac. So the eligibility requires are generally more strict for jumbo mortgages. Lenders typically require higher down payments for these larger, non-conforming loans as well.

Again, these limits are set at the county level. That means the lending caps shown above apply to all cities within Santa Clara County, including San Jose, Cupertino, Los Altos, Los Gatos, Mountain View and Palo Alto.

VA: Same as Above

There are size limits for Veterans Administration (VA) home loans as well. Historically, there has been a separate list of limits for VA products. But for 2015, they were actually aligned with the conforming figures shown above. Translation: The VA loan limits for San Jose and Santa Clara County are the same as conforming in 2015.

FHA Loan Limits for 2015 (Santa Clara County)

The Department of Housing and Urban Development (HUD) establishes maximum size limits for FHA-insured home loans. These also vary by county and are updated annually. Santa Clara County is considered to be a “high-cost area” by HUD, because median home prices are well above the national average. This means the FHA loan limit for San Jose and surrounding area is higher than the national norm.

This year, the FHA limits for Santa Clara are actually the same as conforming. So we have a rare occurrence where all three mortgage categories (conforming, FHA and VA) have the exact same loan limits. This makes things a bit less confusing for borrowers, at least in 2015.

Here are the 2015 FHA loan limits for San Jose and the rest of Santa Clara County:

  • One unit: $626,500
  • Two unit: $800,775
  • Three unit: $967,950
  • Four unit: $1,202,925

If you need to borrow an amount higher than these caps, FHA is probably not the program for you. You’ll want to look into getting a jumbo loan.

View FHA limits for all 58 California Counties

Jumbo Mortgages Required for Many Borrowers

Santa Clara County is an expensive real estate market. This is especially true for Los Altos, Palo Alto and Mountain View. For example, the median price for homes sold in Palo Alto in February 2015 was $2,600,000. That’s more than four times the loan limit for single-family homes in Santa Clara County.

That explains why so many borrowers in this area have to rely on jumbo mortgages to finance their home purchases. A jumbo mortgage exceeds the conforming loan limits imposed by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy mortgages from lenders.

Where to learn more: To learn more about conforming loan limits for San Jose and the rest of Santa Clara County, visit  www.fhfa.gov or www.loanlimits.org. To learn more about the FHA limits for this county, visit the Department of Housing and Urban Development (HUD) website at www.HUD.gov.

Getting the Best Mortgage Rate in 2015 Requires Points, Excellent Credit

Earlier this morning, Freddie Mac reported that the average mortgage rate for a 30-year fixed-rate home loan had fallen to 3.59%. That’s close to a record low, and nearly a full percentage point lower than where we were at the start of last year.

But not everyone will qualify for this average. In 2015, getting the best mortgage rate requires excellent credit and, in most cases, the payment of discount points at closing.

As I write these lines, some borrowers in the U.S. are qualifying for home loan rates as low as 3.50%. That’s because they have higher credit scores than the average borrower, and/or they are paying more money up front in the form of discount points. While many factors can affect the amount of interest charged by lenders, these two factors tend to weigh the most.

Want to qualify for the best mortgage rates in 2015? You’ll probably need to check both of these boxes.

A Quick Recap of Current Interest Rates

As mentioned earlier, the average rate for a 30-year fixed mortgage loan recently fell to 3.59%. That’s a decline of 7 basis points (0.07%) from last week’s average, and a drop of 64 basis points (0.64%) from this time last year.


This is exactly the opposite of what many economists were predicting a year ago. The general consensus this time last year was that mortgage rates would gradually rise during 2014, ending the year higher than they were at the beginning. As you can see from the chart above, just the opposite occurred. In fact, the average rate for a 30-year fixed mortgage fell by 0.66% during the 2014 calendar year (according to Freddie Mac’s industry-wide survey).

Currently, the average rates in the 15-year fixed and 5/1 ARM loan categories are both below 3%. These are historically low interest rates by any measure, and they offer a powerful enticement for home buyers and refinancing homeowners alike.

But remember — we are talking about averages here. Loan qualification and rate assignment are heavily influenced by individual factors as well. This means that some borrowers will land better-than-average mortgage rates, while others will pay more than these averages.

In 2015, as in the past, the best mortgage rates are reserved for borrowers with excellent credit and the willingness to pay more money up front in the form of discount points. So let’s talk about those two factors.

What it Takes to Get the Best Mortgage Rate in 2015

Getting the best possible rate on a mortgage loan could save you thousands of dollars over the life of the loan. Obviously, everybody wants that. But how do you achieve this lofty goal? What does it take to qualify for the lender’s lowest interest rates? Two of the most important factors are your credit score and the amount of points you pay at closing.

Let’s refer back to the Freddie Mac survey mentioned earlier. At present, the average mortgage rate for a 30-year home loan is around 3.59%. This is based on a nationwide survey of around 125 lenders. But the borrowers who secured these rates had to pay a certain amount of prepaid interest at closing. According to Freddie Mac, borrowers paid an average of 0.7 points at closing to secure these average rates.

This is a common strategy used by borrowers to get the best mortgage rates available. Essentially, you are paying more money up front to secure a lower rate over the long term. These “discount points,” as they are known, can be a money-saving strategy for borrowers who are planning a long stay. They allow you to “buy down” your interest rate in order to save money over the life of the loan.

One point equals one percent of the base amount being borrowed. So one point on a $200,000 home loan would come to $2,000. In exchange for this extra amount paid on the front end, lenders will offer lower interest rates over the term of the loan. There are other ways to negotiate for a lower rate, but this is the most common strategy in use today.

Does it makes sense in your situation? That will largely depend on how long you plan to stay in the house. If you only plan to keep the loan for a few years, this strategy probably won’t work out to your advantage. That’s because you could end up paying more in points than the amount saved during such a short stay. So time and savings are the primary considerations.

Learn more about mortgage points

Getting the best mortgage rate also requires an excellent credit score. There’s no magic number here, because lenders have their own standards and procedures for “risk-based pricing.” Generally speaking, borrowers need a score of 750 or higher to qualify for a lender’s lowest rates. But this is often factored in with any points that are paid, as explained above. So it’s a combination of these two factors that helps you get the best rates.

Note the distinction here. You don’t necessarily need an excellent credit score to qualify for a home loan (lenders are currently qualifying borrowers with scores in the low to mid-600 range, according to a recent industry survey). But you’ll need a strong score if you want to get the best mortgage rates in 2015. So we are talking about two different levels of qualification — one just to get your foot in the door, and another level for securing the lowest rate. There is a broad spectrum in between.

Los Angeles Mortgage Rate Trends in 2015: Below 4%, but for How Long?

Summary: Los Angeles mortgage rates are currently averaging 3.63% in the 30-year loan category. Many analysts expect long-term interest rates to rise later in 2015, due to economic gains and actions taken by the Federal Reserve.

Conventional wisdom says the best time to buy a house is when mortgage rates are low and home prices are stable and/or rising. If that’s true, now might be a good time to buy a home in the Los Angeles metro area.

Mortgage rates in Los Angeles have been hovering near historic lows for some time now. Some housing analysts expect them to remain low for the foreseeable future, while others are predicting a gradual rise throughout 2015. In the words of one analyst, it will be a “volatile year.”

Here are the latest mortgage rate trends for the Los Angeles area, as well as a broader market outlook and forecast.

Los Angeles Mortgage Rates Drop at the Start of 2015

Let’s start with a look at current home loan rates for Los Angeles, California. According to Freddie Mac, the average rate for a 30-year fixed mortgage dropped to 3.63% for the week ending on January 23, 2015. That’s a decline of 20 basis points (0.20%) from the previous month’s average, and a decline of 90 basis points (0.90%) from January of last year.

It bears repeating: Los Angeles mortgage rates are nearly a full percentage point lower today, at the start of 2015, than the same time last year. This flies in the face of previous predictions, most of which called for gradually rising loan rates in 2014. So much for the crystal ball.

It’s worth noting that most experts, including Freddie Mac’s chief economist, have predicted gradually rising rates for 2015 as well. But they missed it last year, and they could be wrong again this year. Long-term mortgage rates are notoriously difficult to predict. So you shouldn’t “bank” on any of these forecasts.

If rates do start rising steadily in the near future, it will probably happen when the Federal Reserve raises the federal funds rate (used for inter-bank lending). They’ve kept it near 0% for several years now, as an economic stimulus measure. But in their most recent policy meeting, Fed officials stated they could raise the federal funds benchmark sometime this year, possibly during the second quarter.

Los Angeles mortgage rates will likely begin to rise when that occurs. But how quickly they rise, and by how much, is something we cannot predict.

Here’s what Los Angeles home buyers and homeowners should take away from all of this. Home loan rates are currently very low, as of January 2015. In fact, they are very close to the all-time historic low that occurred in November 2012 (when the 30-year average fell to 3.31%). So it’s a pretty good time to shop for a mortgage loan. Most economists expect these conditions to continue for at least the next couple of months. But again, you can’t bank out the forecasts.

Note: Los Angeles mortgage rate trends and averages are useful when comparison shopping. But you also have to realize that interest charges vary based on a variety of factors. For instance, borrowers with excellent credit scores typically secure lower mortgage rates. Borrowers with bad credit are typically charged higher interest. The type of loan you choose will also play a role, as well as the size of your down payment.

Home Prices Have Cooled Across the L.A. Area

Home prices are the other piece of this puzzle. Mortgage rates are obviously important to most Los Angeles home buyers, but house prices are also a big concern. So what should buyers expect in 2015? Additional gains, most likely, but nothing like what we saw over the last few years.

Home prices in Los Angeles rose rapidly between 2012 and 2014, at a time when mortgage rates were much more stable. In July 2013, for example, the L.A. metro area had the largest annual price gain out of the 100 largest metro areas in the U.S. (according to real estate data firm CoreLogic). From July 2012 to July 2013, home prices in the L.A. metro area rose by a staggering 22.62%.

But the market has cooled considerably since then, and this cooling trend will likely continue in 2015.

According to Zillow’s “Zestimate” pricing formula, home prices in the Los Angeles area rose by nearly 8% in 2014. But they are only forecasting a more modest gain of 2.6% through the end of 2015.

But this is a story about Los Angeles mortgage rate trends for 2015. So let’s end on an appropriate note.

Home loan rates have declined in recent weeks, and we could certainly see additional drops in the near future. But the general consensus is that the downward trend won’t last much longer — at least not through the end of 2015. Analysts are predicting quite the opposite.

Greg McBride, chief financial analyst for Bankrate.com, expects a series of rate hikes in the year ahead. “This is going to be a very volatile year,” he said.

But home buyers don’t necessarily need to rush. If Los Angeles mortgage rates do begin to rise later this year, as expected, it probably won’t happen with great velocity. The most “dramatic” projections I’ve seen are only predicting a year-over-year rise of around 1 percentage point. And now for the big fat disclaimer…

Disclaimer: This story contains forward-looking statements (forecasts, predictions) regarding mortgage rates for the Los Angeles area and related housing trends. Such statements should be viewed as an educated guess, not as fact. We make no claims or guarantees about future economic conditions.

Mortgage Standards in 2015: They’re Not So Tough After All

We’ve been hearing for years how mortgage lenders have tightened their credit standards for borrowers. We’ve heard about new government lending rules that were supposed to increase mortgage standards even more, “squeezing out” many well-qualified borrowers as one analyst put it. We’ve heard that it would become increasingly difficult to qualify for a home loan in 2015.

As it turns out, things aren’t so bad after all.

In fact, 2015 mortgage standards are more relaxed in several key areas, compared to what we saw in the wake of the housing crisis. Industry-wide data support this notion. Lenders are now offering mortgage loans with lower down payments. They’re also lending to borrowers with lower-than-average credit scores (borrowers who may have been shut out in the past).

So the sky is not falling after all.

Much-Feared ‘QM’ Rule Has Had Minimal Impact

In January 2014, the Consumer Financial Protection Bureau (CFPB) finalized and enacted a new lending standard known as the Qualified Mortgage, or QM. On paper, this rule is designed to encourage “safer” lending practices by prohibiting certain “risky” loan features. Interest-only payments, balloon loans, and negative amortization are all discouraged under this new mortgage standard.

Qualified Mortgage QM Rule

When QM was still being formed, mortgage lenders and their lobby groups griped up a storm. They practically threatened to choke off lending to all but the most well-qualified borrowers, in response to what they viewed as government overreach.

But the melodrama was pointless, because QM didn’t really change much. On top of that, lenders can still make “non-QM” loans — they just won’t reap the rewards of QM compliance, such as legal protection.

Bottom line: This lending “rule” isn’t really a rule at all. Not in the legal sense of the word. It doesn’t force lenders to do anything. It’s a recommendation tied to an incentive. And it hasn’t significantly altered mortgage standards in 2015.

According to a detailed analysis of the Federal Reserve’s Senior Loan Officer Survey, conducted by the Urban Institute, QM has had “almost no impact in the government sponsored enterprise (GSE – Fannie Mae and Freddie Mac) or government agency (Ginnie Mae) market…”

Counterpoint: Mortgage Standards in 2015 May Be More Relaxed

Over the last year or so, there were several signs of easing within the mortgage lending industry. We’ve covered them before. They range from government policy changes to new programs offered by lenders, both of which lead to broader access to credit.

Granted, 2015 mortgage standards will not be as lax as they were during the housing boom — nor should we hope for that. But conditions will likely be more “borrower-friendly” than what we saw in the wake of the housing collapse.

Call it the Goldilocks syndrome. Lending standards used to be too lax. Then they became too strict. Now they’re just right — government rules and all.

Lower Down Payments, Credit Scores in 2015

Down payments are one area where 2015 mortgage standards could be more relaxed, when compared to previous years.

Last month, the Federal Housing Finance Agency (FHFA) announced that Freddie Mac and Fannie Mae, the government-controlled mortgage buyers, would begin accepting loans with a loan-to-value ratio of 97%. Conversely, this means borrowers could put down as little as 3% and still qualify for a conventional home loan.

Fannie Mae has already started accepting such mortgage products. Freddie Mac’s program, which is known as “Home Possible Advantage,” will be available for home loans with settlement dates on or after March 23, 2015.

This trend could increase homeownership in 2015, by bringing borrowers with limited funds into the mix.

Credit scores are another mortgage standard that appears to be easing in 2015. According to Ellie Mae, a company that provides software to the lending industry, the average credit score for closed (successful) home loans has dropped slightly over the last couple of years.

This is true for both conventional and FHA loan. For instance, the average credit score for a successful FHA purchase loan dropped from around 700 in early 2013, to 683 at the end of 2014.

One area where we haven’t seen much easing is the debt-to-income ratio, or DTI. This will remain an important mortgage standard in 2015, and lenders may even be more strict with DTI ratios due to government rules. These days, most lenders want to see a total debt-to-income ratio no higher than 43%, though that number is not set in stone. Learn more about income standards for mortgages.

Message to Borrowers: Don’t Make Assumptions

It’s a common pattern. People are in the market to buy a home, so they start researching mortgage lending standards. They read an article about how lenders are tightening their standards in 2015 — higher credit scores, larger down payments, [fill in the blank].

So the mortgage shoppers get discouraged and don’t even bother applying for a loan. Maybe they have low credit scores or a large debt load. Maybe they can’t afford a 5% down payment. Whatever the reason, they stop in their tracks and never even bother to submit an application.

Our advice: Borrowers should not assume they are unqualified for a home loan. Current mortgage standards in 2015 are actually more reasonable than they’ve been for several years. So a reasonably qualified borrower should be able to find a willing lender.

VA Loan Limits for 2015 Announced This Week: Same as Conforming

The Department of Veterans Affairs recently published a circular (policy letter) announcing the official VA loan limits for 2015.

According to Circular 26-14-39, which can be found on the department’s website, the maximum guaranty amounts for VA loan limits in 2015 will be the same as those defined by the Federal Housing Finance Agency (FHFA). In other words, they will match the conforming loan limits set for next year. These caps range from $417,000 to $625,500, depending on the borrower’s location.

VA Loan Limits to Follow ‘Conforming’ Amounts in 2015

In the past, the Department of Veterans Affairs established its own guidelines for loan limits. This authority was granted to the department in 2008, under Public Law 110-389, the Veterans’ Benefits Improvement Act. This act gave the VA authority to increase the maximum guaranty amount “for certain loans guaranteed by the Secretary of Veterans Affairs.”

The authority granted by this law expires on December 31, 2014. This is what prompted the recent policy letter regarding VA loan limits. In 2015, VA’s effective loan limits will reset to match the conforming amounts established by FHFA.

View the full list here:

The maximum size limits set by FHFA apply to loans purchased by Freddie Mac and Fannie Mae. They are established at the county level and are based on median house prices. Currently, FHFA’s conforming loan limits range from $417,000 – $625,500. The latter number applies to high-cost areas with a higher median home price. VA loans will follow these standards as well, at least in 2015.

Down Payments on Larger Loans

Contrary to popular belief, the VA does not have a maximum loan amount. They do have limits as to the amount they will guarantee, and those are outlined above. But mortgage lenders have the ability to offer financing above the VA loan limits.

In such cases, the veteran may be required to make a down payment to cover the difference between (A) the amount being borrowed and (B) the cap for the county in which the property is located. But even in these situations, the veteran would likely enjoy significant cost savings in comparison to other mortgage products.

Example: The 2015 VA loan limit for Moore County, North Carolina is set at $417,000, as in most modestly-price markets. So if a home buyer in this market has full VA entitlement, the Department of Veterans Affairs will provide a 25% guaranty on a home loan up to $417,000. If the home buyer makes an offer to buy a house for $480,000, the mortgage lender could require a down payment of 25% of the $63,000 difference. This would mean a down payment of $15,750, providing the lender a full 25% guaranty.

Note: In the same example, a borrower using a conventional (non-VA) home loan product would have to pay a down payment up to $111,000. So there is a clear advantage to using the government-guaranteed option.

Heads Up: Lower Limits in Some Counties

In some counties, the 2015 VA loan limit will decrease compared to the previous year. This is due to the alignment with FHFA conforming amounts, which are lower than current VA caps in some counties.

In such cases, the Department of Veterans Affairs will “honor the previous higher limit on a purchase loan provided the sales contract has been ratified” and the standard mortgage application has been signed prior to January 1, 2015.

The information above was adapted from Department of Veterans Affairs Circular 26-14-39, which will be rescinded in January 1, 2016.

Where to Learn More

This article provides an update on VA loan limits for 2015 and is meant to serve as a basic overview of the subject. To learn more about this subject, we encourage you to visit the official program website located here: www.benefits.va.gov/homeloans/. The department’s website provides information on minimum eligibility requirements, the application process, and more.

To find the caps for your particular county, visit the conforming loan limits section of the Federal Housing Finance Agency’s website.