Here are some questions and answers about the spring home-buying market:
Whatâ€™s happening with mortgage rates?
One bright spot for shoppers is that mortgage interest rates are near historic lows, which is helping buyers afford those pricier homes. The average rate on a 30-year, fixed-rate mortgage was 3.18 percent for the week that ended Thursday, up from 3.15 percent the previous week, according to Freddie Mac, the mortgage finance giant. A year ago, the average was 3.82 percent.
The low rates have increased the number of mortgage applications, but some borrowers may find it difficult to qualify for a home loan as banks raise their standards amid the economic turmoil of the pandemic. Borrowers can generally expect banks to require higher minimum credit scores and larger down payments, said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication.
The situation is particularly challenging for first-time home buyers, who are more likely to use Federal Housing Administration loans that allow lower down payments and credit scores. The F.H.A. insures loans for borrowers who put down as little as 3.5 percent if they have credit scores of at least 580. But lenders may set stricter standards, and some are requiring higher minimum scores and 10 percent or 20 percent down, Mr. Cecala said.
Terms may also be tougher for borrowers at the other end of the spectrum â€” those seeking â€œjumboâ€ loans. While banks sell most mortgages to investors, jumbo loans are typically held by the original lender. With many demands being made on their funds in an uncertain economic environment, banks are being cautious.
â€œBanks are stretched,â€ said Mike Fratantoni, chief economist with the Mortgage Bankers Association.
Because many people have lost jobs or been furloughed, lenders are now typically doing a second employment verification just before the closing to be sure the buyer can afford to repay the loan.
â€œItâ€™s hard to get a handle on someoneâ€™s job situation,â€ Mr. Cecala said.
He advises borrowers to shop around by checking loan terms at traditional banks, finance companies like Quicken Loans and credit unions.
How is being preapproved for a mortgage different from being prequalified?
Itâ€™s more important than ever to be preapproved for a home loan â€” not just prequalified â€” when shopping in many markets, agents say. Preapproved means you have submitted income information and undergone a credit check, and have been given the green light to borrow a specific amount of money. Being prequalified is more of an estimate.