The mortgage market crashed due to the sub-prime mortgages and easy availability of credit for the borrowers. After the crash, the lending standards became so strict in the recent past that many experts opined that it is hurting the recovery of the economy. In the past few months, with the slow and steady rise in mortgage interest rates and improvement in employment rates, the mortgage market is once again becoming flexible. This has also had a positive impact on the economic recovery.
The top 5 ways in which the mortgage market is becoming flexible has been listed below:
1. Easy payment and credit score requirement: Immediately after the real estate crisis hit the market, lenders became quite strict about the down payment requirements and credit scores. But, as the market is showing signs of improvement, the lender may consider you for a loan if you have a modest down payment or a mediocre credit score. The lenders are rather stressing on whether or not you have a stable job which will help you pay off the loan over the time.
2. Re-emergence of piggyback loans: These loans were very common during the sub-prime mortgage days and borrowers were able to take out two loans on the same property in order to avoid a private mortgage insurance. After the market crash, these loans were unavailable as the lenders stopped offering such loan. But now, once again, these loans are slowly coming back. Also, it should be noted that these loans help borrowers to avoid high interest jumbo loans.
3. Re-emergence of stated income loans: Similar to that of piggy back loans, stated income loans are also making a come back. These loans are a great option for self employed people as they don't require tax returns to prove income. During the recession period, these loans were completely wiped out of the market. But now, some lenders have started considering this loan option for certain buyers.
4. Sub-prime mortgages are coming back with a change: Earlier, interest only loans were available to people with bad credit or no collateral as a part of sub-prime mortgage. But now, sub-prime mortgages are available to people who can pay huge down payments as compensation for any of the negative factors on their credit report or financial situation. For example, people with a short sale or too many late payments on their credit report may have to offer a higher down payment to get a mortgage with better rates.
5. Increase in availability of loans: Increase in mortgage interest rates may bring in more competition. This may help soften consumer demand. Also, it will help in increasing the supply of loans.
With these flexibilities, the mortgage market and the overall economy will recover better!