Home Mortgage Disclosure Act Data Helps You Plan For Your Next Mortgage
Shopping for a home-purchase loan or a mortgage refinance can be confusing, or even overwhelming. State and federal watchdogs try to make sure lenders, big and small, play by the rules. But your best bet for making sure you get a square deal on a loan is to educate yourself on the basics of home loans, to shop around, and to put yourself in a financially strong position.
|The 2012 HMDA Data at a Glance|
| Refinances Were King |
Mortgage originations in 2012 jumped 38% from 2011, driven by a 54% increase in refinance loans.
| Purchase Loans Were Strong, Too |
Home-purchase loans grew 13% in 2012, with FHA and VA loans accounting for 45% of all home purchase loans. FHA loans were about 5% of 2006 loans.
| Loans Varied By Ethnicity |
Home-purchase lending among whites and Asians posted larger gains than other groups. By contrast, refinance lending was even across all groups.
| Sub-Prime Lending Remains Small |
Subprime lending remained low at about 3% of all loans, down from a high of 28% in 2006.
| Loan Denials For Blacks & Hispanics Higher Than Whites & Asians |
The data does not suggest if the denials were the result of illegal discrimination.
| Credit Score Correlates to Loan Delinquency |
The lower the credit score, the higher the probability of default within 2 years of a purchase-loan origination.
Staying Cool In a Hot Market
The HMDA data shows the 2012 mortgage market, especially for refinances, was white-hot. This corresponded with prices increases in many markets. However, as the HMDA map shows, this jump in loan activity was not spread evenly throughout the US. Use the CFPB’s map to learn if the amount of loan activity rose or fell in your county. If the numbers were even or down, you should expect a buyers market.
However, early data strongly suggests the 2013 market has cooled significantly as mortgage interest rates have risen.
What this means to you: Expect fewer buyers competing for homes, and lenders loosening their lending standards in 2013 and until the market heats up again.
Make Yourself An Attractive Buyer
In a lender’s perfect world, every potential borrower has:
- A fat down payment — 3.5% is the bare minimum
- A long job history — 2 years minimum
- Few existing debts
- A high credit score — 680 or higher
The perfect borrower is rare, but those who are closer to the ideal get the best offers.
What this means to you: How closely do you match the ideal borrower?
- Down payment: Create a savings plan to put aside at least 3.5% of your expected purchase price. If you can, save 20% to avoid mortgage insurance.
- Income history: You need two years with the same income stream, such as a job, or a job in the same field.
- Existing debt: Lenders reject home buyers with debt-to-income ratios greater than 45% for Fannie Mae- and Freddie Mac-compliant loans. The FHA, which has more forgiving standards, required a "31/43" debt-to-income (DTI) ratio. The borrower's monthly housing costs (mortgage principal and interest, property taxes, and insurance) must be 31% or less of gross monthly income. The borrower must also have enough income to pay housing costs plus all additional monthly debt that combined do not exceed 43%. Get your existing debt as far below these levels as possible.
- Credit score: The FHA will allow a 580 FICO credit score on paper, but in practice, you need a 620 or greater. Fannie and Freddie both want to see FICO scores higher than 620, and 680 seems to be the threshold.
Make Yourself An Educated Buyer
Regulators try to police the market to eliminate bad actors, but it is up to you to protect yourself. Also, lenders are not required to give you the cheapest offer possible.
What this means to you: Talk to more than one loan officer to understand the current rates, fees, and time needed to close loans. Also, if an offer seems too good to be true, then it probably is. This is where shopping around is your best answer. Shopping will help you find the best rates and fees, and will make bad lenders stand out.