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Mortgage standards get tougher


PHILADELPHIA -- More space and nearness to family were the main motivations behind Jamie and Alan Rhode's decision to move from their apartment in Philadelphia's Fairmount neighborhood to the Plymouth Meeting area. The Rhodes, who both work in finance, planned to rent outside the city for a year or two before buying a house. Then mortgage rates continued to fall.

"We definitely wanted to buy and take advantage of the opportunity with the low rates," Jamie Rhode said. They are on a month-to-month lease while they look for the right house.

"We thought it would be a great time -- that we might not see in the next generation or so -- to buy," Alan said.

The national average 30-year fixed mortgage rate fell to 2.98% in mid-June, the lowest level since Freddie Mac, the federally chartered mortgage investor, began tracking rates in 1971. The average rate ticked up slightly to 3.01% last week. The Industry forecasts expect the average rate to hover at or just above 3% through the end of the year.

At the same time, economic uncertainty during the pandemic has led banks to tighten their lending standards. The supply of mortgage credit has fallen by more than 30% from February to June, according to the Mortgage Bankers Association's measure of how easy it is to get a home loan.

So historically low mortgage rates make now an attractive time for potential buyers of means with stable jobs, but qualifying for a mortgage has become more difficult for lower-income households.

Darlene Meekins, a Realtor with Realty Mark Associates, based in Montgomery County, Pa., said the raising of minimum credit scores by 100 points -- a move she's seen some lenders make -- "really makes a difference as far as someone in the low to moderate range qualifying."

"Because of the [stricter] qualifications, some people are struggling to meet those," said Meekins, president of the Philadelphia metropolitan chapter of the National Association of Real Estate Brokers, a group of mostly Black real estate agents whose mission is ensuring fair housing and promoting home ownership for people of color.

On top of stricter lending standards, housing inventory has stayed low, restricting choices for buyers, helping to drive up home prices, and fueling bidding wars.

But for those who qualify for mortgages, low rates help counteract rising home prices and boost purchasing power. In the first quarter of 2020, when the 30-year fixed mortgage rate was 3.57%, the average national monthly mortgage payment with a 20% down payment was $995, according to the National Association of Realtors. That's down from a $1,048 average monthly payment a year ago, for savings of $636 annually and roughly $19,000 over the 30-year life of the loan.

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Borrowers with lower credit scores can still qualify for some loans. Mortgage advisers and housing advocates recommend buyers talk to a variety of lenders to find the best loan and rate for their situation. Rates can vary widely.

Lenders want to reduce their risks and keep hold of their cash, which means both tightening credit standards for lower-income borrowers and restricting the lending of "jumbo" loans for wealthy borrowers, said Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association.

"Low rates help people stay competitive in this environment, and also stick closer to the house they really wanted" instead of getting outbid or settling for a lesser house, Kan said.

Especially during the economic downturn, home buyers need every bit of a leg up they can get, he said.


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