The tempo of real estate sales is up. The short time it takes to sell a home combined with a limited supply of homes on the market is pushing sales prices upward – all positive signs of a recovering market. And the experts say Oahu’s housing market is poised to continue rebounding into 2013.
Receiving most of the credit is sub-4-percent mortgage interest rates. The 30-year fixed-rate mortgage rate in 2012 went only slightly over the 4 percent mark in March. The low for the year at First Hawaiian Bank was 3.19 percent, with 2 points, occurring several times, most recently in October, according to Jeff Bamer, the vice president of the investor management department at First Hawaiian Bank. This year, 2012 has been a very busy year at First Hawaiian Bank, especially with refinance applicants.
“We are currently at 3.25 percent,” Bamer says. “Will it go lower in the coming weeks and months is anyone’s guess. Anything can happen, but the Federal government has stated many times that they plan to keep rates low through 2013.
“The combination of home prices that are just beginning to rise and record low mortgage interest rates make buying a home more affordable today than it has been in many years,” he adds. “I think in five years, there will be a lot of people looking back extremely happy that they bought a home in 2012 or 2013.”
The biggest challenge facing borrowers has to do with getting the financing. Tighter lending requirements means buyers need to be on a sound financial footing in order to get approved for a loan.
No new regulations were put into place in 2012, however tightened lending regulations set forth in the aftermath of the collapse of the subprime market and subsequent economic downturn have prompted lenders to return to the tried-and-true principle of lending money only to people with a good credit history and with a sufficient cash down payment.
This return to more traditional financial requirements for buying real estate requires today’s borrowers to demonstrate their ability to repay the loan. Specifically, lenders are asking for higher credit scores and larger down payments – not unrealistic requirements.
“We now have to demonstrate that when we make a loan, the borrower has the ability to repay the loan,” says Joy P. McLaughlin, senior vice president of the residential real estate division at First Hawaiian Bank. “In 2013, the regulators are going to take this one step further and try to define what ‘ability to repay’ is. What they want to do away with are the stated income and asset-only loans.”
Banks rely on FICO (a credit score developed by Fair Isaac Corp. that ranges between 300 and 850) to determine the likelihood that a person will pay debts in a timely manner. Underwriting standards – terms used by banks to renew or extend credit – have become stricter to minimize the bank’s exposure to risk, which includes the elimination of no-documentation or no-money-down loans that were popular during the housing boom of 2005-2008.
In addition to eliminating the no-income-verification loans, lenders will likely be required to look more closely at a prospective borrower’s debt-to-income ratio, which can be determined by adding up all the recurring monthly debt and then dividing the total by the gross monthly income. The lower the ratio the better, meaning there is sufficient income to pay back the debt owed. Currently the debt-to-income ratio is capped at 45 percent, down from 55 percent, prior to 2009. There is a possibility that cap may be tightened again in 2013.
“At First Hawaiian Bank, we look at the borrower’s whole picture,” says McLaughlin. “By taking everything into consideration, we are better able to offer the right product based on the borrowers’ situation and needs.”
First Hawaiian Bank makes it easy to sort through all the options available by assigning you a personal banker who will help you decide which type of product makes the most sense for your particular circumstances. The personal banker will walk you through each scenario, get you pre-qualified and, most importantly, help you collect the necessary documentation in order to streamline the process.
In fact, despite stricter underwriting issues, if you have good credit, a steady income, and a reasonable debt load, you will find there is plenty of mortgage credit available – in time to take advantage of bargain rates going into 2013.
“While the new guidelines may make the process more cumbersome, they are there to protect the consumer,” says McLaughlin. “This is all good news for those who have the down payment, good credit and sufficient income to qualify.”