Financing the American Dream

homeWhen the housing bubble burst, the free-flowing money used to finance a home shut down to a trickle. After a few wild years where many companies encouraged buyers to stretch their definition of how much house they could afford, prospective home buyers now found an entirely new and somewhat desolate landscape.

No more five percent down. No more loans with no income verification (known in the business as “liar loans”), no more creative financing that deferred painful reality until some rosy future, when a huge balloon payment would surely be affordable.

There’s been an unmistakable upturn in the real-estate market, and wobbly steps toward an economic recovery overall. So does that mean it’s getting easier to get a mortgage when you’re ready to buy?

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“I wouldn’t say the lending industry is loosening,” said Malcom Hollensteiner, director of retail lending sales and products at TD Bank. “Credit requirements haven’t loosened and lenders are required to be sure the borrower can afford what they’re buying. But we are starting to again offer products that were thrown out in an attempt to clear everything up quickly. There are simply more programs – but no signs of the craziness of no-documentation loans.”

Hollensteiner said the bulk of TD Bank’s mortgages are standard conforming loan programs – not FHA or jumbo loans – programs designed for the opposite extremes of the financing spectrum.

“Lenders are exercising good common sense,” he continued. “There’s been an improvement in real estate in the past six months, and consumers are starting to see that they can afford to buy. There is a gradual realization that they can get a mortgage.”

Mortgage rates are at historic lows, one factor credited for the real estate turn around. Combine fixed rates at around 3.5 percent and 15-year and adjustable rates at 3 percent or less with prices that are still far lower than they were ten years ago and you’ve got a classic buyers’ market.

The banks are responding with programs to encourage first time buyers to take the leap.

Wells Fargo, one of the largest lenders in the nation, has two programs aimed at low- to moderate-income buyers. The Community Development Mortgage Program requires a minimum 2 percent down and requires no private mortgage insurance – a hefty monthly addition to mortgages required by the FHA.

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