Mortgages gone bad have resulted in stricter guidelines imposed both by the government and private lenders.
The good news is that interest rates are low — in some cases below 6 percent — promising to save homeowners refinancing their mortgages or buyers purchasing a new home thousands of dollars.
In some ways, getting a loan at a good rate has never been easier for buyers with money for a downpayment, a good credit history and verifiable income. And even if you don't have a lot of money for a downpayment or perfect credit, there are still ways to get a loan or refinance a home. As a result, demand for mortgages has remained relatively strong, according to local mortgage brokers.
"Rates dipped five weeks ago from the mid 6's to the upper 5's," said Rick Capobianco, a senior loan officer with GMAC, with an office in North Andover. "That stimulated a whole new round of refinancing."
"It's been steady," agreed Ellen Roche of Mortgage Networks, a Bradford company that serves the Merrimack Valley and Southern New Hampshire. "People are always looking to purchase and refinance. The key is knowing which program to put them in for a smooth transaction."
Roche and Capobianco said the days of 100-percent financing of homes are all but gone, but that doesn't mean buyers have to put down 20 percent of the purchase price, as they once did.
FHA loans, those backed by the Federal Homeowners Administration, are the easiest to get, at the moment.
Roche said the FHA offers up to a 97 percent loan with 3 percent down.
Most loans, particularly those backed by Fannie Mae — a government-chartered private company that backs the loans offered by most lenders — require downpayments of 10 to 20 percent, depending on credit scores.
"Fannie Mae imposed guidelines so that any county listed as being in a declining market, which includes Essex County, can no longer do 100 percent financing," Roche said.
Interest rates on Fannie-Mae backed loans are also tied to credit scores. "If you have a credit score below 680, you'll end up with a higher rate," she said.
The result is that while three years ago most of Roche's loans were through Fannie Mae, most now are through FHA.
"Right now, FHA is almost the only way to go," she said.
Tarry Wason-Santos, a broker with Family Choice Mortgage in Haverhill, agreed.
"FHA loans are awesome," she said. "You can do a low downpayment, get a great interest rate and you don't need the best credit in the world. They haven't gone backwards on guidelines like the conventional loans have. They are stricter in their documentation, but not on their guidelines."
She said she had one client who had planned to go with a conventional, Fannie Mae loan and put 5 percent down. But when the rules changed, the buyers were required to put down 8 percent.
"So I flipped it to FHA, they got a better interest rate — under 6 percent — no points, a 30-year fixed rate with no prepayment penalties," she said.
The FHA also doesn't tie interest rates to credit scores, Roche and Wason-Santos both said.
Wason-Santos said the new restrictions on borrowing shouldn't scare away borrowers — but she has some advice on what to do before they start the process.
"There's more scrutiny on credit," she said, "so when I talk to buyers I tell them it's more import than ever to get preapproved. My advice to homebuyers is to keep up on your credit. Have your credit checked once a year; it's free.
"The next step is to meet with a loan officer, get preapproved and get a commitment letter," she said. "Then go house hunting."