Lately it's felt like real estate is on the upswing. In North Texas, we have some of the healthiest housing markets in the country, buyers aren't relying on two incomes to purchase, and there's even evidence that it's now cheaper to own a home than rent an apartment.
But getting approved for that mortgage might not be as easy as you think.
According to Zillow and its Mortgage Access Index, mortgage credit availability is almost unchanged from a year ago, meaning there has been little progress toward making mortgages easier to obtain over the last year. Since 2012, the index number has been steadily improving — we're two-thirds of the way back to pre-crisis 2002 levels — but access to mortgage credit tightened in the first quarter of 2015.
That may not be a bad thing. In a Zillow survey earlier this summer of more than 100 economists and housing experts, more than 60 percent said they expect mortgage regulations to loosen further, with many expressing concern the market will become too lax over the next year.
"Recent market volatility is causing some lenders to be more cautious in their underwriting," said Zillow chief economist Dr. Svenja Gudell in a statement. "Tighter mortgage access will make it harder for people with low credit scores to get a home loan, and even people who can get approved for a mortgage will have fewer options in terms of available mortgage products."
How is the ZMAI determined? There are seven variables to measure access to credit:
- Credit score: The lowest 10th percentile of credit scores to reveal which borrowers were on the cusp of denial in the period. Lower credit score approval indicates mortgage credit loosening.
- Debt-to-income ratio: The 90th percentile of borrower debt-to-income (total monthly debt payments as a percent of gross monthly income). An increase in debt-to-income ratios suggests mortgage credit is loosening.
- Private mortgage insurance: The proportion of low down payment loans that are privately insured. Since FHA loans cater to lower credit scores but often come with higher costs, an increase in privately insured mortgages would indicate mortgage credit is loosening.
- Second mortgage prevalence: Home equity loans and lines of credit as a percent of all loans in a given period. An increase in second mortgages suggests mortgage credit is loosening.
- Non-conforming loans: Among loans with down payments over 20 percent, the percentage that are non-conforming. An increase in non-conforming loans signals lenders are willing to take on additional risk and therefore would indicate mortgage credit is loosening.
- Mortgage rate spread: The spread between 30-year fixed mortgage rates and the 10-year treasury rates. A narrowing spread suggests mortgage credit is loosening.
- Zillow mortgage quotes: Tracks the monthly average number of quotes given to borrowers with credit scores between 600-640 compared to the number given to borrowers with credit scores of 760 or higher. The closer the two numbers are, the easier mortgage credit is to obtain.