Interest rates declined for the sixth consecutive month to 3.40% in June, according to the latest Ellie Mae Insight Report.
Rates for 30-year fixed-rate conventional loans and FHA loans dropped to 3.40%, and rates on VA loans dropped to 3.20%.
New purchase loans now make up 42% of all closed loans, up from 35% in May.
This is a good sign that the purchase market is starting to pick back up to levels before the pandemic.
Increased Credit Requirements
Conventional loans made up 80% of all closed loans in June, up from 68% in June of 2019. FHA loans made up just 10% of all closed loans in June, compared to 18% at this time last year. The average credit score in June was 751.
This data suggests is that lenders are tightening their credit score requirements on all loan products. This includes FHA loans which normally require a 580 credit score with 3.5% down. Many FHA lenders are now requiring credit scores above 600 for FHA loans.
Increase Your Credit Score Before Applying
Before applying for a mortgage you should find your credit score and get a copy of your report to make sure there are no errors.
- Get a copy of your report and scores – You can get a free copy of your credit report online at www.annualcreditreport.com
- Pay down credit card balances – Credit utilization ratio is the amount of available credit you’re using. The higher your card balances the lower your score will be. Try to keep your credit card debt below 20% of the credit limit.
- Don’t have your credit checked – Anytime you apply for a loan or line of credit a lender will pull a copy of your credit report, this is known as a credit inquiry. Having too many credit inquiries within a short amount of time can lower your credit score. Hold off on getting that car, or a new credit card until after you have already closed on your mortgage.
- Pay your bills on time – Your payment history accounts for 35% of your credit score, it’s the single biggest factor in determining your credit score. If you have a tendency to forget to make your payments, you should set up automatic bill pay for each account. A single late payment could prevent you from being approved for a mortgage loan.
Market Prices Trent Upwards
Rich Barton, co-founder, and CEO of Zillow points out the reason for the residential market being hot in the middle of a recession is part of the “Great Reshuffling”, a phenomenon brought on by the pandemic.
Many employees are working from home because of social distancing, many companies will continue having employees work remotely. Because of this, there is no need to live in a major metropolitan city to be close to work so we’re seeing a lot of people moving to the suburbs because housing is cheaper and the communities are safer.
You may be debating whether or not to buy a home in this current climate, but with interest rates below 4% and a booming market, now is a great time to buy home.
Are you in the market to buy a house?