Low mortgage rates out of reach for most Arizonans

Mortgage rates have fallen to unprecedented lows this year, but local analysts said only a fraction of Arizona consumers meet the financial requirements to take advantage of them. Even fewer prospective borrowers have the sort of financial pedigree that would earn them today's lowest advertised rates, they said.

The lowest available rate for a conventional, 30-year fixed-rate mortgage in Arizona was less than 4 percent on Wednesday, according to online lender exchange LendingTree.com.

Also on Wednesday, the Mortgage Bankers Association reported that the national average rate for a 30-year fixed loan was 4.6 percent, and the latest available data on Federal Housing Administration loans indicates an annual rate just above 5.2 percent.

In all cases, today's mortgage rates are the lowest in years, offering a huge financial incentive to buy a home or refinance an existing mortgage.

The only challenge is meeting lenders' underwriting standards.

It's a challenge most Arizona consumers are not able to meet, said Paul Klimke, president-elect of the Arizona Association of Mortgage Professionals.

Klimke said that underwriting standards aren't any tougher today than they were 15 years ago but that the financial climate has changed dramatically.

"The tough economy has pushed people's financial history and financial stability to the point where they don't qualify," said Klimke, who is also branch manager at AmeriFirst Financial Inc. in Mesa.

For an FHA loan, the easiest mortgage loan for which to qualify, a buyer must have enough cash for a down payment of 3.5 percent of the home's purchase price.

The minimum down payment for a conventional loan, the kind guaranteed by government-sponsored guarantors Fannie Mae and Freddie Mac, is at least 5 percent.

The vast majority of today's loan applications are for FHA loans, said Tina L. Rose, branch manager of Allied Home Mortgage in Phoenix.

While the FHA does not technically have a minimum credit-score requirement, she said, most lenders will not underwrite an FHA loan unless the borrower's credit score is at least 620.

"You still have to satisfy the lender," said Rose, who is also vice president of the Arizona Association of Mortgage Professionals.

To get loan terms akin to the 4 percent rate touted by LendingTree.com, Klimke said, the borrower most likely would need a credit score of at least 720 and would have to put 20 percent down on the home purchase.

Other general requirements for all mortgage loans include having enough money left in the bank to cover mortgage payments for two months, no credit-card payments more than 30 days late within the past two years, and no home foreclosure, deed in lieu of foreclosure or short sale within the past three years, Klimke said.

While such requirements existed on paper even throughout the housing boom, Klimke said lenders have stopped ignoring them and are now allowing no exceptions.

"Banks are holding (applicants) to the letter of that standard," he said.

by J. Craig Anderson - Aug. 19, 2010 12:00 AM



Low mortgage rates out of reach for most Arizonans