Do Increased Mortgage Rates Indicate Easier Credit Options?

After several consecutive years, mortgage rates are on the rise. With refinances dramatically decreasing, banks are beginning to explore new business opportunities. This in turn has some banks decreasing strict loan standards in a desperate attempt to attract new borrowers.

Reports show that credit availability increased a dramatic 2-percent in July, up an astounding 3-percent from May, which marked the increase for interest rates.

Products that offer higher Loan-To-Value ratios, accept lower credit scores and even offer cash-out refinancing options drive this latest increase. With mortgage applications down nearly 50-percent from a year ago, refinances are no longer the bread and butter that make up the loan industry. Applications for new purchases are only up 5-percent.

As interest rates increase, it puts interested homebuyers on edge, especially those that aren’t used to taking gambling risks, such as those involved in real estate investing. While subpar credit standards were blamed for contributing to the housing crisis, the banking industry responded in 2007 with strict regulations that largely made it impossible for the average homebuyer to purchase a home. With lenders requiring larger down payments and higher than average credit scores, new home ownership has greatly decreased within the last six years.

The government created FHA, which was initially instituted to help decrease borrowing standards. FHA has recently raised their loan guidelines, as well as required insurance premiums. Once the real estate bubble burst, many lenders added their own guidelines on top of the government approved standard requirements. Many banks instituted these guidelines, as refinances were so abundant, they were attempting to minimize loan applications.

Now that loan volumes have dramatically decreased over the last few months, banks are beginning to evaluate their personal guidelines, especially those related to multiple home ownership and self-employed individuals.

Loan competition will continue to increase as interest rates rise and many banks have even instituted layoffs as refinance volumes continue to fall. While purchase applications are up, homes sales are beginning to slow as home prices increase and purchasing a home becomes more competitive.

If traditional bank loans have homebuyers frustrated and jumping through hoops, there are excellent alternative options, which include bridge loans. Bridge loans are simply designed to bridge the cost of investments from one closing to another. This means if a homebuyer finds his/her dream home, but hasn’t sold his/her current home, bridge loans offer the benefit of bridging costs so a new home can be purchased before the old home is sold. Better Than Loans is a direct lender that offers fast loan funding for bridge loans.