At a time when mortgage rates are volatile, potential homebuyers are understandably nervous about what's coming next. After all, higher rates could dramatically reduce their buying power.
But while mortgage rate changes are a perfectly legitimate concern, Guy Cecala, a home loan expert and the CEO of Inside Mortgage Finance magazine, says the overall environment for borrowers is improving.
"I wouldn't say lending standards have become loose. But they're gradually getting looser than they were right after the credit crisis," Cecala says.
To cite a few examples, he notes that many lenders have stopped demanding down payments as large as those sought in the immediate aftermath of the economic downturn of a few years ago. Nor are they insisting on as high a credit score.
"Finally, it's also getting easier to obtain a mortgage if you're self-employed," Cecala says.
He predicts that layoffs in the mortgage business -- like those recently announced by the behemoth Wells Fargo -- are destined to become widespread. But he says this shouldn't affect customer service because banks and other lenders are still hungry for business.
"What's going on is the right-sizing of the mortgage industry. That's due to the drop off in refinancing activity and the fact that home purchase volume is rising only slowly. But the industry still has plenty of capacity to make loans," Cecala says.
He encourages homebuyers -- especially first-time purchasers -- to seek out lenders capable of originating an array of different kinds of home loans. That way their customers are more likely to obtain the best type of mortgage for their needs.
"It used to be that FHA was the obvious choice of first-time buyers. But the insurance premiums on FHA loans have risen to the point that conventional loans could be a good alternative for more people," Cecala says.
Here are a few pointers for home-loan shoppers:
-- Start by going to the Internet for baseline data on mortgage rates.
Those attuned to the lending industry know that a wealth of information on mortgage rates is available on the Internet. As a starting point in their mortgage search, Eric Tyson, co-author of "Mortgages for Dummies," suggests that homebuyers visit the websites of Bankrate (www.bankrate.com) and HSH Associates (www.hsh.com).
"When you track rates online, you get good benchmarks that help you make sure any deals you're quoted are truly competitive with the market," says Tyson, a personal finance expert.
Should you apply for a mortgage through an online lender? On that point, Tyson advises caution.
"At the end of the day, you're probably going to be a lot more comfortable dealing with a local lender you can see face-to-face if complications develop," he says.
-- Try to get references from lenders you're considering.
Whether you're looking for a buyer's agent to help you locate the best possible property or seeking a mortgage lender, references are enormously helpful, Tyson says.
Tyson says a better way of learning about mortgage lenders is to tap into a database of customer reviews from a company that tracks service providers, such as Angie's List (www.angieslist.com).
"What you're looking for is much more than simply low rates. You'll also want a lender who can complete your transaction on time and with a minimum of hassle," Tyson says.
-- Ask your real estate agent for the names of several lenders.
Many real estate agents maintain a database of lenders who can be counted on for smooth mortgage processing. Knowing whom they can trust is vital to agents because they don't earn commissions unless their clients obtain financing and their transactions go through.
"Good agents aren't going to jeopardize their reputation by giving out recommendations for lenders who don't have a positive track record for performance," Tyson says.
He suggests that you ask your agent for the names of at least three lenders he or she trusts, knowing that at least one or two likely are affiliated with the agent's company.
"It's very important that you shop widely," he says.
-- Look out for red flags when interviewing lenders.
Most loan representatives work on a commission basis. What's more, the size of their commissions is often tied to the size of mortgages they make. That gives them an incentive to make the largest possible loans.
Because of this, Tyson says you should be wary of any lender who pushes you to take out a mortgage bigger than your comfort level.
"Good mortgage lenders are good listeners. They ask you questions about your plans -- including how long you intend to stay in the home you want to buy -- to determine the most appropriate mortgage for your needs," he says.
-- Remember the importance of your mortgage decisions.
The recent recession taught many people about the serious implications of making a hasty or ill-considered decision on home financing. Although abuses by lenders were widespread, many homebuyers allowed themselves to be lured into mortgages with provisions they didn't fully grasp.
With the current easing of lending standards, it's once again very possible that lenders could encourage you into a type of loan for which you're ill-suited.
Tyson says it's critically important to understand the terms and conditions of your mortgage financing before you close on a deal.
"Never forget that the mortgage you take out to buy a house is probably the single biggest financial obligation you'll ever make," he says.
(To contact Ellen James Martin, email her at email@example.com.)