Signs of A Recovery, But Can You Get a Mortgage?

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Finally, after months of doom and gloom and the sky is falling, we’re starting to entertain the idea that somewhere, at some point, the economy will begin to recover. The impact of last year’s debacle will continue to show in our brokerage statements and home appraisals, but at the very least if things stabilize we’ll still be drawing a paycheck and have the ability to continue to save going forward. Even the big man himself Ben Bernanke is starting to look at things through (slightly) rose colored glasses:

“It depends a lot on the financial system. The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis. We’ve seen some progress in the financial markets, absolutely. But until we get that stabilized and working normally, we’re not going to see recovery. But we do have a plan. We’re working on it. And I do think that we will get it stabilized, and we’ll see the recession coming to an end probably this year. We’ll see recovery beginning next year. And it will pick up steam over time.”

With that knowledge in hand, you might think it is a good time to get in on a mortgage while rates are low and a recovery that could be around the corner. Unfortunately, that’s still a fairly difficult task even with recent efforts and having fairly good credit. It’s true that rates are low, with some fixed rate mortgages advertised around 5.5 percent, but you’ll need to jump through a lot of hoops to get it. Such hoops include borrowing less than 417,000, a very high credit score, low debt compared to your income, and perhaps most telling, you’ll have to buy in a real estate area where prices are comparably stable. In other words, unless you’re perfectly positioned, you probably won’t be getting a mortgage or if you do, expect to pay higher fees and interest rates.

The latter part of that statement is particularly important. Not surprisingly, real estate appraisers are having a tough time deciding what a house is worth. This makes it difficult if you’re a buyer in the market or if you’re a current homeowner trying to refinance. Even government-backed Freddie and Fannie are loading on fees and other ways to earn more revenue and they’ll hit you anywhere they can (again, unless you’re pristine across the board), making these mortgages difficult to obtain at best and cost-prohibitive at worst.

As recent loan modification efforts by Uncle Sam and the wider private industry work their magic we may see this process loosen up. Signs of an economic recovery may mean an opportunity to get in on the ground floor of the bottom (assuming that we hit the bottom at all), but don’t expect to take advantage easily.