Rising home prices have made mortgage insurers more willing to take on loans with lower down payments.
“Otherwise creditworthy borrowers who wanted to buy homes with lower down payments were largely left out of the market a couple of years ago,” Rao said. “Now some of those people are able to come into the market and buy. The market has opened for them.”
Even amid rising interest rates, more people are refinancing their mortgages because rising prices have helped them gain equity, which makes loan approval easier, according to Jeff Lazerson, president of Mortgage Grader Inc., an independent mortgage broker in Laguna Niguel, California.
In another sign of loosening credit, Lazerson began this year offering piggy-back loans to allow borrowers to refinance as much as 90% of the value of their property. A 10% piggy-back mortgage plus an 80% prime mortgage on a $700,000 home can cost about $3,100 a month at today’s rates, compared with about $3,575 for a 90% loan with mortgage insurance on the same property, Lazerson said.
“That $475 a month adds up over time,” he said in a telephone interview. “And I don’t perceive it as being high risk.”
Piggy-back loans became common during the credit bubble before the housing crash, when lenders offered first loans worth 80% of a home along with 20% second mortgages, enabling purchases with no down payment, even for borrowers with low credit scores. Those types of loans became rarer when home prices plunged and lenders in the second position faced mounting losses.
When it comes to purchases, buyers offering low down payments still are locked out of the market in California, the only state where Lazerson is licensed to offer loans, because appraisals haven’t been keeping pace with price increases and other bidders can offer more reliable financing, he said.
“Listing agents aren’t willing to accept buyers with low down payments,” Lazerson said. “It’s a sellers’ market and every house has five or 10 offers if it’s priced right.”
For those who can find a property, rates are low enough that it won’t “crimp people’s ability to buy,” said Credit Suisse’s Swaminathan.
“It’s much more dependent on jobs growth, sentiment and outlook on where things are going and as long as that remains solid then even a 5% mortgage rate is not the end of the world,” he said.