Mortgage Outlook: Mostly Good News

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Erin Lantz is vice president of mortgages for Zillow Group, a real estate information company.

How would you describe mortgage lending now: too tight, too loose or just right?

It feels closest to just right. Borrowers with good credit scores, low to moderate debt and steady income should have no problem getting a mortgage. When interest rates rise and refinance originations slow, lenders will have more capacity and will need to innovate to grow business. We expect them to invest more heavily in new products that will expand credit access.

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So you expect mortgage rates to lift off when the Federal Reserve acts?

The relationship between short-term rates and mortgage rates isn’t one-to-one, but mortgage rates will go up. The Fed’s own projections suggest about a one-percentage-point increase in the federal funds rate by year-end 2017. That would likely put conventional 30-year fixed mortgage rates in the low- to mid-4% range. [The national average 30-year fixed rate was recently 3.5%, according to Freddie Mac.]

What about down payments?

Despite the still-common misperception that you need at least a 20% down payment, you can get a mortgage with much less. FHA mortgages that allow you to put down just 3.5% have been common since FHA reduced the cost of mortgage insurance in early 2015. More recently, some lenders have begun targeting consumers with solid credit profiles who earn less than the median income in their area. For example, Quicken and Guaranteed Rate are offering loans for as little as 1% down to such borrowers who have FICO scores of 680 or higher.

How can borrowers smooth the way to closing?

I’ve heard anecdotally that appraisals are creating delays in some markets because the demand for appraisers exceeds the supply. Get your financial paperwork ready for the lender. The faster you turn it in, the faster the lender can order an appraisal. When the lender asks for something more, respond as quickly as you can. And ask your lender about a longer rate lock, too—say, 45 days.

Esswein joined Kiplinger in May 1984 as director of special publications and managing editor of Kiplinger Books. In 2004, she began covering real estate for Kiplinger's Personal Finance, writing about the housing market, buying and selling a home, getting a mortgage, and home improvement. Prior to joining Kiplinger, Esswein wrote and edited for Empire Sports, a monthly magazine covering sports and recreation in upstate New York. She holds a BA degree from Gustavus Adolphus College, in St. Peter, Minn., and an MA in magazine journalism from the S.I. Newhouse School at Syracuse University.