The Outlook for Mortgages, 2015

The average 30-year fixed rate hovered around 4% in the past year, ending October at 3.98% (a one-year adjustable-rate mortgage averaged 2.4%). Kiplinger thinks that the 30-year rate will rise by less than a percentage point over the course of 2015, based on continued low yields on Treasury notes.

The 30-year fixed-rate mortgage has been below 5% for five years, contributing to a spike in home affordability. Of course, it doesn’t matter what the rate is if you can’t qualify for a mortgage, and tight mortgage credit is often cited as a reason for the slow pace of the housing recovery. Mortgage credit is much tighter today than it was in the lead-up to the housing bust, although lending standards started to tighten a year or two before prices plunged.

Looser credit. Most mortgages still go to borrowers with exemplary credit. In September, closed mortgages backed by Fannie Mae or Freddie Mac had an average credit score of 755 out of 850, and Federal Housing Administration borrowers had an average score of 682, according to the Ellie Mae Origination Insight Report, which analyzes closed mortgage loan applications. But most lenders will allow, say, a higher credit score to offset a higher debt-to-income ratio, or a larger down payment to offset a lower credit score. Jumbo mortgages (loans of more than $417,000, or $625,500 in high-cost areas) have made a comeback, with rates that are comparable to conforming loans. However, you may need a high credit score and a big down payment to get one.

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Still, it may be possible to get a mortgage with a low down payment without relying on an FHA loan. FHA loans, which allow borrowers to put down just 3.5% of a home’s purchase price, have been a market mainstay since the mortgage meltdown. However, a hike in FHA mortgage premiums imposed for the life of the loan (which effectively increase a 4% interest rate to 4.5%) and lower loan limits have pushed many borrowers to look elsewhere for a low-down-payment mortgage.

In an effort to expand credit accessibility, Fannie Mae and Freddie Mac are bringing back “3% down” programs for creditworthy borrowers (guidelines haven’t been issued yet). Plenty of mortgages (backed by Fannie Mae or Freddie Mac, or from private lenders who plan to hold loans in their portfolios) are available to borrowers with just 5% down, says Guy Cecala, publisher of Inside Mortgage Finance.

Lenders are easing up on documentation requirements, too, and are demanding just W-2 forms and pay stubs rather than two years of federal tax returns. If one lender rejects you for, say, an inadequate work history or irregular income, or you’re self-employed or paid on commission, shop for a lender that will offer some flexibility.