Since the 2007 housing market bubble popped credit standards have increased exponentially leaving many people with little to no chance of obtaining a loan to buy a home. This has been one of the key factors holding back any sustained recovery for the housing market.
Before the crisis began one only had to have a credit score in the mid to upper 500's, but these days that score has been set at 700 and it's been that way for over a year.
Now, many economists hope that this year the housing market crisis will come to an end with the easing of banks lending standards and a loosening of credit.
As current sign of improvement is that the banks are loosening their LTV’s (loan-to-value ratios). A loan-to-value ratio or LTV ratio shows the amount of a mortgage lien as a percentage of the total appraised value of the home. For instance, if a borrower takes out a loan of $140,000 to buy a home worth $160,000, the LTV ratio is $140,000/$160,000 or 87.5%. Today, banks are showing higher LTV's.
An LTV is one of the many risk factors that lenders take into consideration when qualifying a borrower for a mortgage. Additionally, the lender may require borrowers of high LTV loans to buy mortgage insurance to protect the lender should the buyer default on the loan. As a result, this will increase the cost of the mortgage to the borrower.
As the banks ease up on their lending standards and loosen credit it's hopeful that this whole mess may end sometime this year. Keep your fingers crossed!