4:03 a.m. EDT, May 4, 2012
Home interest rates plunged to historic lows this week as more South Floridians are working to boost their credit records so lenders will trust them with a mortgage.
The average 30-year, fixed-rate mortgage interest rate plunged this week to 3.84 percent, Freddie Mac reported Thursday. Last year at this time, the rate was almost a percentage point higher at 4.71 percent.
The average interest rate on 15-year, fixed-rate mortgages also dropped to a new low of 3.07 percent, from last week's average of 3.12 percent, Freddie Mac said.
With mortgage interest rates setting record lows since last fall, the number of people seeking credit counseling to improve themselves in the eyes of lenders has grown.
Twenty-five percent of clients seeking help now from Consolidated Credit Counseling Services say their goal is to buy a house, said Howard Dvorkin, founder of the Fort Lauderdale-based nonprofit organization. That's up from 16 percent six months ago.
"We've definitely seen a surge" in people trying to qualify for home mortgages, said Kevin Maher, community outreach director of Credit Card Management Services in West Palm Beach.
Monica Benavides, a Consolidated client who lives in Miami, estimates she needs another 18 months to pay off bills and improve her credit score before she starts house hunting.
"I'm nearing the finish line," Benavides said. The goal is to not only get a mortgage but to also qualify for a rock-bottom interest rate, she said.
Sheila Austin will close on a three-bedroom pool home in Sunrise on Friday after two years improving her credit score. She paid off her car loan and made regular credit card payments.
The result: Her house will cost only $50 more a month than she's paying to rent a two-bedroom apartment.
"I can't believe it's happening," Austin said, adding, "I got my credit score in the low 800s."
For prospective homebuyers who have dealt with unemployment — South Florida's unemployment rate was 10.1 percent in 2010 — raising a credit score may take months of paying down credit card debt and developing a track record of paying on time.
Although Austin had a stellar credit score, her mortgage broker Adam Cohn said people can get home loans with scores of 600-640. A credit score is a three-digit number that attempts to predict credit worthiness and the risk of a consumer becoming seriously delinquent in the two years after the score is tabulated.
The trek to mortgage-worthiness will take longer for some. Last year, 34,492 South Floridians filed for bankruptcy. Others faced foreclosure: 20,511 properties in Broward County and 18,269 in Palm Beach County were in some stage of foreclosure last year, according to RealtyTrac, a foreclosure listing firm.
Credit rehabilitation will take longer for those prospective homebuyers.
Some could wait four to five years, said April Lewis-Parks, director of education and public relations for Consolidated Credit. When they do qualify, they will face interest rates that are higher than average, she said.
Those with a short sale or a foreclosure in their past may need two to five years to improve their credit, said Randy Bianchi, co-owner of Paradise Properties of Florida in West Palm Beach.
Some lenders have been forgiving recent short sales as long as the buyers weren't dumping a home so they could buy another, cheaper house, said Cohn, a Boca Raton mortgage broker.
If a family had a short sale to relocate for work, then some banks will go ahead with a new loan within months of the short sale, Cohn said. "As long as there is legitimate reason," he added. "I personally have gotten several approved."
For those working to improve their credit, experts advise:
Regularly pay bills on time, Maher said.
Resolve old cellphone contract disputes, he said.
Go to hud.gov to find a free, federally approved housing counselor.
Get preapproved for a mortgage amount before searching for a home, Bianchi said. "Otherwise, it's just a dream tour."
Staff writers Paul Owers and Marcia Heroux Pounds contributed to this report.