When you ask 29-year-old Anthony Walker about the home he owns, his response is a chorus of resigned sighs. It’s not quite the reaction you’d expect from one of the few in his generation who has managed to achieve homeowner status. But the property Walker co-owns with a good friend and former roommate is deeply underwater. That means that since he purchased the property, the value has slipped so much that the house is worth less than total mortgage debt taken out to buy it. As time passes, he’s growing increasingly doubtful that he’ll ever see the property value back in the black.

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It’s a predicament that more and more owners of less expensive starter properties are facing. Homes that were bought for a “reasonable” price at the top of the market are now floundering in negative equity and according to Svenja Gudell, the director of economic research at the real-estate data firm Zillow, there’s a good chance that such properties will never be worth the mortgage debt owed on them. “In the lowest third of the housing market, not only are you more likely to be underwater, but homeowners tend to be very deeply underwater,” says Gudell. “It will take a really long time to lift some of those homeowners out of negative equity. And some of them will never reach positive equity.”

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Walker bought his home in 2007. The two-bedroom, two-bath condo is in a renovated building in East Orange, New Jersey, which borders Newark. Though the neighborhood isn’t the most polished, Walker says that they were already constrained by price because they were close to New York City, which is less than 20 miles away. “The budget restrictions forced us into neighborhoods that were probably fringe, transition-zone neighborhoods at best,” Walker says. “There were several new townhouse communities, condos, or residential buildings that were going up within a mile radius of where we were looking to buy. So in some respects we thought that the neighborhood was transitioning to be more like neighboring West Orange and Orange than Newark.”

Walker, like most Americans in 2007, figured he was making a sound investment in real estate that would surely appreciate during his lifetime. Even if he chose to move, he thought, his condo might provide some financial benefit down the line

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Mortgage rates are hovering at levels unimaginable a generation ago. But for many would-be home buyers, a low-rate loan has been tantalizingly out of reach, denied by tight-fisted lenders still skittish from the housing bust.

That’s finally changing. Now, thanks to rising home prices, less-stringent down-payment requirements and new rules that limit lenders’ liability when loans that meet certain criteria go bad, borrowers should encounter fewer obstacles getting a mortgage. No one wants to go back to the days of too-easy credit. But a little loosening will provide a shot in the arm for the sluggish housing market as it opens the door to buyers who have been shut out of the market and provides more options for all borrowers.

It’s still true that whether you’re buying your first home or trading up, the stronger your qualifications, the lower the interest rate you’ll be able to lock in. Borrowers with a credit score of 740 or more and a down payment (or equity, in a refinance) of at least 25% will get the best rates. You don’t have to meet those benchmarks, but if you don’t, you could see—in the worst case—as much as 3.25 percentage points tacked on to your rate.

First-time home buyers usually find that accumulating a down payment is their toughest challenge. The same goes for many current homeowners who lost most of their equity in the housing bust. A popular misconception is that you must put down at least 20%. Usually, you’ll need much less. For a loan of $417,000 or less that is backed by Fannie Mae or Freddie Mac (called a conforming loan), you’ll need just 5% for a fixed-rate mortgage or 10% for an adjustable-rate loan. For “high balance,” or “conforming jumbo,” loans of up to $625,500 in high-cost markets, you must ante up at least 10% and meet slightly higher credit-score requirements.

Non-conforming jumbo loans of more than $625,500 are more widely available than before, with lenders offering them at rates comparable to conforming loans, says Guy Cecala, publisher of Inside Mortgage Finance. Because lenders keep these mortgages on their own books rather than sell them to Fannie Mae or Freddie Mac, the loans require higher credit scores than for conforming mortgages and at least a 10% to 15% down payment, says Ramez Fahmy, a branch manager with Caliber Home Loans, in Bethesda, Md.

After home prices tumbled, your only option for a low-down-payment loan was an FHA mortgage, which requires just 3.5% down (and a minimum credit score of 580). But borrowers must pay for FHA mortgage insurance—an up-front premium of 1.75% of the loan amount and an annual premium of 0.85% of the loan.

Fannie Mae and Freddie Mac recently resurrected loan programs that allow just 3% down on a fixed-rate mortgage. For Fannie Mae’s program, at least one borrower must be a first-time home buyer. Fannie’s program launched in December 2014, and Freddie’s will be available to borrowers whose loans settle on or after March 23, 2015. Big banks aren’t rushing to offer the program, while smaller, nonbank mortgage lenders seem eager to sign on, says Cecala. Borrowers who qualify will save money on interest and mortgage insurance compared with FHA loans.

If you do put down less than 20%, you must pay for private mortgage insurance (PMI), which protects the lender if you default. The more you put down and the higher your credit score, the less coverage you’ll need and the lower the cost of PMI. The annual cost for a 5%-down loan runs from 0.54% to 1.52% of the loan balance, according to a recent report by WalletHub.com, a financial-information site. When your equity reaches 20%, you can ask the lender to cancel the PMI; at 22%, the lender must automatically cancel it.

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http://www.kiplinger.com/article/real-estate/T040-C000-S002-it-is-easier-to-get-a-mortgage-in-2015.html