5 best metro areas for mortgages

Where you live affects what you'll pay. In these areas, homebuyers get lower average loan rates, and fewer homes are headed for foreclosure.

[Related content: homes, home financing, foreclosure, mortgage, home prices]

By Forbes.com

Near-record-low mortgage rates should be good news for homebuyers, but restrictive lending still makes it hard to get a good loan in most parts of the country.

Yet in a few metro areas, such as Houston, Dallas and Kansas City, Mo., you'll find some of the lowest mortgage rates and the smallest percentages of people with extremely delinquent loans or foreclosed homes.

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Because more people in those metro areas are current on their loans, local banks are more likely to lend -- and offer decent terms.

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The reason these places are more borrower-friendly is that the local housing markets never saw the cascading real-estate prices that led to delinquencies and foreclosures elsewhere. As a result, borrowers are less likely to have "underwater" mortgages -- home debts that exceed the value of the homes -- and can refinance more easily. A healthier market means more lending.

However, this doesn't mean that relocating to the Kansas City area will have banks clamoring to offer you a low-interest loan. Families with poor credit will struggle to get financing anywhere, as lenders simply aren't willing to take risks. But borrowers in certain metro areas, on the whole, have it just a bit easier.

The best locales for borrowers

Rank	Metro area	Average effective home mortgage rate	Delinquent mortgages, Jan. 2009*	Delinquent mortgages, Jan. 2010*	Foreclosures, Jan. 2009	Foreclosures, Jan. 2010
1.	Kansas City, Mo.-Kan.	4.94%	2.8%	4.0%	1.0%	1.5%
2.	Houston	5.03%	3.8%	4.4%	0.8%	1.5%
3.	Dallas	5.06%	3.0%	4.3%	0.9%	1.5%
4.	Virginia Beach, Va.	5.06%	2.5%	3.9%	0.8%	1.4%
5.	San Antonio	5.12%	2.7%	3.9%	0.8%	1.3%

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* Delinquent 90 days or more

Behind the numbers

To find the best metro areas for borrowers, we first determined which communities had the lowest effective mortgage rates -- the mortgage rates including the upfront fees -- using data from the Federal Housing Finance Agency, the agency in charge of Fannie Mae and Freddie Mac.

We wanted to find out where borrowers were doing well overall, not just where mortgage rates were lower. So, for the 35 major housing markets that the FHFA tracks, we factored in the change -- from January 2009 to January 2010, the most recent data available -- in the percentage of homes in foreclosure.

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We also ranked the year-to-year change in the percentage of homes that were 90 days or more delinquent -- the so-called shadow inventory that will soon flood the market with foreclosures -- for each corresponding metropolitan statistical area. For that we used data from Lender Processing Services, a mortgage industry service provider in Jacksonville, Fla.

By ranking metros on those four measures and averaging those rankings, we arrived at a list of the top metro areas for borrowers.

There's also a much simpler sign that a metro area is good for borrowers: home-sale prices that are on the rise. It may seem counterintuitive because, on an individual basis, the higher the home price, the tougher it is to get a loan. But borrowers in general are in the best shape where home prices are rising; falling prices increase foreclosures, which influence restrictive lending.

But you won't find a better mortgage rate than in Boston, where it's the lowest of any major metro area, at 4.78%.

West Coast cities Seattle and Portland, Ore., also do well when it comes to average mortgage rates, but lending is consistently better in the Seattle area, where the foreclosure crisis has had only a limited impact. Foreclosures are rising in every major metro area, but only by a tiny margin in Seattle, where they increased 0.44% in a year.

In the end, however, it all comes back to the most important element of real estate: location. Where you live makes a difference to your mortgage. Someone with good credit and enough cash for a 20% down payment will spend more on interest for a 30-year fixed-rate mortgage in California than in Texas. The state-to-state differences are small, but they show location is factored into interest rates. And in metro areas where credit tends to be readily available, housing markets are much better off.

"Availability of credit is a big driver of home demand," says Steve Berg, the managing director of applied analytics for Lender Processing Services. "You can want a house really badly, but if you can't get the money to borrow, that's going to be a problem for most people."

This article was reported by Francesca Levy for Forbes.com.