Another Drop in Mortgage Rates

 The end of March saw another rate drop for the second week in a row even with the uncertainty stemming from the economy and bank failures. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.42% which was down from 6.60% the week prior. Unfortunately, this is still no match for the 30-year fixed-rate mortgage rate from a year ago at 4.42%.

“Mortgage rates continued to slide down as financial market concerns came to the fore over the last two weeks,” said Sam Khater, Freddie Mac’s chief economist.

“If mortgage rates continue to slide over the next few weeks, look for a continued rebound during the first weeks of the spring homebuying season,” replies Khater.

The Fed will still likely boost the rates a little to offset the volatile economy we are currently in. Robust economic data suggested the Federal Reserve was not done in its battle to cool the US economy and would likely continue hiking its benchmark lending rate. The rate was raised by the Feds at the end of March by a quarter point but the Fed also said that the aggressive rate hikes will more than likely stop.

“Depending on the extent of the impact of a tighter banking sector, Powell expressed a ‘wait-and-see’ approach to further contractionary policy. However, the federal funds rate is expected to remain elevated through the end of the year, meaning that a higher interest rate environment is here to stay for the time being, including for home loans,” says Hannah Jones with Realtor.com.

The rate is based on the yield on 10-year US Treasury bonds which will move according to the Fed’s action. Basically, when the Treasury goes up, mortgage rates will also go up and when the Treasury goes down, so do mortgage rates.

“At the current price and mortgage rate level, the typical housing payment on a median-priced home is 43% higher than one year ago,”said Jones.

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Experts Predict Record Increase in 2022 for Conforming Loans

 The housing market has had some price increases in homes in the past year. The spike has not only hit the home buyer's pockets but has pushed the limits of conforming loans to what experts anticipate may be record increases in 2022.

The Wall Street Journal reported that the maximum loan limit will be close to $1 million for high-cost areas for Fannie Mae and Freddie Mac. Those loans that are over the loan limits will be considered non-conforming or jumbo loans and will also be charged higher interest rates.

Many home buyers are excited about the increase. Those in high-cost areas will now not be considered jumbo loans. "There are so many benefits to having a conforming loan, increasing the loan limits will be huge," said Melissa Cohn, Regional Vice President at William Raveis Mortgage.

Freddie Mac and Fannie Mae are not lenders but they buy loans back from lenders and turn around and sell them to investors. In turn, loans are cheaper for lenders and they can offer better rates to their consumers.

Now with the higher limit for conforming loans, more homebuyers will qualify. The consumer will spend less on their down payments and can have a lower credit score to be approved.

This change comes as the home prices have increased around 7.42% between the third quarter of 2019 and 2020. Due to the rise, the baseline maximum conforming loan limit will increase.

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May Brings Another Dip in Mortgage Rates

 

Freddie Mac reported that the interest rates on a 15-year and 30-year fixed-rate fell the first week in May. This will be the third consecutive week that the mortgage rate for a 30-year stayed below 3%. The interest rate on a 30-year fixed dropped to 2.96% while the 15-year rate fell to 2.30%. The drop is a great chance for those who did not get a chance to lock in a rate when the rates hit a record low to go ahead now and take advantage.

“The combination of low and stable rates, coupled with an improving economy, is good for homebuyers,” said Sam Khater, Freddie Mac’s Chief Economist. “It’s also good for homeowners who may have missed prior opportunities to refinance and increase their monthly cash flow.”

The housing market is still reeling from low rates and housing inventory. The strong demand coupled with the low inventory is driving home prices up.

“Real estate markets continue to see asking prices near record highs, as the favorable financing environment has motivated buyers to keep searching for homes, even amid tight inventory,” said George Ratiu, senior economist at Realtor.com.

Now is a great time to purchase a home with low rates. Rising inventory and low rates are especially pleasing right now for first-time homebuyers. If you are in the market be sure to hire a local sales agent to help you through the process.

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How A Down Payment Can Affect Your Purchasing Power

Down payments are a big part of purchasing a home with a mortgage  Your minimum down payment depends on the type of mortgage, the lender and your finances.

When borrowing money from a lender to purchase a home, the more cash you put down, the better your financing terms will be. It is important to understand what a down payment is and how much cash you need to have. A down payment is the cash that is put down on a large purchase such as a car or a home. The amount of the down payment is usually a percentage of the total amount of the cost. A $350,000 home with a down payment of 10% would be $35,000.

Different lenders and different loans will require a different percentage of the whole cost for the down payment. If you are obtaining a VA loan or a USDA loan you are not required to make a down payment because these are backed by the federal government. The magic number in most cases, when it comes to a down payment, is 20%. With most lenders, 20% down on the purchase of a home will give you a good mortgage rate and allow you to bypass mortgage insurance. An FHA loan that is backed by the FDA, requires a minimum of 3.5% of the purchase price. Many conventional loans (Fannie Mae HomeReady and Freddie Mac Home Possible) mortgages require as little as 3% down.

Remember, a larger down payment will get you a better mortgage interest rate, lower upfront and ongoing fees, more equity in your home from the start and a lower mortgage payment. Lenders like a larger down payment because the risk becomes lower for them. A professional lender can help you through this process. They can help you determine how much to put down and how it affects your monthly mortgage amount.

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FHA Reducing Loan Costs for Credit Challenged Buyers

There is no question that the Recession affected both the mortgage industry as well as the home buying process when it comes to obtaining a loan to buy a new home.  Mortgage companies, lenders, and banks had their feet “held to the fire” and were required to jump through multiple hoops in all categories and steps to the loan procurement process.  Even now, on average, it takes 6 weeks to 3 months just to refinance your existing home even if you have (and have had) a steady job, money in the bank, equity in your home, and excellent credit.  The strict requirements that lenders are applying

to loan applicants are also being applied to their own corporations with stiff penalties and sanctions in store for any bank or mortgage company that even comes close to “bending the rules.”

With that being said, Fannie Mae and Freddie Mac who were able to restructure and survive the housing market falter have now found a way, along with the FHA (Federal Housing Administration) to finally bring some relief to first-time home buyers by offering loans with either a 3.5% or 3% down payment of the loan.  Now, the FHA has reduced the cost of its loan for first-time home buyers, dropping from 1.35% of the loan value to just .85% of the loan value.  The FHA provides an affordable loan to all home buyers and does not, for the most part, discriminate against home buyers who are “credit challenged,” those who may have a less than stellar credit score.  Therefore, as long as you are above the threshold of the credit score required by the FHA, your loan cost will be the same whether you are 5 points above the threshold or 200 points above the threshold.

FHA loans are the most beneficial for custom home buyers who cannot afford a 10% down payment on their loan, who may have had struggles with credit in the past, and first-time home buyers.  Fannie

Mae and Freddie Mac were established just after the Great Depression as lenders backed by government bonds in order to allow low-income Americans to be able to buy a house.  They have since privatized and restructured, but they are still focused on helping low-income or struggling families afford and pay for their new house.  With the latest reductions in down payments and loan costs, it could now be affordable and plausible for younger professionals to graduate from college, start their careers, and form their own households by buying a new home for the first time.

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