Home Buyers Benefit From 40 Year Low in Mortgage Rates
For those who can qualify, it’s one of the best times to get a mortgage.
Last week, rates for 30-year fixed-rate loans dropped to 4.57 percent, the lowest level on records dating back to 1971, Freddie Mac said.
And for some who missed out on the government’s home buying tax credit, the rates may more than make up for that lost $8,000.
“A tax credit is immediate gratification,” said Leonard Baron, a professor of finance at San Diego State University, “but long-term, with rates this low, you can get much more value.”
But which loan is right for you? The mortgage game has changed since the housing bust and more rules have been and are being added. One factor is for sure now: Your credit score should be at least 620 or you’ll have a hard time finding a loan. What varies is how much you have for a down payment.
Buyer No. 1: You have a 20-percent down payment and expect to retire in the house.
— Take out a 30-year fixed-rate loan, the most popular type of mortgage. The interest rate stays the same over the life of the loan and right now, that rate is at historical lows. “This loan is for someone interested in stability and security,” said John Stearns, mortgage banker at American Fidelity Mortgage Services Inc. in Mequon, WC.
Buyer No. 2: You have a 20-percent down payment, but plan to move into another home down the road.
— Consider a five-, seven- or 10-year adjustable-rate loan, which has a fixed rate for a set period and then adjusts higher after that time. These loans carry a lower initial interest rate than the 30-year fixed-rate, so you save money over the fixed-rate period. After the fixed-rate period ends, borrowers typically refinance into another loan to avoid the adjustable rate.
Rates on five-year adjustable-rate mortgages averaged 3.75 percent this week. That was the lowest on Freddie Mac’s records, which date back to January 2005.
ARMs got a bad rap during the housing bust because most people who took out two- or three-year ARMs got caught with an unaffordable payment when their rates reset. They couldn’t refinance into a fixed-rate loan because home prices had tanked and credit tightened up.
That risk still exists, but starting in September, lenders will have to evaluate whether borrowers can make payments after the rate reset on adjustable-rate loans backed by Fannie Mae.
Buyer No. 3: You have at least a 20-percent down payment for a house worth more than $729,500.
— You need a so-called jumbo loan which is not backed by Fannie Mae and Freddie Mac. That means any lender who makes a mortgage above that amount will have to keep the loan on its books.
To compensate for that risk, lenders charge higher interest rates than a conventional mortgage. The average rate for a 30-year fixed-rate jumbo loan fell to 5.48 percent this week, the lowest level ever in Bankrate.com’s survey.
Buyer No. 4: You have more than a 20-percent down payment.
— Depending on how much you’re putting down, you might consider a 20-year fixed-rate mortgage. Rates are sometimes, but not always, lower than a 30-year fixed-rate by about a quarter-point. However, because the loan term is shorter on the 20-year loan, the monthly payment will be higher than a 30-year mortgage.
For example, the monthly payment for a 20-year fixed-rate loan for $300,000 is $1,898. It’s only $1,565 a month if the loan is 30 years. But over the life of the loan, you’ll save about $108,000 in interest.
“Most people are interested in a lower monthly payment,” Stearns said.
Buyer No. 5: You have less than a 20-percent down payment.
— Consider a mortgage insured by the Federal Housing Administration, or FHA. A borrower needs to put down only 3.5 percent of the purchase price.
After the housing market slumped, the FHA became the major source of funding for first-time homebuyers. It insured about 24 percent of new loans in the first quarter, according to Inside Mortgage Finance, a trade publication.
Or, consider a mortgage loan that isn’t backed by the FHA, which only requires 5 percent down. However, you will pay mortgage insurance each month, which can add an extra $25 to $50 to your monthly payment depending on your credit score. Private mortgage insurance protects a lender against losses when a borrower defaults. If you have very good credit, this option may be cheaper.
Buyer No. 6: You have a gift down payment.
— While one in five first-time homebuyers used a gift from a relative or friend for a down payment last year, there are some rules to navigate.
Gift money can be used for a down payment on a conventional loan only after the borrowers use their own money to make the 5-percent minimum. Gift money can pay for closing costs or prepaid expenses like property taxes and insurance that are put into an escrow account. Banks typically check two months’ worth of bank statements for unusually odd deposits that could be considered gifts. However, if the gift was deposited six months before, a bank might not notice.
However, FHA mortgages allow borrowers to use a gift to make the 3.5-percent minimum down payment. The gift must be documented in writing and the lender may ask for proof of deposit.
Buyer No. 7: You don’t have a down payment.
— Your options are limited.
If you are a veteran or the surviving spouse of one, consider a mortgage backed by the Department of Veteran Affairs. These loans offer 100 percent financing without private mortgage insurance at competitive mortgage rates.
If the home you’re buying is in a rural area as defined by the U.S. Department of Agriculture, you may qualify for a USDA home loan, which offers 100 percent financing without adding on private mortgage insurance. The USDA aims to help lower-income households get home loans at reasonable rates.
Mortgage Rates Hit a New Low
Mortgage rates in the U.S. mostly fell the past week, with the average rate on 30-year fixed-rate mortgage falling slightly, extending its record low, according to Freddie Mac’s weekly survey of mortgage rates.
The declines come as the Treasurys market has seen continued strength, pushing yields down. Mortgage rates, all of which have at least touched multi-year lows recently, generally track yields.
The 30-year fixed-rate mortgage averaged 4.57% for the week ended Thursday, down slightly from the prior week’s 4.58% average and 5.2% a year ago. It is at the lowest point in Freddie’s 39-year survey.
Rates on 15-year fixed-rate mortgages were 4.07%, up from 4.04% a week earlier—the lowest since Freddie began tracking in 1991—but down from 4.69% a year earlier.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.75%—the lowest level since Freddie started keeping score in 2005—down from 3.79% and 4.82%, respectively. One-year Treasury-indexed ARMs were 3.75%, yet another fresh six-year low, dropping from 3.8% and 4.82%.
To obtain the rates, the mortgages required payment of an average 0.7 point. One point is 1% of the mortgage amount, charged as prepaid interest.
From Nathan Becker WSJ
Open House – Saturday July 10th
Open House
Saturday, June 26th
11 am to 2 pm
1841 Stabler Park Dr.
Driving directions: North on Stabler, Right on Tres Picos,
7 Things All Borrowers Should Know About FHA Loans
Keys to FHA loans
FHA Pros, LLC, a national FHA condo approval service, has developed a list of facts speaking to the top misconceptions associated with FHA loans in order to help home buyers better navigate an already confusing market. FHA loans are mortgages issued by qualified lenders and insured by the Federal Housing Administration (FHA).
“We have seen home buyer interest in FHA loans go from practically zero three years ago to upwards of 87% today,” said Christopher Gardner, founder and president of FHA Pros, LLC. “Despite this rapid rise in popularity, many buyers still do not fully understand the benefits of these loans, and we believe it’s time to change that.”
1. FHA loans are not only for lower-income borrowers. FHA loans are available to everyone. There is no maximum income restriction associated with FHA loans, but borrowers do need to substantiate income and assets by submitting proper documentation. This requirement ensures that borrowers are well-vetted and truly able to afford their future homes.
2. FHA loans are not only for first-time buyers. Many people believe FHA loans are available only to first-time home buyers, but this is not the case. Whether borrowers are making their first home purchase or their fifth, they can look to FHA loans as a home financing option.
3. FHA loans are not just small loans; in fact, loan amounts can be as high as almost $800,000. The government recently raised the maximum loan amount from its original cap of $362,790 to $793,750 as a way to help stabilize the housing market. The amount a buyer can borrow varies from county to county though. Later this summer, condo buyers interested in FHA loans can visit www.checkfhaapproval.com to instantly identify FHA-approved condo associations and review maximum loan amounts for a given location.
4. FHA loans are not affiliated with the section 8 housing program. While both programs are administered by the U.S. Department of Housing and Urban Development (HUD), FHA loans have nothing to do with low-income subsidized housing. FHA loans are simply mortgages insured by FHA. This insurance provided by the federal government allows lenders to lend more freely by assuring them that they will be repaid in the event of default. Most traditional lenders, including Wells Fargo & Co., JP Morgan Chase and Citigroup are able to provide FHA loans to their customers.
5. FHA loans are often more affordable than conventional loans. While FHA loans typically offer the same interest rates as other loans, borrowers benefit from a much lower down payment of as low as 3.5%.
6. FHA-approved condo developments are more desirable to buyers. With 87% of home buyers indicating that they plan to use FHA loans, condo associations that are not FHA approved are missing out on a significant pool of prospective buyers. Under rules in place since February 2010, an entire condominium development must now apply to HUD and be granted FHA approval before a buyer can purchase a unit in an association with an FHA loan or before an existing unit owner can refinance into an FHA loan.
Due to the general unwillingness of today’s lenders to extend credit with respect to conventional loans, many borrowers find that FHA is their best bet. Lenders don’t mind lending when the federal government (FHA) assures them of repayment.
Homeowners associations (HOAs) should note that although FHA-insured mortgages might be easier to obtain, they are not “risky” loans, due in large part to the strict “full documentation” requirements placed on borrowers. Individual buyers or sellers can initiate the approval process or current owners can encourage their HOA to apply.
7. FHA loans are assumable. In addition to lower down-payment and credit-qualifying requirements as compared to conventional loans, FHA loans are assumable. This means that when a seller with an FHA loan sells his or her property, the loan and its financing terms (interest rate) can be transferred to the new buyer. This unique feature will certainly make a property more valuable in times of rising interest rates.
“Now, more than ever, buyers and sellers need to understand the options available to them when it comes time to buy a home,” continued Gardner. “At FHA Pros we have worked with countless HOAs, attorneys and individuals to easily and efficiently navigate the historically tricky FHA-approval process.”
For more information, visit www.checkfhaapproval.com.
RISMEDIA, July 3, 2010—
Homebuyer credit extension heads to Obama
First-time homebuyers will have until Sept. 30 to close on their purchases and land an $8,000 tax credit under a bill passed by the Senate late Wednesday.
President Obama is expected to sign the bill, which was overwhelmingly approved by the House on Tuesday. The deadline had been June 30.
Click to read full article. Homebuyer credit extension heads to Obama.
