Home loan rates dropped slightly today, but that should be viewed as an opportunity to lock the loan on your existing home purchase contract, not a trend.
After moving up to a range of 4.75 to 4.875%, the most prevalent 30-year fixed conventional rate quote (best-execution) is better characterized by a 4.625 to 4.75% range today– better than yesterday, but still the 2nd or 3rd worst day in more than 2 years, depending on the lender.
Tomorrow brings the first substantive economic data of the week as well as the minutes from the most recent Federal Open Market Committee Meeting. Economic data is increasingly important to rates as a bad economy is the only thing that will change what seems to be the Fed’s inevitable decision to reduce asset purchases that have been suppressing rates. Much of the recent rise in interest rates owes itself to the assumption that those purchases will indeed be reduced. Lousy-enough economic data would throw water on that assumption. But, we don’t want lousy economic news, do we? (Update 8/21: Fed minutes released confirm that taper will begin this Fall.)
The longer term expectation is for the overall path of interest rates to move higher, even if they manage pockets of correction. Such pockets should continue to be viewed as opportunities to lock. If we’re to see a more concerted push lower in rates, it would likely require a pronounced shift in the tone of economic data. We’d have to start losing groundin the economy instead of holding steady and slightly improving.
Now is the time to lock in your housings costs for the next few years by buying a home before rates and housing prices get even higher.
Down payments, Earnest Money, Upfront Appraisal Fees, Homeowners Insurance, Inspectors’ Fees and the dreaded Closing Costs are all expenses faced by buyers when purchasing a home
The days of zero down payment loans are mostly gone – receded into the days of the go-go housing market. There are still some programs left which offer down payment assistance, but most programs still require a contribution from the buyer. Mortgage brokers provide great knowledge of the special programs including the City of Flagstaff Bond Program. Also, the Veterans Administration does still offer a true zero down payment loan.
Special down payment assistance programs aside, the standard options for down payments are 3.5% for an FHA loan and 5%, 10% or 20% down payment on a Conventional Loan. The calculation of the down payment is straight forward, simply the purchase price multiplied by the percentage you plan to put down.
Closing Costs are a second portion of money needed to buy a house and the calculation of these costs is more elusive.
A very rough rule-of-thumb for Buyer Closing Costs is 3% of the purchase price of your home.
The first 1% is usually your Loan Origination Fee. This fee pays the mortgage company for the work they do setting up your mortgage, the loan officer and processor have a share of this fee.
I refer to the second 1% as government and processing fees. Included in this portion are taxes prorations (which may be in your favor depending on the time of year you close), appraisal fees, title updating fees, title company fees, recording fees and the like.
The final 1% is money the mortgage company collects from you to start and fund your escrow account. The escrow account funding is several months’ worth of property taxes and one full year of homeowner’s insurance.
Now for some good news! It is possible to ask the Sellers of the property you are purchasing to pay for some or all of your closing costs. Mortgages have certain restrictions and limitations about Sellers paying your closing costs, but most allow up to 3% of the purchase price to be paid by the Sellers of the home. In the competitive market we have for lower-priced homes in Flagstaff, many sellers refuse to agree to this without an increase in the purchase price.
When the Seller agrees and you choose to take these seller “concessions,” you are rolling in the closing costs and really self-financing them into your purchase. If a Seller will accept a $200,000 offer and pay 3% ($6000) towards your closing costs, then it’s fair to assume you could have purchased the home for $194,000 if you were to pay for your own closing costs.
If you negotiate the closing costs into the price of the home, the total amount of money needed to buy a home is just 3.5% of the purchase price. Mortgage programs including FHA and VA allow the 3.5% or a portion of it to be Gift Funds. When you receive gift funds it must be from a Parent, Grandparent, or other type of Significant Relationship and the donor must sign a gift letter confirming the funds as a gift.
The third element of a Home Buyer’s costs is the cost of home inspections. I recommend going into the process expecting to pay $1000 and you’ll usually be happy that you pay more like $500 for the whole process. The standard home inspection will cost $400 or less and you should also have a pest inspection for $90-$100. You may choose to do a radon test (I recommend on in most areas of Flagstaff) of varying types and costs and you may need to have a well inspected in some rural areas. Your home inspector may recommend other inspections.
Buying a Flagstaff home is more affordable now than ever before. The affordability is based on still relatively low home prices and record low mortgage interest rates. Home prices are higher than they were last year – at least for homes under $300,000, but they are still lower than in years past and lower than they are likely to be next year.