Mortgage rates moved lower again last week, back to levels not seen since May 2013. It’s interesting to consider that the Federal Reserve’s asset purchases have now been fully phased and that a rate hike is a much more immediate threat, yet rates are back to where they were before markets really began adjusting for all that “stuff.” That’s the power of global economic turmoil and a troubling lack of inflation for core economies.
The specific result for home buyers is the greatly increased prevalence of 3.5% as a conforming 30-year fixed quote for top-tier borrowers. 3.625% is “ubiquitously available,” according to Mortgage News Daily. Keep in mind that these rates refer to the most qualified borrowers with 25% equity or more, and high credit scores among other things. The 3.5% rate, in other words, is a baseline and your actual rate will depend on your situation. The important part is the day-over-day change and the relationship to recent levels. No matter what you were quoted in the past few weeks, if your scenario is the same, today’s rates are better.
In terms of how to approach this rate environment, the key is to recognize that the current rate scenario CAN end any time. One common strategy for those that want to keep floating in the hopes of further gains would be to set a limit at slightly higher rates than today’s quote and keep floating until that limit is reached. For instance, if you’re being quoted 3.5% today, you could plan to lock if your rate rose to 3.625%. It’s the same concept as a “stop-loss” employed by investors. Whatever you do, be sure to coordinate on your strategy with your mortgage originator.
Of course, you need to be under contract to purchase a home to lock your mortgage rate. So, grab the brass ring and get in touch with The Elite Team at RE/MAX Peak Properties. We’re eager to help you buy your Flagstaff home.
If you missed the boat earlier, now may be the time refinance.
It’s the old story, what’s good news for the economy is not good for interest rates and what’s bad news for the economy is good for rates. The American economy has taken a few blows in the last few weeks from the government shutdown and the repercussions from that are not likely to be soon go away.
So, the good news for housing is that interest rates are down to the low 4% range instead of the high fours, where they were hovering a few weeks ago.
Mortgage rates are hovering in the mid-4% range for conventional, fixed-rate 30-year loans following the Federal Reserve Open Market Committee’s decision yesterday not to begin to reduce its support for the mortgage bond market.
Since 2008, however, short-term rates have been near zero, which means that they can’t go lower. Yet the economy has remained weak, so the Fed has tried to gain traction with other means — mainly by buying longer-term bonds, both U.S. government debt and bonds issued by federally sponsored home-lending agencies. It’s these purchases that have kept mortgage rates so low for so long.
For the last few months, the Fed has been talking about slowing the pace of these purchases, bringing them to a complete halt by sometime next year. The Fed had said that at its September 18th meeting, it would announce whether it would begin tapering its bond purchasing program and, if so, by how much – depending on the Fed’s view of the economy. The mere talk had raised 30-year mortgage rates from below 4% to just under 5%.
The reason the Fed had been giving for ending the taper was an improved economic outlook. But on September 18, Chairmen Ben Bernake said that the Fed still feared a turn for the worse. He noted that Washington politicians are hurtling toward an impasse over government spending. “We have been overoptimistic.” The Fed is “avoiding a tightening until we can be comfortable that the economy is in fact growing the way that we want it to be growing.”
So, for now, interest rates are unlikely to continue rising and are even likely to drop a bit from recent highs. This should encourage buyers to come into the housing market through the winter.
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.