Mortgage rates continue to hover around 4% — an amazing bargain if one looks back on the long history of home loan rates. For those willing and able to take on a loan amortized over 15 instead of 30 years, the rate will be more like 3.5%. Yes, those rates are higher than a year ago. But, it’s a lot less than the 8.25% rate I paid for my first home loan or the 6.5% rate folks were paying in 2003. And let’s not even think about the 14% rates offered in the glorious 1980s (when I bought my second home).
The rate itself is only one factor to consider when shopping for a mortgage. If you focus only on that raw rate, you’re going to end up less well off than you could be. Make sure you understand how that rate is set. Is it lower than a quote that you got from another lender because the market ticked down between yesterday and today? Your rate will change daily until you “lock” the rate, which requires that you have a purchase contract in place.
Perhaps the rate your being quoted by one lender is lower because you will be charged points at closing, which buys down the rate. Or, perhaps the rate is lower because the fees are higher. Look closely at the whole package. Soon, we’ll have new financial disclosure rules that will make it easier to look at these comparisons, but still, it’s no first grader’s exercise.
Finally, consider the performance history of your lender. Your real estate agent should be able to help you with this. Some lenders are notorious for not closing on time. If that’s the case, steer clear of them in this competitive market because you could lose the house to a backup offer.
Earlier this month, the President announced that the FHA will reduce its annual premium by 0.5%, or from 1.35% to 0.85%, for a borrower using a 30-year fixed rate mortgage with a 3.5% down payment. In historical context, that reduces the annual mortgage insurance charge to its lowest level since early October of 2010. Even with the rate reduction, the fee charged by the FHA for its mortgage insurance (6% of originated balance) more than covers the expected losses (5%). The change takes effect January 26.
For a borrower with a $200,000 mortgage, this changes amount to a reduction in the monthly payment of $83. By year five, this borrower has saved nearly $4,800, but over 30 years the borrower would save roughly $18,000.
The lower pricing is expected to draw thousands of credit-worthy borrowers back into the market. National Association of Realtors® research estimates that the fee reduction will bring an additional 1.6 million to 2.1 million renters into the home buying market, along with many trade-up buyers, resulting in 90,000 to 140,000 additional annual home purchases in the next year or two.
Government supported mortgages aren’t going away soon, nor are the limits on mortgage amounts going to lower. No surprise as high end homes in most regions, like homes over $400,000 in the Flagstaff real estate market, still have very few buyers.
Phoenix-Mesa-Scottsdale area still 23.2% were underwater
Home equity has improved with rising prices and the close-out of many foreclosure proceedings, still there are millions underwater on their mortgages, according to a study released by CoreLogic on Tuesday. The Phoenix-Mesa-Scottsdale metropolitan area was still the third worst in the country.
Flagstaff (Coconino County) limit is reduced to $362,250
The current standard FHA loan limit for areas where housing costs are relatively low will remain unchanged at $271,050. “Where housing costs are relatively low,” does not include Flagstaff, AZ. FHA loan limits are based on median area home prices.
Flagstaff gets a substantial allowance (almost $90,000) above the lower-cost housing areas in the USA. But the limit is lower, starting January 1, 2014, compared with the over $400,000 number we’ve seen in recent years. Limits are set by county and the county Flagstaff is part of (Coconino) has a new limit of $362,250.
The new national-ceiling loan limit for the very highest cost areas will be reduced from $729,750 to $625,500. This applies to places like NYC, some areas of California, Washington, D.C. and numerous other hot spots in housing.
If you’re on the cusp of buying a new Flagstaff home and want to use a FHA financing option that gives you a mortgage loan higher than $362,500 , get going now! FHA case numbers must be assigned by December 31.
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.
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.
Something to keep an eye on in the coming months. Uncertain impact on Flagstaff real estate market and elsewhere
Fannie Mae and Freddie Mac will merge some operations by starting a third company, which will take over some joint functions. The idea is to begin a transition, said the chief of the Federal Housing Finance Agency in an announcement March 4, 2013. The idea — to combine some of the back-office functions which both companies perform separately – sounds laudable. Such combinations can create efficiencies and save costs.
The concern is whether the combination will result in identical loan standards. In the current market, where most loans are originated through Fannie Mae, some borrowers can’t meet Fannie Mae’s standards but can meet the slightly different standards of Freddie Mac. We don’t need to return to the no-doc, crazy loan standards of the last mid-decade, but we also certainly don’t need to make getting home loans more difficult than they are right now.