Spring home buyers | rates, FHA
Spring homebuyers should continue to find exceedingly attractive
mortgage rates as they do their house shopping. So far this year, rates have remained right around 5% for benchmark 30-year fixed-rate conforming loans, still within a stone’s throw of alltime lows.
The increased demand for mortgages that accompanies spring’s faster pace of home sales may nudge rates up a bit, but most economists don’t see mortgage rates topping 6% until 2011.
The National Association of Realtors’ latest economic forecast projects that 30-year fixed mortgages will average 5.4% for the April-June quarter of this year. The first place to turn for a loan will be
FHA. With a 3.5% downpayment minimum, this will be the place to look
for those who don’t have a lot of cash. The base FHA loan limit is $271,050, but in higher cost areas it is 115% of the local area median home price, up to a maximum of $729,750. If you are going to put 20% down, look to Fannie Mae and Freddie Mac, because you can then avoid having to pay any mortgage insurance premium.
The basic conforming limit for Fannie Mae and Freddie Mac loans this year remains at $417,000, where it has been since 2006. In areas with higher housing costs, a special limit, sometimes called “conforming jumbo” loans, is 125% of the median area home price, with a maximum loan of $729,750. What if you have 10% or more to put down, but can’t get to the 20% needed to avoid mortgage insurance? If you go to Fannie or Freddie, you will need to purchase private mortgage
insurance and you had better have a 700 credit score or better and don’t live in a “high risk” area where PMI companies might have additional requirements. Even if you can get PMI, you might want to consider the benefit of going with FHA in order to keep as much cash
as possible to bolster your reserves. We tend to assume that most borrowers today will opt for fixed-rate mortgages.
Why take on the risk of an adjustable rate loan when there is little
potential for a rate reduction when the first adjustment rolls around and much greater possibility that your rate will be higher, maybe substantially? In addition, the start rates for adjustables aren’t as appealing these days. 15-year fixed-rate loans have been more popular. They have stayed at or below 4 1/2% so far this year.
Hopefully a surge of spring buyers might overwhelm mortgage lenders’ back office staffs. Lenders, like many businesses during the recession, have kept their payrolls lean and been slow to hire despite the expected uptick in loan demand. So homebuyers should be prepared to do everything the lender requires as quickly as possible in order to not be the source for any holdup. Sometimes the demands may seem senseless and they may well be, but there is a reason:
lender’s are obsessing and overreacting. Faced with being stuck with billions of dollars of bad loans, Fannie and Freddie have been sending out auditors to ferret out faulty underwriting, such as improper documentation or inaccurate information). And when they find it, they’re making the lenders take the loans back. Ironically, most of the loans that are coming back to lenders were underwritten before 2008. More recent loans, underwritten with greater care and tighter standards, are expected to have decidedly lower default rates.© 2010, Real Estate Information Services, Capitol Assets, Choice Real Estate.
BJ Matson, 240-281-6732
Montgomery County Realtor®
choicerealestate.net contributing writer