MORTGAGE RATES DROPPING QUICKLY
Mortgage rates have dropped to their lowest point in 10 months, boosting the price ranges in which today’s home buyers can shop.
In the 45 days between Christmas Day and the Super Bowl, home buyer purchasing power climbed 4% nationwide.
This means that if the range in which you could shop for homes topped out at $300,000 during the holidays, today, your range has grown to $312,000.
And, should current mortgage rates keep dropping, that range will only grow.
If you haven’t checked your housing budget lately, it’s time to take a look. Mortgage rates dropping could mean a whole different ballgame.
HOME BUYERS CAN RAISE THEIR HOME PRICE “RANGE”
After two months of sharp increases to close out last year, mortgage rates have moved to Rally Mode.
Through the first five weeks of 2016, conventional 30-year mortgage rates are down 29 basis points (0.29%), marking the steepest, 5-week plunge in U.S. rates since late-2014.
30-year rates are firmly in the 3s. Couple this with rising rents and a general increase in home values and it’s no wonder that home sales are so strong.
It’s cheaper to own than to rent in many U.S. cities.
And, as mortgage rates drop, the difference between owning and renting will only get more stark.
Consider a first-time home buyer who is deciding whether to rent at $2,000 per month for another 12 months; or, to buy a home with mortgage rates at 3.72%.
Assuming a low-down payment mortgage, home prices growing another 5.6% in 2016, and mortgage rates reverting to the mid-4s (as many analysts forecast they will), the figures look like this:
- Today: Renter buys a home for $447,000; pays $2,000 per month
- Next year: Renter buys the same home for $472,000; pays $2,320 per month
In this example, the cost of “waiting to buy” would the extra $320 per month, plus the additional amount needed for a down payment.
Thankfully, low- and no-down payment mortgage options are abundant in today’s mortgage environment.
COMMON LOW DOWN PAYMENT MORTGAGES
When you’re buying a home, the amount of cash that you put towards the home’s purchase price is known as your “down payment”. The rest of the home’s price is paid via your mortgage loan from the bank.
For example, if you were buying a home for $400,000 and planning to make a 20% down payment, you would bring $80,000 to your home’s closing. The remaining $320,000 would be financed via a mortgage.
Not everyone will want to bring 20% to closing, however. For everyone else, there are a handful of low- and no down payment mortgages from which to choose.
FHA Mortgages: 3.5% Down Payment
The FHA low-down payment mortgage is among the most popular home loan for first time home buyers. This is because the FHA loan is the easiest for which to qualify, and because FHA mortgage rates are low.
FHA-backed mortgages allow:
- Down payments as small as 3.5%
- Down payment may be “gifted” as cash
- Credit scores may be as low as 580
FHA mortgages may not be used for vacation home or investment property purchases.
Conventional Mortgages: The Conventional 97 and HomeReady™
Conventional mortgages are the most commonly used loans in today’s market. A loan is considered “conventional” if it’s backed by Fannie Mae or Freddie Mac.
Fannie Mae and Freddie Mac-backed loans are typically associated with borrowers who making large down payments, but there are two programs — the Conventional 97 and the HomeReady™ mortgage — which appeal to borrowers with less than 20% down.
The Conventional 97 loan is generally a good fit for borrowers with credit scores over 740 and a down payment of 3% or more. Conventional 97 loans allow cash gifts for a down payment and are limited to 1-unit properties.
The HomeReady™ mortgage is little more forgiving.
HomeReady™ home loans allow for a three percent down payment and let home buyers use income from co-habitants to help get qualified. Multi-generational households are a terrific fit for HomeReady™ loans, for example.
HomeReady™ mortgages also offer mortgage rate discounts over traditional conventional mortgage rates.
VA Mortgage: 0% Down Payment
VA mortgage loans are available to military borrowers and are made available by the Department of Veterans Affairs as part of the 1944 G.I. Bill.
VA loans allow 100% financing, never require mortgage insurance, and often come with the lowest mortgage rates of all common loan types.
VA loans don’t require that you borrow 100% of a home’s purchase price so, if you’re eligible for a VA loan, be sure to get a quote from your lender. VA loans are often the best “deal”.
USDA Mortgage: 0% Down Payment
The other 100% mortgage available to borrowers is the USDA home loan.
USDA home loans are backed by the U.S. Department of Agriculture and are often known as “rural housing loans”. This is a bit of a misnomer, though, because you don’t have to live in rural areas to use USDA financing.
Many U.S. suburbs are eligible for USDA financing. Borrowers must plan to live in the home being purchased, and adjustable-rate mortgages are not allowed.
WHAT ARE TODAY’S MORTGAGE RATES?
With mortgage rates low, you can afford more home as compared to the start of the year. It’s an excellent time to consider homeownership.
Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.