Federal Funds Rate Raised for Second Time in Three Months

Bob Vaughan

The Federal Open Market Committee (FOMC) is a committee within the Federal Reserve System and is in charge of making decisions which influence interest rates and growth within the United States. On March 15, the FOMC’s most recent meeting, the federal funds target interest rate was raised for the second time in three months to a new level of 1.0%. Three months prior, In December 2016, the FOMC raised the federal funds target interest rate from .50% to .75%. Since December 2008 the federal funds target interest rate has only been changed four times, and for seven years of those years (12/2008 – 12/2015) the interest rate was at an all-time low of .25%.

High Quality Loan Originations For Fourth Quarter 2016

Andy Davis

According to a recent study published by CoreLogic, loans originated in the fourth quarter of 2016 had the highest rating since 2001. The average credit score for purchase loans was 737, average Debt-To-Income ratio was 36%, and the average loan to value was 87.1%.

The above characteristics contribute to a low default risk and healthy secondary mortgage market.

Wait, that’s all I need to buy a home???

Bob Vaughan

Our world is evolving, advancing and surging forward at a rapid pace. Are mortgage loans the same as they used to be? Believe it or not, many buyers today still believe they need 20% down to purchase a home, but as our world evolves so do loans. Today, there is an arsenal of loan programs with down payment options less than 20%! For instance, if you’re serving, or served in the military, it’s possible you can get into a home with 0% down (VA Loan). If you’re a first-time home buyer, it’s possible you can get conventional financing with as low as 3% down (conventional loan) and if you’re a repeat buyer you can buy a home with as little as 3.5% down using an FHA loan or 5% down with a conventional mortgage loan!

There are two main categories which impact how much cash a buyer needs for closing: down payment and closing costs. How much are closing costs? Generally, a good rule of thumb for estimating closing costs is between 3 – 3.5% of the purchase price. If you’re a repeat buyer and are going with a down payment option of 3.5%, you’ll need to add roughly another 3.5% for closing costs bringing the total to 7% of the purchase price.

However, if there is something nice about closing costs, it’s that the buyer doesn’t necessarily have to pay for them. It’s possible for a buyer to negotiate in an offer that the seller will pay for all, or a portion of closing costs. On an FHA loan, the seller can pay for up to 6% of closing costs and on a conventional loan with less than a 10% down payment, the seller can pay up to 3% of closing costs.

So, what is the minimum amount of money you need to purchase a $150,000 home with an FHA Loan? The answer is $5,250. The seller can cover all the closing costs for the buyer, which means the buyer would only have to cover the minimum 3.5% down payment!

What if a buyer doesn’t have money for a down payment, but a family member will give them the money? This would be considered a gift and is potentially an acceptable source of a down payment.

 

Call today for more information on mortgage loan programs with low down payments!!

Breaking News: FHA Suspends Plan to Lower Mortgage Insurance Premiums

Bob Vaughan

The United States Department of Housing and Urban Development (HUD) announced today, January 20, 2017, that they have suspended the plan to lower the mortgage insurance premiums on loans insured by the Federal Housing Administration (FHA). This reversal came immediately after President Donald Trump’s inauguration; an explanation as to why has not yet been provided. The Federal Housing Administration announced on January 9th, 2017 that they would reduce the annual mortgage insurance by a quarter percent for all loans closing on or after January 27, 2017 saving the average borrower approximately $500 per year.

FHA Lowers Mortgage Insurance Premiums

Bob Vaughan

The United States Department of Housing and Urban Development (HUD) announced Monday that the mortgage insurance premiums on loans insured by the Federal Housing Administration (FHA) will be reduced by 25 basis points for loans closing on or after January 27, 2017. The most popular down payment for an FHA mortgage loan is 3.50%, which currently carries MIP of .85% annually. With the new change, MIP will be reduced to .60%, saving someone with a $200,000 mortgage approximately $500 annually. This will result in huge savings for FHA borrowers and will also help lower debt-to-income ratios, ultimately leading to higher affordability for FHA borrowers.

Mortgage Bankers Association Cuts Forecast

Andy Davis

The Mortgage Bankers Association cut their forecast for new loan origination volumes in the first quarter of 2017 by 3.5%. They are citing higher interest rates as the key cog in the forecast cut.

Are Mortgage Interest Rates High?

Bob Vaughan

Mortgage interest rates have earned their way into the hottest topics of discussion lately, and since the recent presidential election, mortgage interest rates seem to have a mind of their own. In the months leading up to the election, mortgage interest rates were near an all-time low. In fact, the 30-year mortgage interest rate during that time was the second lowest point on record for the country, hovering around 3.44%. This was just outside the lowest recorded point in the country’s history, which was right around 3.350% – recorded approximately 3 years earlier.

Since the presidential election, mortgage interest rates have been nothing short of volatile. In fact, on many days shortly following the election, rates were changing so frequently that many lenders temporarily restricted access to their pricing engines and stopped publishing rates until the volatility settled. For the month of November, the 30-year mortgage interest rate shot up to 3.77 from 3.47 in October; this was the single largest increase in the 30-year monthly average in over three years. Per Freddie Mac’s most recent market study effective 12/1/16, the current average 30-year mortgage interest rate is just shy of 4.10%.

So, are mortgage interest rates high? Well taking into perspective historical mortgage interest rates, not at all. In all reality, a 4.10% interest rate is still extremely low. Imagine having a mortgage interest rate at 18%… Well that’s what they were around in the early 80’s. Yes, an 18% interest rate was uncommon, but double digit rates weren’t. In fact, from late 1978 until 1991, the average 30-year mortgage rate over that time was right around 12.30%. The return of the single digit interest rate came in 1991 and we haven’t seen double digit rates since.  In addition, we haven’t seen the 30-year monthly average above 6% since September 2008 – above 7% since January, 2002 – or above 8% since August 1996.

So are rates going up? They have over the last couple months. How long will they continue to go up or how high will they go? People may have their opinions, but no one knows. What we do know though, is that rates are still historically extremely low and housing affordability remains high – now is still a good time to buy!

 

Source of historic interest rates: http://www.freddiemac.com/pmms/pmms30.htm

Loan Limits Increase for 2017

Andy Davis

The largest financing agencies of the United States government have decided to increase loan limits in 2017. Below are the highlights of the increase:

– FHA loan limit “floor” will increase to $275,665 from $271,050. (These are the limits observed in Lee County)

-FHA loan limit “ceiling” will rise to $636,150 from $625,500.

-Conforming Fannie Mae and Freddie Mac loan limit will increase to $424,100.

FHA states that maximum loan limits increased in 2,948 counties and remained the same in 286 counties.

Studies have estimated that these increases could have a billion dollar effect on the loan market.