Mortgage Rate Trends and Your Next Home Loan
By now, everyone knows that mortgage rates are at historic lows since Freddie Mac began tracking them in the 1970s. And these rates are reflected in the rush to refinance. The Mortgage Bankers Association's index of applications increased 21%. Most of this increased activity was related to refinancing--refis were up 30%, while new purchases rose only 1.5%.
What's Holding Some Homeowners Back?
Lower rates don't do those who have insufficient equity any good. And floundering in the wake of the housing price bust in much of the country are frustrated homeowners who want to lower their interest rates but can't. A recent survey of loan professionals by Mortgage News Daily found that 92.5% claimed the biggest obstacle to their clients' refinances was insufficient equity.
Help from HARP--Home Affordable Refinance Program
The government's new plan should help many of those who have been unable to refinance thus far. Those with loans owned by Freddie Mac or Fannie Mae will be allowed to refinance up to 105% of the value of their home--provided they are in good standing with their lender (no late payments in the last 12 months) and the home is a primary residence. Even those who might have a hard time meeting today's stricter underwriting guidelines may be able to get approved under this program.
And those with Fannie Mae loans have another advantage--they will be able to shop around for the best deal available on a Fannie Mae loan.Those with Freddie Mac loans will have to get their new loan from their current lender--but Freddie has at least waived some of its fees. The HARP program ends in June 2010, and at today's rates, refinancing sooner is probably better than later.
New Home Loans: The Perfect Storm
Applications for home purchases haven't undergone the same surge as those for refinances. Daniel Penrod, an industry analyst for the California Credit Union League in Rancho Cucamonga, California, explains, "Despite the perfect storm for a buyer of home prices continuing double-digit declines and interest rates at all-time lows, the missing ingredient is the financing. Institutions still are very hesitant to lend, or they've ratcheted up their standards so hard that people are having a tough time meeting them."
Educate Yourself: The Programs Are Out There
Before you decide that you can't qualify for a new home loan, however, take a look at the generous programs available. USDA will back loans at 100% of the purchase price at below-market interest rates. VA still does 100% financing, too. FHA will finance close to 97% of your new home and its guidelines are less rigorous than those of conventional lenders. Most institutions can take your information, input it into their electronic underwriting systems, and give you a decision in minutes--why not try?
The federal government is offering $8,000 tax credits for those who qualify (first time buyers and many others). The State of California is giving away $10,000 credits to those who buy newly constructed homes (and you don't have to be a first-timer). Motivated sellers are helping out with closing costs. And Mortgage Credit Certificates give those eligible an additional tax break and make it possible for them to afford more house.
The real estate and mortgage markets have been in such turmoil that it's hard to keep up with what's going on. And it's nerve-wracking. But advantage and anxiety often go together. Arm yourself with the facts and take your best shot at a mortgage and home ownership.
Sources
USDA
About the Author
Gina Pogol has been writing for various publications since 1989. She specializes in business, mortgage and finance issues. In addition to a decade in mortgage lending, Gina consulted in business credit for Experian, has performed tax accounting for Deloitte, and worked as a paralegal in a bankruptcy firm. She has a BS in Financial Management from the University of Nevada.
