Low Mortgage Rates Available
The U.S. economy is improving and, as the economy expands, U.S. rents have climbed. Meanwhile, mortgage rates are down. Not since May 2013 have current mortgage rates been this cheap.
As a result of falling rates, in many U.S. markets, on a monthly basis, it’s more expensive to rent a home than to own one.
Furthermore, homeownership is within reach for more consumers than during any period since last decade.
The expanding economy has softened mortgage eligibility requirements including a drop on the minimum credit score requirements; an increase in “common sense” underwriting; and, an expansion in low-downpayment mortgage programs
Looking to buy a home between now and 2016? The market may be ready to help you get approved.
Rents Predicted To Rise More Than Home Values
Each month, Fannie Mae polls 1,000 U.S. households for its National Housing Survey. The survey gathers consumer observations on the U.S. economy; and polls for future expectations.
In addition to broad economic themes, the survey covers housing topics including home prices, mortgage rates, and rent.
The most recent survey shows consumers mixed about the future of U.S. housing.
52% of those surveyed expect home values to rise in the next 12 months, a one-tick drop from December; and, half of consumers think it would be easy to get a mortgage — a two-tick drop from December.
On average, consumers expect home values to increase 2.5% annually. Over the same period, they expect rents to rise 3.6 percent.
When rents rise faster than home values, it can change the Rent vs Buy equation — especially with mortgage rates near historical lows.
Since 1971, when records were first kept, 30-year mortgage rates have averaged near 8.375 percent. Today’s mortgage rates, by contrast, average 3.59%. Many lenders now quote rates in the low-3s.
For renters considering homeownership, low mortgage rates help to make homes affordable for the long-term. This is different from rent which often increases from year-to-year.
Low-Downpayment Loans For First-Time Buyers
For today’s renter, the path to homeownership is simpler and faster than it’s been in more than seven years. There is an abundance of loan programs required little or nothing down, and mortgage credit is available with credit scores as low as 580.
You can apply for each of these loan type via your preferred mortgage lender.
With a 5% downpayment, home buyers get financed via Fannie Mae or Freddie Mac. Loans meeting Fannie Mae and Freddie Mac guidelines are known as conventional loans.
In general, conventional loans are best for home buyers with credit scores of 740 or better, who are buying single-family residences including detached homes and town homes. Loans for homes with 2-4 units; or for buyers with credit scores below 740 are subject to interest rate adjustments which can render a conventional loan expensive relative to other loan types.
Mortgage rates for conventional mortgages are typically higher than a comparable FHA loan, but the mortgage insurance required for a conventional loan is often much less.
For homeowners making a 15% downpayment, 20% downpayment, or more, conventional loans are typically best.
FHA loans are backed by the Federal Housing Administration and require a downpayment of just 3.5 percent, except for certain FHA approved condos which may require up to ten percent due at closing.
FHA mortgages require two type of mortgage insurance premiums (MIP). One type is paid annually, in twelve monthly installments. This type of mortgage insurance is known as FHA MIP. The other MIP type is called Upfront MIP. It’s not paid in cash — it’s added to your loan size.
Buyers with credit scores between 580 and 640 will typically find FHA rates to be the lowest among all available options.
Buyers with credit scores between 640 and 740 should comparison shop FHA mortgage rates against conventional ones and, when eligible, VA and USDA loans, too.
VA loans are backed by the Department of Veterans Affairs and available to members of the U.S. military and veterans of the armed services. VA loans are offered as part of the VA Loan Guaranty program and allow for 100% financing with no mortgage insurance required.
VA mortgages offer flexible underwriting and credit access for borrowers FICO scores 620 or higher. VA mortgages can also be used to finance home improvements and energy-efficiency upgrades to a property.
VA mortgage rates are typically lowest among all common first-time buyer loan types.
The USDA loan is backed by the U.S. Department of Agriculture and is available to buyers in areas with medium-to-low population density. This include most rural areas nationwide, and many U.S. suburbs. The program offers no-money-down financing to buyers meeting USDA income limits.
USDA loans require homeowners to pay mortgage insurance, but premiums are much lower than for a comparable FHA or conventional home loan.
USDA mortgages require credit scores of 620 or better, and are available as 30-year fixed-rate mortgages only.
The Conventional 97 program is available via Fannie Mae and Freddie Mac. It allows for a 3 percent downpayment and downpayment funds may be gifted to the buyer 100%.
The Conventional 97 program is available for use with single-family homes which are, or will be, a primary residence. Loans are capped at $417,000 and home buyer counseling programs are not required as part of the application or approval process.