If you are one of the many potential home buyers that have been waiting for the right time to buy a house….that time is NOW.
Interest rates have just dropped below 6%, the lowest they have been in quite some time.
Historically, fixed rate mortgages below 6% are extremely rare. Take a look at this chart of interest rates since 1971.
For additional charts showing historical interest rates trends for 15 year fixed, 5 year ARM and 1 year ARM mortgages, visit Jay Thompson’s The Phoenix Real Estate Guy. If history repeats itself, it’s only a matter of time before 6% interest rates are long gone.
Fees on Mortgages are Going Up Soon:
The current foreclosure crisis has many banks taking big losses. As a result, Fannie Mae changed their guidelines earlier this year, instituting an Adverse Market Delivery Charge for loans that closed beginning on June 1, 2008.
Basically, this means that after analyzing the type of borrowers that are most likely to default on a mortgage, a matrix was developed so that additional fees are charged to borrowers at closing that are considered higher risk for default. The amount of the fee depends on a borrower’s credit score and the amount of the down payment.
Currently, borrowers that have a credit score of 720 or above do not have to pay any extra fees. If a borrower’s credit score is below 720 and the down payment is less than 40%, the additional fees range from 0% to 2.75% of the value of the loan. (NOTE: the lower of the two credit scores is used to determine fees when there are two borrowers)
With banks in so much trouble, the fees will be going UP for many loans that close on November 1, 2008 or later.
Let’s take a few examples:
Borrower A: Move-up buyer (pretty good credit, 20% down payment):
(Credit score of 700 – 719, down payment between 20% – 24.9%)
Prior to 6/1/08 – 0% additional fee
Current extra fees – 0.5% ($500 for $100,000 loan)
New extra fees beginning 11/1/08 – 0.75% ($750 for $100,000 loan)
Borrower B: Move-up buyer (money for down payment but credit isn’t great):
(Credit score of 640-659, down payment between 20% – 24.9%)
Prior to 6/1/08 - 0% additional fee
Current extra fees – 1.75% ($1,750 for $100,000 loan)
New extra fees beginning 11/1/08 – 2.25% ($2,250 for $100,000 loan)
Borrower C: Typical first time buyer (decent but not excellent credit with limited down payment):
(Credit score of 680-699, down payment between 5% – 9.9%)
Prior to 6/1/08 - 0% additional fee
Current extra fees – 0.5% ($500 for $100,000 loan)
New extra fees beginning 11/1/08 – 0.25% ($250 for $100,000 loan)
To see the all of the fees by credit score and down payment, take a look at the page 3 of this Fannie Mae document.
If you look closely at the chart, it appears that Fannie Mae decided that borrowers with a lower down payment (15% or less) are less of a risk than they originally thought. These borrowers will have lower fees beginning November 1 unless their credit is below 620.
But many traditional buyers will be in for a surprise when they go to take out a loan.
For buyers that are putting down 15% – 24.9% with a credit score below 740, they may be paying higher fees if they close their loan in November instead of during October.
The bottom line…
If you have been thinking of buying a home but have been waiting for better market conditions, the timing can’t get much better than if you close on your new home in the next 6 weeks.
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Available supply dramatically outnumbers demand, so buyers can negotiate a good price.
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Interest rates are at lower rates than in recent history.
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Fees for many borrowers are lower today than they will be in beginning November 1, 2008.
Since most homes take about a month to close, it’s time to pull the trigger and make an offer on a home.
Karen Goodman
Karen Goodman is Founder of Arch City Homes and leads a team of top real estate agents in St. Louis, MO.
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