Archive for June, 2009
Mortgage Rates, 100% Financing & PMI News
After a busy week in the financial markets, mortgage rates continue to hold steady near historic lows. Strong demand at Treasury auctions pushed mortgage rates slightly lower. However, concerns are mounting that the enormous expansion of government debt and the explosion of the money supply will result in higher interest rates and inflation.
For homes priced under 303,000, FHA loans are available with just 3.5% down (292K max loan in the Tampa Bay Region). For homes in Pasco County and parts of New Tampa, USDA guaranteed loans allow up to 100% financing. Conventional loans with less than 20% down can be done, but they require PMI, Private Mortgage Insurance. The PMI companies have increased their costs and requirements. Anyone with a credit score below 740 can have a maximum Debt-to-Income ratio of no more than 41.0%, down from 45%. If you plan to finance a home purchase, now would be a great time to take advantage of low interest rates, a wide selection, and purchase prices that are down as much as 50%!
Everyone Wants a Lower Price, But What About the Impact of Interest Rates?
When shopping for a home in the Tampa Bay area, the natural tendency of a buyer is to want to pay the lowest price possible. It’s important to keep in mind, however, that the sales price is not the only factor that determines what your monthly payment will be. In fact, the impact of higher interest rates can easily nullify any benefit of waiting for a lower price.
Why Should I Rush to Buy a Home in Tampa?
While you may have heard discussions in the media about the decline of Tampa Bay area property values … in many Tampa neighborhoods and in specific market segments, the rate of decline appears to be stabilizing.
That being said, it would not be unreasonable for you to want to hold out for an additional decline of 10%, hoping to capture the best possible price. However, as property values have declined in many areas to 2003 levels or lower, waiting longer to pull the trigger could be a mistake. Many Tampa Home Buyers are astounded to see that the lower prices have brought out investors and the result has been multiple offers on many properties. Tampa homes that are priced correctly are creating a lot of interest.
Interest Rate Complacency
The problem is that many home buyers have been lulled into a sense of complacency because of extremely low interest rates. Since the Federal Reserve initiated its program of buying mortgage-backed securities, which control the rates people pay for their home loans, rates had been range bound, bouncing between 4.50% to 5.00% for a 30-year fixed-rate loan.
But do not be confused by this. These rates are artificially low! Historically, interest rates have been above 6.00%. And any rate obtained below this number is a great deal, especially on homes with price tags from 2003!
Markets are Unforgiving
The last two weeks of May showed just how unforgiving the markets can be for people who choose to procrastinate. In just five days last week, interest rates from many lenders increased anywhere from .50% to 1.00% as fixed-income investors demanded more for their money.
For anyone who was waiting for prices to drop even more, a 1.00% increase in your interest rate would bring a higher monthly principal and interest payment on a home, even if the price of that same home had fallen an additional 10% in value.
If you or someone you know is waiting for Tampa home prices to fall even lower, be aware that while holding out for a lower price may help you win the battle, you could lose the war in terms of monthly payments and overall affordability. With the Federal Reserve scheduled to end its buying of mortgage-backed securities this year, rates only stand to go higher for those that wait. In fact, interest rates are already on the rise and could go higher from here.
Clock is Ticking on Free Money
If you, or someone you know, is planning on purchasing a home in the Tampa Bay area this year, be aware that you must take possession before 12/01/2009 to be eligible for a tax credit of up to $8,000. In a survey conducted in March by Move.com, nearly 50% of home buyers are currently unaware that this free money exists in the marketplace. And since over 50% of all buyers are first-timers in today’s market, this could impact a lot of people who aren’t in the know.
These thoughts have been contributed by Bob Saltzman, one of our key Mortgage Broker partners with Home Financing Network. Call Bob at 813 787-7711 for more info about how waiting for the lowest price could really cost you, or someone you know, more in the long run.
