Home Mortgages: Rates Up, Requirements Easing

The media has extensively covered the rise in mortgage interest rates since last fall (from 3.42% last September to the current 4.1% according to Freddie Mac). However, a less covered aspect of the mortgage market is that requirements to get a mortgage have eased while rates have risen.

The Mortgage Bankers Association (MBA) quantifies the availability of mortgage credit each month with their Mortgage Credit Availability Index (MCAI). According to the MBA, the MCAI is:

“A summary measure which indicates the availability of mortgage credit at a point in time.”

The higher the index, the easier it is to get a mortgage. Here is a chart showing the MCAI over the last several months as rates have increased.

Home Mortgages: Rates Up, Requirements Easing | MyKCM

Have requirements for attaining a mortgage actually eased?

Yes. Here are two examples:

  1. FICO® Score – the credit score which helps determine a buyer’s eligibility. The score required to attain a mortgage has been falling over the last five months:

 

Home Mortgages: Rates Up, Requirements Easing | MyKCM

  1. Down Payment Requirement – the percentage of the purchase price necessary to place as a down payment on a home. To make this point, let’s look at the percentage of first-time buyers who have put less than 5% down over the last several years as compared to the 1st quarter of 2017:

Home Mortgages: Rates Up, Requirements Easing | MyKCM

Bottom Line

Whether you are a current homeowner looking to move to a home that will better serve your family’s current needs, or a first-time buyer looking for a starter home, it is easier to get a mortgage today than it has been at any other time in the last ten years.

Don’t Let Your Luck Run Out [INFOGRAPHIC]

Don’t Let Your Luck Run Out [INFOGRAPHIC] | MyKCM

Some Highlights:

  • The “Cost of Waiting to Buy” is defined as the additional funds it would take to buy a home if prices and interest rates were to increase over a period of time.
  • Freddie Mac predicts that interest rates will increase to 4.8% by this time next year, while home prices are predicted to appreciate by 4.8% according to CoreLogic.
  • Waiting until next year to buy could cost you thousands of dollars a year for the life of your mortgage!

Mortgage Interest Rates Went Up Again… Should I Wait to Buy?

Mortgage interest rates, as reported by Freddie Mac, have increased over the last several weeks. Freddie Mac, along with Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors, is calling for mortgage rates to continue to rise over the next four quarters.

This has caused some purchasers to lament the fact they may no longer be able to get a rate below 4%. However, we must realize that current rates are still at historic lows.

Here is a chart showing the average mortgage interest rate over the last several decades.

Mortgage Interest Rates Went Up Again… Should I Wait to Buy? | MyKCM

Bottom Line

Though you may have missed getting the lowest mortgage rate ever offered, you can still get a better interest rate than your older brother or sister did ten years ago, a lower rate than your parents did twenty years ago, and a better rate than your grandparents did forty years ago.

What If I Wait Until Next Year to Buy?

What If I Wait Until Next Year to Buy? | Keeping Current Matters

First-time homebuyers are flocking to the housing market in greater numbers than any time in the last few years. Renters who are ready and willing to buy are now realizing that they are also able to as well. Many first-time buyers are Millennials (born between 1981 – 1997).

If you are one of the many in this generation who sees your friends and family diving head first into the real estate market, and wonder if now is the time for you to do the same, keep reading!

The Cost of Waiting to Buy is defined as the additional funds it would take to buy a home if prices and interest rates were to increase over a period of time.

Let’s look at an example of what the experts are predicting for the upcoming year, and what that really would mean for you. Let’s say you’re 30 and your dream house costs $250,000 today. Right now mortgage interest rates are at or about 4%.

Your monthly mortgage payment (principal & interest only) would be $1,193.54.

But you’re busy, you like your apartment, and moving is such a hassle. You decide to wait until next year to buy. CoreLogic predicts that home prices will appreciate by 5.1% in the next 12 months; this means that same house you loved now costs, $262,750.

Freddie Mac predicts that over this same period of time, interest rates will be a full point higher at 5.0%. Your new payment per month is now $1,410.50.

The difference in payment is $216.96 PER MONTH!

That’s basically like taking $8 and tossing it out the window EVERY DAY!

Or you could look at it this way:

  • That’s your morning coffee everyday on the way to work (average $2) with $10 left for lunch!
  • There goes Friday Sushi Night! ($50 x 4)
  • Stressed Out? How about a few deep tissue massages with tip!
  • Need a new car? You could get a brand new car for $217 a month.

Let’s look at that number annually! Over the course of your new mortgage at 5.0%, your annual additional cost would be $2,603.52!

Had your eye on a vacation in the Caribbean? How about a 2-week trip through Europe? Or maybe your new house could really use a deck for entertaining. We could come up with 100’s of ways to spend $2,603, and we’re sure you could too!

Over the course of your 30 year loan, now at age 61, hopefully you are ready to retire soon, you would have spent an additional $78,105.60, all because when you were 30 you thought moving in 2015 was such a hassle or loved your apartment too much to leave yet.

Or maybe there wasn’t an agent out there who educated you on the true cost of waiting a year. Maybe they thought you wouldn’t be ready. But if they showed you that you could save $78,000 you’d at least listen to what they had to say.

They say hindsight is 20/20, we’d like to think that 30 years from now when you are 60, looking back, you would say to buy now…