Every homeowner or prospective buyer has heard the experts on TV, mortgage lenders, and Realtors say for a while, “You better act now because interest rates are rising!”. Based on all the data, this was sound advice. Since the beginning of 2018, mortgage interest rates started inching up. During this time, the Fed has raised short term rates many times. In addition, the economy has continued to add jobs. Meanwhile, the combination of home price increases and higher mortgage rates raised the affordability bar a little too high for many home buyers. Yet, something has changed to give buyers as well as homeowners another shot at saving money. As of early April 2019, rates are the lowest in 14 months!
Now, lower interest rates, affordable loan programs, and the Spring home buying season cranking up, a perfect storm is brewing and in a good way! So, how does this mortgage rate drop specifically help buyers and current homeowners? Let’s discuss!
First Time Home Buyers Welcome Mortgage Interest Rates Drop
Whether interest rates increase or decrease, first time home buyer loans still provide affordability. Affordability includes both low to no down payment loans combined with low monthly payments. So, no matter which loan program a buyer chooses, everything is better than it was months ago and especially last year.
Military Home Loan Benefits
Active military, reservists, Veterans, and surviving spouses have a great opportunity in using a VA home loan. First time home buyers armed with a VA loan have the ability to purchase a primary residence with no money down. Additional benefits include flexible guidelines, low interest rates compared to conventional loans, ability to finance closing costs, and no monthly mortgage insurance. This last feature of no monthly mortgage insurance makes a big difference in a monthly housing payment! Most other loans offering a low to no down payment include this extra monthly mortgage insurance expense.
VA loans are an excellent choice for buying a condo or manufactured home and jumbo loans up to $1,000,000. Plus, many don’t realize it is possible to have multiple VA loans at once. Therefore, choosing a VA loan during this period of lower mortgage interest rates, buyers can afford more home or lower their payment.
USDA Loans Offer No Money Down
Most areas in the U.S. are eligible for this awesome no money down purchase loan. Benefits include flexible guidelines, low monthly mortgage insurance, and ability to finance closing costs. Plus, this program is for both first time home buyers as well as repeat buyers. During any season, USDA provides affordability to most Americans. But, this Spring and possibly the rest of 2019, buyers have the extra boost from lower mortgage interest rates. Being that the largest boundary to home buyers is lack of down payment, both VA and USDA loans create solutions.
FHA Loans Benefit from Lower Mortgage Interest Rates
Like other government loans, FHA interest rates are typically lower than conventional loan rates. Additionally, FHA loans have the advantage when it comes to allowing lower credit scores, more flexibility on some guidelines, and higher debt to income ratios. First time and repeat buyers have chosen an FHA loan so many times because it is all about giving them an opportunity.
Does it Make Sense to Refinance Now?
Cash Out Refinance
With the increase in appraised value over the last few years, the equity may have been there for a homeowner. But paying a 5% or more interest rate didn’t make the numbers work so well. Although, the lower mortgage interest rates available now could make sense for accessing equity in a home. Popular refinance options include…
- VA cash out refinance up to 100% of appraised value
- FHA cash out refinance up to 85% of appraised value
- Conventional cash out refinance up to 85% of appraised value
Streamline Refinance or Rate & Term Refinance
Homeowners who purchased a home during the height of the interest rates could possibly benefit from a no cash out refinance. There are several potential refinance options available. The choice depends on the home equity available, borrower credit score, and the current loan type. Borrowers with a VA, FHA, or USDA loan may have an opportunity for a streamline refinance. Streamline refinances often do not require income documentation and have reduced closing costs such as no appraisal. Although some streamline refinances could benefit from an appraisal.
Also, a conventional refinance could make sense. A very popular reason to choose a conventional refinance is to convert a loan with PMI to a loan without PMI. In order to accomplish this refinance, there must be enough equity in the home. But, with the appreciation many parts of the U.S. have realized over the last few years, this savings opportunity is a real possibility. Sometimes, just a small reduction in mortgage interest rates combined with getting rid of PMI, gives homeowners an awesome monthly savings.
Will Rates Continue to Go Down or Will They Go Up?
No one knows with certainty what will happen to mortgage interest rates. But, we do know that this is an unexpected interest rate decrease. So, if you are looking to buy any time soon, don’t let this perfect storm of an opportunity pass you by!