According to a recent article in the Wall Street Journal, lenders might be artificially keeping interest rates higher than they should be. Mortgage rates are averaging as low as 3.37, over 3 percentage points lower than they were four years ago when the Fed began taking drastic steps to lower the interest rate. While these rates are the lowest they have been in generations, some economist argue they should be lower – as low as 2.8% – based on the historic relationship between mortgage rates and the yields on mortgage-backed securities.
The economists suggest that lenders are keeping rates artificially high by not passing along the savings they receive from the Fed to borrowers, thereby boosting their own profits. Lenders traditionally profit on the difference between their cost of obtaining money to lend and the interest rate they charge when lending it out to borrowers. Before the financial crisis in 2008, that difference averaged about .5% and grew to 1% in the years following. When the Fed began taking steps to lower the interest rate, that difference grew to 1.8% and now hovers around 1.3%.
Lenders claim that the higher difference between the cost of money and the interest rate is needed to cover increased lending costs and has not necessarily produced increased profits. Lenders are processing less loans versus the pre-2008 levels which means costs are not spread out over as many transactions. Also, underwriters are spending time and resources more closely scrutinizing loan applications and other documents in the borrowing process, raising their costs per transaction.
While lender costs have increased, they have not increased enough to support the higher rates they are charging. Unfortunately, with rates as low as they are right now, no one is complaining about getting a mortgage for around 3.5%. Unpredictable costs, heaping regulations and relatively content consumers means banks will likely keep the rates where they are for the foreseeable future.
For information on how interest rates impact your purchasing power and options when buying a home, drop me a note or give me a call at 512-636-9707.
By Kyle Pfaffe, REALTOR® e: KylePfaffe@kw.com m: 512-636-9707 w: AustinHomes4You.com
Congratulations to an excellent mortgage lender I have had the privilege of doing business with here in Austin, Stuart Napier of Wells Fargo! Stuart was named #7 on the Austin Business Journal’s Top 10 list of mortgage producers in Austin in 2011. Click here for the link to the article- Top 10 Mortgage Producers
Congratulations to Stuart and I look forward to our next deal!
By Kyle Pfaffe, REALTOR 512-636-9707 www.AustinHomes4You.com
What are the benefits of VA Loans?
VA loans require $0 down payment and do not require mortgage insurance. This alone can save you almost $200 a month on a $200,000 loan! VA loans also allow for all closing costs to be paid by the seller and credit scores as low as 620. Those who qualify can use the program multiple times and the VA Funding fee is waived for 10% or greater VA disability rating. Loans can be as great as $417,000 with no down payment and can be even larger with a small down payment. Also, family gifts are OK for down payment funds.
Who is eligible for the VA program?
Almost every veteran you may meet is eligible for the program! A vet must have served 24 continuous months on active duty or a full period called to active duty, not less than 90 days. If discharged, it must not be dishonorable. National Guardsmen and Reservists need 6 full years of service unless they are called to active duty. There are no exceptions for eligibility – your VA-approved lender determine eligibility.
What properties can use a VA Loan?
Almost any single family dwelling, except manufactured homes, can go VA. Existing homes, new homes (after construction) and two to four unit properties can all use VA. The home being purchased must be owner-occupied by a veteran withing 60 days of closing
What should my REALTOR make sure is in the Sales Contract?
Minimum recommended seller contribution should be $2000, but ask your lender for the amount specific to you. Seller contributions are first applied to “VA non-allowable” fees (if any), than to other buyer closing costs. Closing times will vary lender to lender, but you should allow at least 30 days for the appraisal and loan processing.
What Inspections are Required for VA Loans?
Home inspections are optional (but highly recommended!) for VA loans, but termite inspections are almost always required except for brand new homes and some condos. Ask your lender, but they will likely require a clean termite report – any termite treatments or conducive conditions on the inspector’s report will usually have to be taken care of before the lender will approve the loan. VA specific appraisals are required and septic inspections and water well tests are usually mandatory if applicable.