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
Texas HOMEbuyer Assistance Program
Receive up to $20,000 in Down-Payment Assistance when you buy a home in the Greater Austin area, but outside Austin city limits!
The Texas HOMEbuyer Assistance Program is a new program funded through the U.S. Department of Housing and Urban Development and offers Texans up to $20,000 in down payment and closing cost assistance! This is a great resource for low- to moderate-income households who want to buy a home and applicants do not have to be first time homebuyers. The program offers a 0% interest forgivable loan of up to $20,000, and does not require repayment if the buyer remains in the home throughout the term of the assistance (5-10 years). This assistance is offered to homebuyers in the counties of Bastrop, Blanco, Burnet, Caldwell, Hays, Travis (outside of Austin city limits only) and Williamson Counties.
Here is a summary of some of the requirements for this program:
- Household must complete an eligible homebuyer education course
- Homebuyer my occupy the home as his principle place of residence for the entire loan term
- Household’s mortgage payment must be at least 25% of total household income
- Household’s mortgage payment and monthly debt must be no more than 45% of total household income
- Property must be a single family home, condo or new manufacture home
- Property must be environmentally cleared by the TDHCA
- Property value may not exceed 95% of the applicable FHA Mortgage limit
- Loan must have a fixed interest rate; no ARMs
- No subprime loan products
- The loan-to-value ratio must be at or below 100%
This is not an exclusive list of requirement for this program but will give you a good idea of whether or not you will likely qualify. If you have any questions, please give us a call or contact your lender. If you interested in buying a home and have questions about this program, how to buy or sell your home or other financing questions, PLEASE give us a call at 512-636-9707!
Kyle Pfaffe, REALTOR
USDA Home Loan FAQs
The U.S. Department of Agriculture (USDA) has been helping people purchase homes with a variety of programs for a long time. The USDA has a rural housing guaranteed loan program which offers assistance to residents who meet certain income requirements and are looking to purchase a home in certain geographical areas. Below are basic qualification requirements for this loan program. Please feel free to contact us with any additional questions about this program or how we can help you utilize this to get into your own home!
||> Only single family non-farm residences, approved condos and PUDs
> Located in a designated RHS rural area
> Ineligible properties include manufactured homes, properties with swimming pools (some exceptions) and properties in a flood or mudslide zone (with exceptions)
||> Resident must be citizen or legally admitted alien
> Resident cannot have owned a home is the last 3 years (some exceptions)
> Residence must be owner-occupied primary residence
> 640 minimum credit score is required
> Income requirements for greater Austin area are no more than $84,000 (1-4 person household or $112,050 (5-8 person household)
||> 30-year fixed rate mortgages only
> Qualifying ratios are 29% (Mortgage v. Income) and 41% (Debt v. Income)> Maximum loan amount is 100% of purchase price, with restrictions on LTV
> 3.5% Guarantee Fee added to the loan by USDA to cover insurance & all other fees
|Closing Costs and Misc.
||> Up to 6% of the sales price can be contributed by interested parties (seller/builder) towards all closing costs
> NO mortgage insurance required
> NO down payment required
Kyle Pfaffe, REALTOR®