Industry Developments
RATES
Frequently I am asked what the future looks like on interest rates. I may quote a client an interest rate below 5% and they will ask, “Well do you think it will go any lower?” My answer is it could but I do not know for sure, nor do I know when or for how long. I go on to explain that in my 19 years of originating loans, only a handful of clients secured a fixed mortgage rate south of the magical 5% barrier.
To provide more context, I give them the range of rates from Columbus Day of 2008 in mid October where rates fluctuated between 6.25%-6.75% on a 30 year fix. On the first Tuesday of November rates were in the mid 5% range.
Then I suggest to my client that IF I had offered a 4.875% 30 year fixed rate on Election Day not only would people have jumped at the opportunity they may have even voted for me for President!
Don’t roll the dice. Save the temptation to gamble for Vegas and ensure you don’t come up craps.
Anytime a fixed rate is below 5% it is a real and rare opportunity. Cash in!
FHA Is The Way!
For loan amounts on properties in metro Atlanta at $340,000 or less FHA financing should be introduced as an option to every client because:
- FHA down payment is 3.5% and can be a gift, own savings, or loan from secured asset, whereas Conventional loans are 5%.
- FHA premium monthly insurance (PMI) is less than conventional loans (.5% vs. 1.06%).
- FHA has fewer restrictions on appraisals, which in today’s market this is a BIG BONUS!
- FHA is more forgiving on credit and can build credit if client has little or no credit history.
Conventional loans also may have to put 10% down once appraisal comes in. Most of Metro Atlanta has been classified as a "soft market" which means that independent of a buyer's financial strength the conditions outlined in the appraisal my require any buyer to put an additional 5% down (total of 10%) right before closing. Mortgage insurance companies are requiring this additional 5% down payment to limit their exposure in areas that have declining prices over 6 month inventory, etc.
I will let the numbers make the suggestions but believe that after you see the monthly payment, the down payment, and the fact that FHA will not require additional funds in the form of down payment right before closing that FHA will be a competitive loan option. The higher rate one sees in FHA is offset by the lower PMI that FHA offers.