Tuesday, October 2, 2012

Purchase power increasing?

With mortgage rates low, today's home buyers benefit from record-high purchasing power. Never in history has a mortgage dollar gone this far.
If you haven't checked your housing budget lately, it's time to take a look.

Maximum Purchase Price : From $370,000 to $450,000

After two years of near-steady decline, mortgage rates are at an all-time low. In February 2011, conforming 30-year fixed rate mortgage rates topped 5 percent. Today, they're below three-point-five.
The drop in rates has boosted home affordability to record-levels. For buyers using a set monthly budget, today's low mortgage rates have increased the maximum possible home purchase price by 22 percent.
Consider this real-life example :
  • In February 2011, a $2,000 mortgage payment afforded a $370,000 mortgage
  • In October 2012, a $2,000 mortgage payment affords a $450,000 mortgage
The math works at all-price points, too. At no matter what level you set your maximum principal + interest payment,  your purchasing power is 22% higher in 2012 as compared to 2011.
The math helps to explain why renting has become more expensive than buying a comparable home across much of the United States. With vacancies low, rents are rising. And so are home prices. However, the rates at which homes are financing have plunged.

Saving For A Low Downpayment Mortgage

For today's home buyers, being able to purchase 22% more home means having to make a 22% larger downpayment, too.  On the example used above, assuming a 20 percent downpayment, buying a $450,000 home requires a home buyer to bring an additional sixteen-thousand dollars to closing.
That's a big increase.

FHA Mortgages : 3.5% Downpayment

Thankfully for today's home buyers, low downpayment mortgages remain plentiful and available, the most popular of which is the FHA mortgage.
Among the characteristics of an FHA-backed mortgage :
  • Downpayments may be as small as 3.5%
  • Downpayment may be from a donor; a "gift" of cash, with no repayment allowed
  • Loan sizes may range up to $729,750, depending on your local FHA loan limit
FHA mortgages also waive most "low FICO" penalties more common with conforming loans.
For credit scores between of 640 and up, quoted FHA mortgage rates are often the same. Comparable conforming loans charge higher rates and/or fees for FICOs below740.

VA Mortgage and USDA Mortgage : 0% Downpayment

The rise in purchasing power also benefits home buyers using a VA purchase or USDA mortgage -- both of which allow for 100% financing. Regardless of your purchase price, a zero downpayment is allowed.
VA guaranteed loans are available to U.S. military borrowers; active or discharged. VA mortgage rates are typically low as compared to conforming rates, but the major VA home loan benefit is that no mortgage insurance is required.
As a result, VA loans -- regardless of mortgage rate -- tend to feature a lower monthly payments as compared to comparable Fannie Mae or Freddie Mac loans; or, FHA loans.
Not paying mortgage insurance makes a big impact on home affordability.
The other 100% mortgage -- the USDA home loan --does require mortgage insurance but it's mortgage rates are often the lowest of all mortgage rates available. USDA loans are typically available in suburban and rural areas in which the median household income does not exceed the local average.

See Your Home Buyer Purchasing Power

For today's home buyers, with mortgage rates low, purchase power is high. Rates are falling faster than home prices are rising. The imbalance is driving first-time buyers into the market, and boosting "move-up power" for existing homeowners nationwide.
See how today's low mortgage rates can help your next purchase.