Lower mortgage rates aren’t enticing homebuyers much, as the spring housing season draws to a close.
Total mortgage application volume fell 3.3% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume was 15% higher than the same week one year ago, when interest rates were higher.
Mortgage refinance volume fell 6% for the week but was markedly higher than a year ago, up 29%. Interest rates at this time last year were 51 basis points higher, so fewer homeowners could benefit from a refinance.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) remained unchanged last week at 4.33%, with points decreasing to 0.42 from 0.43 (including the origination fee) for loans with a 20% down payment.
“Concerns over European economic growth and ongoing uncertainty about a trade war with China were some of the main factors that kept mortgage rates low last week,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
Mortgage applications to purchase a home fell 1% for the week but were 7% higher annually. They have now fallen for three straight weeks.
Buyers are up against sky-high home prices, but prices have been softening for several months and are now seeing the smallest gains in seven years. Sales were weak this spring because of short supply on the lower end of the market and high prices in the middle of the market. Lower mortgage rates appear not to be helping much.
“It is possible that the trade dispute is causing potential homeowners to hold off on buying, with the fear that further escalation — or the lack of resolution — may have adverse impacts on the economy and housing market,” Kan said.
Buying a home might be the most important financial transaction you’ll make in your life.
If you’re looking to become a homeowner, you’ll likely be considering a mortgage to help you finance the purchase.
We asked Danny Gardner, Freddie Mac’s senior vice president of single-family affordable lending and access to credit, for his best advice on mortgages for first-time home buyers.
From finding down-payment resources to understanding lender fees, here are eight things Gardner thinks every home buyer should know about mortgages:
A 20% down payment is not a requirement
“The one prevailing myth about home purchasing is that you are required to put down 20%,” Gardner said. While you will usually get a lower interest rate if you have a 20% down payment, he noted, “that is not the threshold for achieving mortgage financing.”
Freddie Mac provides a secondary market to buy mortgages from lenders so they can write more mortgages. While you will never deal directly with Freddie Mac, it has programs designed to help low income borrowers and first-time home buyers qualify for loans with down payments as low as 3%.
There are thousands of programs to help homebuyers make down payments
Many states and cities have down payment assistance programs to help you with financing. Gardner recommends checking this listing of programs to see if there’s one you qualify for.
“Not all lenders participate in these programs,” Gardner said, adding that “matching a lender to a program by yourself can be challenging.”
If you want to take advantage of a down payment assistance program, he recommends getting a list of approved lenders from the agency.
If you’re not careful, your mortgage applications could hurt your credit score.
If your credit report is pulled too many times, it can negatively affect your score.
To combat this, Gardner suggests pulling your own credit report (which you can do for free) and bringing that to lenders to get informal rate quotes.
Once you’re ready to apply for a loan, your lender will need to pull your official credit report, but you can avoid having it pulled repeatedly, and you can also avoid lenders’ credit check fees by pulling your credit score on your own.
Understanding lender fees and shopping around can save you money
Not all lenders charge the same fees. Gardner recommends shopping around, since most of the fees associated with buying a home are paid by the buyer.
“If a buyer gets at least two quotes, they are likely to save at least $1,500 over the life of the mortgage,” he said, adding that, if you get five quotes, you could save $3,000.
To compare loans, look at their varying annual percentage rates, which incorporate the lender fees.
You might not need an appraisal
Gardner said an appraisal often isn’t necessary today because “we have so much better access to data and information” than in the past.
An appraisal can cost you up to $1,000 in some cases. Gardner noted that an appraisal, for the lender to determine the value of the property, is different from a home inspection, which is for the buyer.
If you can close quickly, you could score a lower interest rate
Because of the amount of online data available to lenders, the time to process mortgage applications has shrunk. This could save you money.
Once you have a rate lock from your lender, Gardner said, “the longer the length of time for which a lender has to commit a rate to a borrower versus the time that is likely to close, the higher the cost to the buyer.”
In other words, if you can close quickly, you could score a lower interest rate. The efficiencies in mortgage processing are one of the reasons for our very low mortgage rates in the US, according to Gardner.
You should prequalify for a mortgage, but you should still shop around
You’ll need to prequalify for a mortgage before you make an offer on a house. But you don’t have to be married to the lender who granted you that pre-qualification letter, according to Gardner.
“You still have the opportunity to shop rate after you have that contract in hand,” he said. “Before you commit to a rate lock, shop your rate.”
You’ll have to do this quickly, since you’ll want to secure your loan, so you don’t lose the property. But you can get comparison quotes in a couple of days and you could save money over the life of your loan.
Educating yourself about the home-buying process will increase your chances of getting your dream home
The more you know about buying a home before you start the process, the better your chances of making a winning bid in a competitive housing market.
“The environment today is very difficult for the first-time home buyer,” Gardner said, adding that if you start out informed, you can be a better partner to your real estate agent.
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