About a year and a half ago, everyone seemed to be refinancing their homes, while fewer people were applying for purchase mortgages. In fact, 62 percent of the market in March 2013 was made up of refinance applications. It’s no wonder, considering that people wanted to take advantage of the low interest rates that they might not have had when they originally purchased their homes.
Today, even though rates are still low, those who are purchasing a home are commanding the mortgage market. Home buyers made up 67 percent of the mortgage market in August 2014, compared to refinance applicants which initiated just 32 percent of applications, based on the most recent Origination Insight Report from Ellie Mae.
This past May was the first time since 2009 that mortgage applications outnumbered refinance ones, according to the Mortgage Banker’s Association. That’s a huge reversal. Even more of a disparity can be found within the FHA loan program, in which 85 percent of loans were for purchases. And for the VA loan program, 73 percent of applications were for the purpose of buying a home.
This flip could very well indicate a turning point and take us into the biggest buyer’s market we’ve seen in some time.
Why are there more buyers now?
Mortgage rates are even lower than they were a year ago. Buyers are now finding it the right time, before rates begin to rise (the likelihood of which is being predicted as high by most experts in the field), and home prices climb upward.
In addition, with home prices climbing steady, buyers may feel a bit more urgency to purchase before their dream homes are out of reach.
Despite the favorable buying conditions, many first-time home purchasers aren’t clear about their mortgage program options. Here’s an overview of the main mortgage programs available in today’s market:
- FHA (Federal Housing Administration) Loans: These are ideal for borrowers that have a slightly tarnished credit history, or who don’t have enough savings or gift funds to cover at least a 3.5% down payment. Because the mortgage is insured by the federal government and borrowers pay mortgage insurance, lenders – which must be FHA-approved – can offer competitive rates.
- USDA Loans: This program is offered by the United States Department of Agriculture and is favorable for almost any buyer within eligible rural areas. Take note that maps are set to change on 10/1/14, so buyers located within qualified suburban areas should consider applying now. You can check a property’s eligibility on the USDA website.
- VA Home Loans: For anyone with military service experience (or if you’re a surviving military spouse), this loan program should be the first choice as it comes with some of the best rates and terms available, and few restrictions. Compared to FHA, VA loan borrowers can expect significant monthly savings. Plus, there’s no down payment required, and borrowers do not have to pay monthly mortgage insurance. The loans are backed by the Department of Veteran Affairs, and are issued by qualified lenders.
- Conventional Loans: If you’re among those who have strong credit and can manage at least a 5% down payment, this program may offer the most favorable terms and interest rate for you. Mortgage insurance is required until the borrower reaches 20% equity, which thanks to the rates of appreciation, could happen more quickly than you’d think. Conventional loans not government insured like FHA and VA, which is why only the borrowers with the best credit standing will qualify.
Once you have a better sense of which mortgage program you may qualify for, you can begin the process of geting pre-qualified. That will help you understand the amount in which you might be able to borrow based on some general information you provide a mortgage officer.
Once you’ve moved forward in the home buying journey, you’ll have to get pre-approved, which is a much more thorough process that examines your credit history, income, and assets to determine how much you can borrow, and approximately what interest rate you’d qualify for as well.
Apply to Buy a Home
As the research indicates, many buyers are making a move this fall in anticipation of less favorable home prices and interest rates in the near future.
Apply to buy a home before home prices and mortgage rates go up.