Home purchase loans are overtaking refinances in a big way, according Ellie Mae’s Origination Insight Report for July.
Purchases made up 63 percent of all mortgage transactions, taking a commanding lead over refinance loans, which comprised 36 percent. This is a reversal of the short-lived trend from earlier in the year, when refinances made up 59 percent of the volume in February. The switch took its big turn from April to May when home purchases rose above the 50% mark.
So what’s behind the boom in home purchases and the slow down in refinances? There are likely a number of factors at play, but if you’re in the market for either of these products, it’s a topic that you should delve into so you can time your home loan application right.
Interest Rates are on the Rise
For a couple of years now, real estate buyers have enjoyed some of the lowest mortgage and refinance interest rates in history. But, that percentage has been slowly creeping up over the course of the year. From May to June, the average interest rate on 30 year fixed mortgages shot up about one quarter of one point to 4.288 from 4.013.
That rise alone could explain the slow down in refinance loans. Homeowners are less likely to move forward for lesser savings. Also, because of how long interest rates have remained low, it’s likely that there aren’t as many people who would benefit from a refinance as there were a few years back.
On the home purchase side, people who have been ready to buy for some time might see rates moving upward and therefore decide not to wait any longer. That’s probably a wise decision, since experts are in agreement that interest rates will continue to rise for the rest of 2015 – some predict that as high as 5 percent.
Approval is Up
The percentage of closed loans is rising. Nearly 71 percent of purchase applications were approved and closed within 90 days according to Ellie Mae’s report.
That means more borrowers are being approved and loans are closing faster. Certainly more than 71% of purchase loans will close after the 90-day mark, as some loans take longer to close. But the bulk are closing within that critical 3-month time period.
Boosting numbers is the fact that fewer applicants are being denied. That could indicate loosening of the purse strings among lenders. For example, the average FICO score for closed loans in July decreased three percentage points to 725, which is the lowest all year.
“The improving closing rate is a continued sign that borrowers are being approved and following through with purchases,” said Jonathan Corr, president and CEO of Ellie Mae in the company’s press release.
Is it time to Buy or Refi?
Regardless of the uptick in home purchases and the decline in refinances, if you’re considering either loan product, it’s still a great time to move forward. With interest rates still low, and lenders seemingly giving a bit more leeway to borrowers, you have a good shot at getting approved for a loan with a favorable rate.
Also, because home prices have gone up – and therefore your equity – you could be in a better position to refinance than you might have been a year ago, for example. Waiting it out more might not benefit you, though, since the rates are expected to climb.
As with anything related to real estate, it’s always wise to work with a knowledgeable mortgage broker and/or lender to find the best home loan product for you. Depending on your situation, the timing of your application may not be the most important factor, but it’s one to consider since even small fluctuations can have a lasting effect.
Check Today’s Rates
You can’t control the housing market, but you can – to some degree – control your interest rate.
Locking in a rate that is available today shields you from rising rates in the future. As long as you close your loan while your lock is valid, no amount of rate increase will affect you. Homeowners are encouraged to take advantage of rates while they are low.