Mortgage rates have been dropping for the past few months. In May, rates dropped far enough to decrease the average rate for all closed loans by eight basis points (0.08%).
If current trends are any indication, today’s rates are likely even lower.
Last month, mortgage rates dropped to 4.33%, their lowest single-month average for closed loans since January. But rates were also dropping throughout the month, so the real interest rate available to mortgages toward the end of May was much lower than the average.
Rates were even lower for some specific loan types. For example, closed FHA loans in May had an average rate of 4.29%. FHA loans are known for having lower rates while also requiring a downpayment of as low as 3.5%.
VA loans had an even lower average closed rate of 4.07%. Those that are eligible for a VA loan usually find that it’s the best mortgage option available.
Along with dropping mortgage rates, the percentage of mortgage applications that closed in the past month increased as well.
In May, 70.4% of all mortgage applications closed in a 90-day cycle, good for the highest clip since February. The number is even higher when just considering purchase loans since over 75% of those applications closed.
Overall, the market might seem like it’s in the same position that it was in back in January. However, we are currently in the busy summer buying season, meaning home buyers are aggressively looking for homes.
Combine that with low mortgage rates and the market is still hot. Those looking to purchase a home might want to take advantage of the low mortgage rates and high chance of getting their mortgage application closed.
Market Remaining Hot
Every month, mortgage software company Ellie Mae tracks mortgage information from around the country. Roughly 75 percent of all mortgages go through their software, so their monthly origination report is seen as a trustworthy source for mortgage data.
Their report tracks mortgages that closed in a 90-day period, although many mortgages close much quicker than that. A closed mortgage is a mortgage that went through the mortgage application process and was approved.
Last month, it took an average of 42 days for a mortgage application to close. This is the same number of days it took in April, tying it for the lowest in over 18 months.
Mortgages are getting approved quickly since lenders want to keep their foot on the gas. The market is hot, and they want to take advantage of the high demand for homes.
Along with closing mortgages quickly, lenders are also keeping mortgage rates lower to try and convince home buyers to lock in on rates.
Aside from those, lenders are also keeping the required credit scores low.
In May, the average FICO score for closed mortgages 723, about the same level it has been all year. While that number might seem high to some, it’s worth remembering that it is an average, so lower credit scores were also approved in that period.
The average FICO score for specific loan types was even lower. FHA loans had an average credit score of just 650, the same average as they did in April.
Lenders are doing what they can to help home buyers get into their new home. All home buyers have to do is lock in on rates and commit to purchasing a home suitable for them.
Purchase Loans Gaining Popularity
For the fourth month in a row, purchase loans continued to become more popular than refinances.
This is likely because of the ultra-low rates available to home buyers, especially since many potential home buyers were expecting rates to rise throughout 2017.
Last month, purchase loans made up 68% of all closed mortgages. That’s compared to just 53% of all closed mortgages back in January.
At the beginning of the year, it seemed like refinances were going to be a popular option. However, low mortgage rates have brought a resurgence of home buyers.
Those who are interested in a refinance shouldn’t be deterred by this, however. Refinance rates are the same, or possibly lower, than mortgage rates.
Mortgage rates aren’t the same for everyone, and they can change depending on a number of factors. Those interested in any type of mortgage might want to find out what rates are available to them.
Ellie Mae’s Origination Insight report gives valuable information to home buyers, but the data is a collection of mortgage rates from the previous month. Currently, mortgage rates are lower than those reported.
Home buyers and refinancers looking for the lowest possible rates will want to keep their eye on rate trends.