January saw a growing economy, some adjustments to President Trump and relatively consistent mortgage rates.
Thanks to these factors, as well as others, mortgages continued to close fairly easily in the month of January.
Over 72 percent of mortgages closed last month. While this is slightly less than the percentage of closed mortgages in December (73.2%), it shows that nearly ¾ of all mortgages are closing.
Along with that, the average number of days it took to close a mortgage was 51 days.
January tends to be a slower month in terms of closed mortgages. However, mortgages closed in just about the same average number of days this past month as they did in January of 2016.
Along with that, only 68.4% of mortgages were approved in January of 2016. By most standards, it was easier to get approved for a mortgage last month than it was a year ago.
While the housing market isn’t perfect, it is much stronger than it was just a few years ago. In fact, it is likely one of the strongest sectors of the economy.
This should be exciting news for prospective home buyers, especially since mortgage rates have been dropping in the month of February. If this trend continues, then 2018 could easily end up being an ideal year to purchase a home.
Average Credit Scores For Closed Mortgages Continuing To Lower
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.
One trend many home buyers may like to see is the lowering average credit score for closed mortgages.
Last month, the average credit score for closed loans was 722. While this was a drop of just four points, it makes homeownership possible for more.
Over the past few years, many lenders have been loosening their standards. After 2008, many lenders were forced to adopt much stricter standards than ever.
Now that the economy is growing and there is a regained confidence in the housing market, lenders are able to approve home buyers that would have been eligible prior to 2008.
Those that were unable to secure a mortgage in the past few years might find that they will get approved today.
Adjustable Rate Mortgages Gaining Popularity
Aside from loans closing more easily, one interesting piece of information provided by Ellie Mae’s report was the rising popularity of adjustable rate mortgages (ARM). In December of 2016, only 4.6% of closed mortgages were ARMS.
Last month, 5.4% of all closed loans were ARMs.
When it comes to home buying, a massive majority of people opt for a fixed rate mortgage. But they might not be perfect for everyone.
One upside of using an ARM is that the average mortgage rates are much lower than they are for a 30-year fixed rate mortgage. This means that monthly payments are much lower than they would be for a fixed rate mortgage.
However, ARMs will adjust after the set period ends. For example, most ARMs are five-year. For the first five years, the homeowner will pay a fixed rate amount on their monthly payments.
After the initial period ends, the ARM will begin to adjust to current rates.
Because mortgage rates are expected to rise in the future, rates for ARMs have been lower than those for fixed rate mortgages.
Another advantage to opting for an ARM is that you have a guaranteed mortgage rate for a short amount of time. Home buyers who might end up selling their home in 3-5 years could find that an ARM fits their needs.
This homeowner would get the advantage of low rates, and then when they sell the home, they would pay off the remainder of their mortgage before it adjusts to potentially higher rates.
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 higher than those reported.
Home buyers and refinancers looking for the lowest possible rates will want to keep their eye on rate trends.