Having a low mortgage interest rate is not the only determining factor in a home purchase, although the importance should not be overlooked there factors that should also be considered. FHA interest rate is driven by factors that cannot be controlled by individuals. The Federal Reserve Chairman will set the Prime Interest rate and in a short amount of time the markets will react and eventually impact consumers, such as the FHA interest rate or for that matter all interest rates. For example the term Prime rate or prime lending rate is a term applied in many countries to reference interest rate used by banks. The term originally indicated the interest rate at which banks lent money to favored customers, i.e.. those with good credit, but this is no longer the case. Some variable interest rates may be expressed as a percentage above or below prime rate. So what does this have to do with the every day home buyer? The prime rate when it is low will eventually make its way over into the Mortgage Interest rate
In the 1980’s during the Jimmy Carter administration, in the United States mortgage interest rate (s) peaked at 16.67%. I relate to this personally because in 1981 I graduated High School and started my new career in Real Estate. It was a tough sell with the interest rates always in double digits. In 1995 the average interest rate was 9.67%. When the mortgage interest rate fell below double digits after several years, real estate began to move some and new upstarts were beginning to sprout up. Having a mortgage interest rate below 10% encouraged confidence. With this confidence our Nation’s Gross National Product referred to as GNP(Gross National Product-the market value of all products and services produced in one year by labor and property supplied by the citizens of the U.S.) improved and moving into the late 90’s and early 2000’s our nation experienced a revitalization. What was considered a low mortgage interest rate remained fairly steady. The Prime interest rate is a pretty good indicator of the confidence the Federal Reserve has in our future economic growth. The Federal Reserve Chairman is very slow to raise the rate even a 1/4 of a point if there are concerns of our nation’s GDP (Gross Domestic Product). Considering our nations overall performance in Quarter 2 of 2016 a much weaker-than-expected reading interest rates enjoyed another strong day as of July 29, 2016, falling to the best levels in exactly 2 weeks.
The average mortgage interest rate fell below 5% in 2005 and has remained low since, currently we see interest rates in lower 3’s for the well heeled consumer and many new mortgage loans under 4%. Now if I was reading this a couple of thoughts would be running through my mind, those thoughts would be along the lines of how do I get the best rate and perhaps I should buy now. Let’s look at the impact of a low mortgage interest rate. History suggests a lower mortgage interest rate encourages new home buyers, new home buyers flooding the market impact sales, the more home sales impact pricing, the rule of supply and demand is more than a rule. It’s a fact, home prices will appreciate when interest rates are low provided there is employment to provide income to buy. These two dynamics work hand in hand and speaking for my area in Florida home prices are slowly going up, not like they did in 2004-2007 but home prices are going up and overcoming the losses taken in the mortgage and Real Estate meltdown in 2008. If I am in the market for a home I want good overall value, meaning a low mortgage interest rate and I would not want to overpay for my home meaning once I purchase the home seeing some appreciation after the closing would be a big plus. There is no economist or financial advisor that can guarantee ANYTHING period but there are good indications this is a good time to buy. From my point of view I do not see it as a sellers market or a buyers market. A sellers market would be when there are more buyers than there are properties available. This is great for the seller but not always for the buyer, in 2005 I put my home up for sale and SOLD it within a week. Obviously a sellers market! A buyers market is the opposite, the inventory of homes for sale far outweigh the number of buyers. This was seen and experienced by millions in 2008 and millions of good people experienced foreclosure, deed in lieu of foreclosure, short sales or bankruptcies. Florida, Nevada, Arizona and California were some of the hardest hit. Where does that leave us now in the year 2016 ? Mortgage rates are not the EVERYTHING but given the fact we have not seen a mortgage interest rate below 4-5% since 1995, this is a good time. Given home sales in general across the nation is plodding along it seems the number of homes for sell vs. the number of qualified buyers are about even. Given this information maybe if your considering a home purchase maybe delve a little more into it.
Many people have or will make a spur of the moment decision to buy a home (myself included). You may be out one day and drive by a new neighborhood and see some new construction and decide to peak at the model. The next thing you know you find yourself wanting to enter into a contract. This is not always wrong but knowledge is POWER! There are many different mortgage loan products and many houses. Sometimes, not always emotion will over rule good planning and buyer remorse on a home purchase will more often than not be something you will have to live with for a time. School districts, Utilities, HOA costs quickly come to mind. On the mortgage side, FHA, VA, USDA or conventional Mortgage comes to mind. If there are a few pieces of FREE advice I would offer here it is. We are living in a time in the United States of political indecisiveness, chaos and it is confusing but what we know: Mortgage interest rates are historically low, housing is beginning to feel and show signs of recovery. Given only these two thoughts, spend a few minutes and pre-qualify for a mortgage, look at your FICO credit scores and if you have any errors or your credit report get them corrected. At the Larry Stepp Team at the Money Store part of Gustan Cho Associates can provide resources for you to make good decisions. We have good relationships with many professionals in the financial and Real Estate communities. If you are experiencing a little heartburn with a credit report if we cannot assist you we can direct you to Credit Repair Professionals and walk with you through qualifying for a new mortgage.
Find a Good Realtor, a Realtor costs the buyer nothing, their fees are paid by the seller. Anyone who has ever sold a house or purchased a house can explain the benefits. As a buyer they will and should be doing property comparable analysis so you do not overpay. No matter how in Love you are with a home and even if you are willing to pay whatever the asking is, the mortgage company will require an appraisal as part of the mortgage application process and if the appraisal does not come in high enough the purchase process will be delayed at the least and cost the buyer more money out of pocket, or even be a deal killer. A great mortgage interest rate is important but information is king !
The Larry Stepp Team at Gustan Cho Associates is available 7 days a week, holidays and weekends. I look forward to visiting with you.
Larry Stepp 407-922-4555 LarryS.firstname.lastname@example.org