Alexandria would-be homebuyers still on the proverbial fence may want to take careful stock of both the available inventory of homes, and the financial mortgage instruments available this spring season.
With the Federal Reserve again lowering short-term interest rates, coupled with the reforms of the Federal Housing Administration and higher conforming loan limits by Fannie Mae and Freddie Mac, its time to take another serious look at buying a home.
The best mortgage package will easily be the Federal Housing Administrations offer.
Under reforms recently enacted by temporary Congressional legislation, the FHA has more liberal means of qualifying borrowers, and requires a low down payment in the three percent range for qualifying borrowers, plus conforming loan limits up to $729,750, while Freddie Mac and Fannie Mae, the government-sponsored mortgage companies, are adding on origination fees based on credit scores.
Loans originating with Fannie Mae or Freddie Mac approval may cost as much as a quarter percentage point more, depending upon credit scores.
These fees may increase, as the mega-mortgage companies, that enjoy the implicit guarantee of the federal government, seek to assure private companies that loans are an acceptable risk. This spring may be the sweet spot in the market many have been waiting for.
As Wall Street experiences continued hits with investment banks needing government bailouts, and market uncertainty over whether or not we have bottomed out, credit scores may need to be higher to qualify for the best conforming mortgage rates. If the financial markets deteriorate further, credit scores to access the lowest mortgage rates may rise, making the purchase for some would-be buyers more expensive.
Likewise, lenders who originate loans guaranteed by Fannie or Freddie may add on more than a 2-2.5% fee to cover their own risks. So while some potential buyers are fence-sitting, the pricing of loans may outweigh any savings they might realize on a purchase price.
The fact remains, that the market is in a liquidity crisis. The Federal Reserve is seeking to reassure financial markets by taking on mortgage-backed securities held by banks in exchange for loans, so that enough money will remain in the mortgage markets to absorb the overhang of housing inventory and keep the market moving, albeit at a slower pace than in recent years.
The real watchword here is liquidity if money tightens up, the cost of borrowing may mean some would-be will have waited too long to purchase the home of their choice, when the negotiating strengths were so very favorably on their side. The sale price is only one side of the equation; the cost of money is increasingly the leading indicator in the real price tag for homebuyers.