For the 3rd day in a row the mortgage bond market is down. It climbed 28 basis points from its low yesterday but still finished down 53 basis points or about a .125% increase in rate. One thing we saw was a reminder of the impact Europe has had on the mortgage bond market and the bond market in general. When Europe was reporting bad news, there was a flight to safety by investors to bonds in the US. Europe reported a PMI of 50.4 which shows the economy is expanding - this is the first such report in 18 months. Part of the sell-off in the bond market is due to this report.
Initial jobless claims came in higher than expected which is good for rates - last month's was 336K, expected was 340K and actual was 343K. Durable goods orders (ex-transportation) also came in lower than expected at 0. The market is shrugging this news off and is currently down 29 basis points. The advice is to lock on any loan closing within 30 days if you are able.
Why are conventional mortgage rates higher than FHA and VA?
One question that I get asked a lot is why are conventional rates higher than FHA and VA rates. The answer is that FNMA / FHLMC have guarantee fees which were instituted a few years ago with all of the new legislation that we've seen. These fees have increased a number of times since they were instituted and I've heard rumblings of another impending increase. The guarantee fees are why the interest rates are typically about .375% - .5% higher for a conventional loan than for an FHA or VA loan. On a case by case basis, conventional loans are much more credit score-driven than FHA or VA so a person with a credit score between 680 and 720 may see an even bigger disparity in rate relative to an FHA or VA loan than someone with a score over 720.
General mortgage recommendation:
If you served our country in the armed forces, you may qualify for a VA loan. If you do, my recommendation is to use that to finance the purchase of your home. With a VA loan, you don't need to put any money down - you do need money to pay for closing costs but this money can come from a gift. As mentioned above, VA loans have interest rates close to what FHA rates are and better (in most cases) than rates on conventional loans. The best thing about a VA loan is that it allows you to put nothing down and you still don't have to pay mortgage insurance. Mortgage insurance can be a big part of a monthly mortgage payment so having a loan without it means you can qualify for a bigger loan / house or just have a smaller payment which means more cash for savings - we all need to put more money away for retirement.
An FHA loan, for example has a mortgage insurance payment of $225 on a $200,000 loan and it doesn't offer an option without mortgage insurance. Conventional loans typically have better mortgage insurance rates than FHA but it's very dependent on your credit score and the best rates (mortgage insurance and interest rates) require a score of 720 or higher. Conventional loans do have two options that don't require mortgage insurance: 1) a down payment of 20% or more or 2) lender paid mortgage insurance in the form of a higher interest rate - typically about .375%.
Please feel free to comment or contact me if I can help in any way: 702-812-1214 or jed.wunderli@noblehomeloans.com.
No comments:
Post a Comment