Today’s low mortgage rates and low down payment levels are the best selling tools you have if you are selling homes that meet the FHA or Freddie/Fannie criteria. Qualified buyers who are focused on price might miss out on the buying opportunity if they wait much longer. Use low rates and low down payment requirements to get them to sell now. The days of a 3% down payment and a sub 6% mortgage rate may not last much longer!
Today, it’s not enough to be a great sales agent. Finding the right mortgage for your prospective buyer can make all the difference in the sale. The unprecedented level of daily changes in underwriting criteria makes this particularly challenging, which is why the best sales and agents are spending their evenings reading.
Use today’s dropping interest rates as the urgency to buy. A new survey by the Mortgage Bankers Association shows mortgage applications are up for new originations, driven primarily by falling rates that last week hit about 5.5%. This week, there is talk of a Treasury plan to use Fannie Mae and Freddie Mac to bring loan rates down as low as 4.5%, a full percentage point lower than the prevailing rates for 30-year fixed mortgages.
Here is our national look at mortgage rate sensitivity. The line series represents loan amounts and shows the change in the number of households that can qualify for a mortgage if rates rise or fall. The number of households than can qualify rises significantly across all loan amount categories when the rates fall from 5.5% to 4.5%. If buyers are solely focused on price, they might miss out on opportunity.
Prepare For Further Mortgage Contraction
One year ago, we warned that builders should be prepared for a major pullback in lending criteria. (Click here to read this analysis.) That has certainly happened in the jumbo market, and the loss of down payment assistance has also been a major blow. We are concerned that further pullbacks are on the horizon, despite some recent news from the Treasury that they may drop rates.
This year, a builder’s best friend has been the FHA. As other lending products vanished, FHA continued to insure mortgages made to risky borrowers with low down payments. This week, figures were released that showed FHA’s market share grew from 3% in 2007 to 26% of all mortgages in Q3 2008. Considering the dropping values of homes purchased during this period, it is likely FHA delinquencies could rise and force the agency to ask for larger down payments.
On average, builders in our proprietary November survey list 644 as a minimum FICO qualification score, but that figure ranged from 540 to 750 across the U.S. Several surveyed builders reported that zero-down-payment loans were still available in their locations while others reported 25% or even 30% down payments are required – mostly on jumbo loans in distressed markets. Those that are still finding low down payment and low FICO loans are available should prepare for that to change