Q: Mortgage rates are at two-year lows. What's the response in the Oklahoma City area?A: We have seen an increase in refinances, but the rates have been very erratic. When they dip we have flurries of activity, and then it slows down when the rates jump up.
Q: Interest rates have been at historic lows for a long time now. Why would people refinance now, if they haven't already?A: There are several reasons. Rates for 30-year fixed-rate mortgages are about 0.75 (percentage point) less than they were last summer. Depending on the size of the loan, a savings of 0.50 to 0.75 on the interest rate can be a significant savings and well worth the cost of refinancing.
We have a lot of borrowers who are refinancing first and second mortgages into one loan to reduce their monthly payments and-or loan term. The second mortgages they are paying off may be home equity loans or secondary purchase money loans. Second mortgage loans typically carry a higher interest rate than a first mortgage loan.
Then there are still borrowers who are still refinancing their homes to consolidate debt. The Federal Housing Administration permits financing up to 95 percent of the appraised value and on conventional loans up to 90 percent for "cash-out" refinances. And we are getting calls from borrowers who want to refinance sub prime loans, especially loans that are coming to the end of the prepayment penalty or are facing rate adjustments.
Q: The federal economic stimulus package raised the limit on loans backed by the Federal Housing Administration. The move came almost two weeks ago. How has this market reacted?A: It is a little too soon to see very many loan applications based on the increased loan amounts. It's not like most people were waiting until this increase was approved to enter into purchase contracts or make loan application.
Real estate purchase contracts are written subject to certain financing (FHA, conventional, Veterans Administration) so borrowers don't normally switch financing types once the contact is accepted. The transactions closing now for the most part started 30 days ago or longer.
However there may be some transactions in process that switch to FHA if the borrowers cannot qualify for the original financing, or who may increase their requested loan amount based on the new higher limit. I think that in the next 30 to 90 days we will see a very significant increase in FHA filed mortgages.
Q: The stimulus package did not raise limits on loans backed by the Veterans Administration. In some markets, that oversight really hurts. How about here?A: The VA maximum loan amount for 100-percent financing is the same as conventional conforming at $417,000. VA loans are only available to veterans with VA entitlement (or their widows if the veteran died in the line of duty), so these loans are not available to the general public.
Q: What do you think the greatest financing challenges for home buyers will be this year?A: I think that there are two important challenges that home buyers need to understand.
First and foremost, credit is extremely important in obtaining financing for a home, and especially with buyers seeking conventional financing. Second is the issue of down payment. Freddie Mac and Fannie Mae are very skittish about loans with little or no down payment and for that reason are phasing out most "no-down” financing options. FHA requires the borrowers have a minimum of 3 percent cash investment. There are ways that buyers can obtain these funds, such as gifts from relatives or non-profit organizations, but the bottom line is that 100-percent financing is harder to come by and borrowers with poor credit and no cash just do not have the same ability to obtain financing that they have had over the past few years.
Real Estate Editor Richard Mize
