As you’re looking for your dream home, it helps if you also look at the outlook by a group of mortgage professionals for home loans for the third quarter.
No definite trend for mortgage rates
Mortgage specialists now hesitate to make predictions about where mortgage rates are going for this quarter, as their prediction for the second quarter was wrong. They projected that mortgage rates will increase in the months following April when the Federal Reserve decided to stop buying mortgage-backed securities, but instead, mortgage rates dropped dramatically to record low levels in May and in June.
In July, instead of rebounding, rates remained at low levels, going against the prediction of steadily increasing rates. Mortgage analysts said that rates remained low because the expected economic rebound did not happen, with the national unemployment in June still high at 9.5 percent.
Jumbo home loans now offered by more lenders
More big banks now are offering jumbo home loans with relaxed standards. While before, lenders required down payments of not less than 25 percent, they now accept 20-percent down payments. Also, they now offer fixed-rate loans. Over the past two years, most lenders were offering only jumbo loans at adjustable-rate modes. In addition, rates for fixed jumbos have dropped from their higher levels in the past several months.
Stricter requirements for FHA home loans
Because the Federal Housing Administration found that the pace of foreclosures among home buyers who got substantial concessions from sellers was significantly higher than among borrowers with less concessions, it decided to lower the maximum concession rate to three percent from the previous rate of six percent. The FHA also decided to increase its minimum down payment requirement to ten percent for borrowers with FICO credit scores ranging from 500 to 579. It will continue to offer the minimum 3.5 percent down payment privilege, but only to borrowers with scores of 580 and above.
Loan Refinancing Still Not Viable for Many
Despite record low mortgage rates, a huge number of distressed homeowners are not able to refinance their high-rate mortgages because of their low equity or lack of equity. In the first quarter, the average rate for outstanding mortgages was 5.98 percent, based on Bureau of Economic Analysis reports. These mortgages are being pushed for refinancing so borrowers can take advantage of the record low rates, such as 4.75 percent for most of July, but most applications are being rejected because borrowers don’t have equity. The drastic plunge in home prices has put the values of their homes far lower than their outstanding home loans.
For prospective home buyers, the trends that are helpful are the availability of jumbo home loans and record low mortgage rates. In addition, private lending is expected to rise if FHA lending slows down.