Home Loans Are Very Affordable Today - Why 417,000 Is A Magic Number

With all of the negative news, its very hard for our clients to not get caught up in the negativity.   Tons of foreclosures, banks going out of business, too much inventory, dramatic warnings of double-digit depreciation.

"I am going to wait until things settle down" is commonly heard.  You may want to reconsider.

Today, I was doing a pre-qualification loan application with Hugo and Sandy, a nice couple in their 30's.   Their agent, Luanne, had sent them in to get pre-qualified.   

Hugo and Sandy had told Luanne they wanted to wait about 60-90 days until they bought a house, until things "settled."  Regardless, she sent them in to meet with me so we could start the process. 

I pre-qualified them for a $400,000 loan amount with a rate in the low 6.00's today.   They were shocked.

"We thought interest rates were skyrocketing," Hugo said. "I guess there is no reason to wait."  He is right. 

The average rate today on a 30 year fixed mortgage is only in the 6.500% range.  That surprises most people.   

Keep in mind, at the peak of the market, when buyers were going crazy, the lowest the 30 year average ever got was around 5.300%.  We are not that far away from that today.  On a $300,000 loan this is less than $230 per month from where rates are today.

Factor today's rates against where they were in the 80's and 90's from 7.000% to 12.000%, as well as the fact that we are obviously in one of the greatest buyer's markets of all-time, and today, you have a tremendous opportunity. 

In today's market, the 30 year fixed rate loan, on average, is no higher than most of the adjustable rate mortgages out there today.   The average five year ARM is also 6.500%.    

There is no reason to do an ARM today.  It used to be to get you a lower rate.  Not today.

Lenders now know that ARMs come with too much foreclosure risk, so they want to steer you away from them.   They want you in a 30 year fixed rate and they will incentivize you to take it. 

So long as you keep you loan amount in the conforming loan range, which is $417,000 and lower, in nearly every state, you can still get 100% financing, with decent credit, and low interest rates with very little challenges, so long as you can prove income.

With the investors in the secondary market drying up, most lenders are now relying on Fannie, Freddie, and FHA today.   And that's the reason for the changes.  

The bill before Congress that calls for the FHA limit to be raised, calls for it to be raised to $417,000.

If you go higher than $417,000, that's a jumbo loan and rates are nowhere near as competitive.  Plan on at least .625% - 1.125% higher today or in the low to high 7.000% range.  Jumbo loan rates today are the highest they have been in nearly six years.

If you need a jumbo loan, 100% financing is close to dried up.  Plan on a bigger down payment, showing more assets for reserves, and needing much better credit.

417,000 is a crucial number today.  I am closing a loan tomorrow for buyer who bought a $460,000 home. In the counter offer, the seller demanded that the loan amount be no more than $417,000.    Smart lady.

If you have sellers who are listing their home between $418,000 and $450,000, you will want to let them know about this new lending climate.  

A reduction in asking price to help the buyer get close to the conforming loan limit of $417,000 will likely mean more looks and offers.

If the new FHA loan limit passes Congress in October, $417,000 will be even more powerful.

It's important for you, your buyers and your sellers to understand the power of 417 today.  It could be the difference between deal or no deal.