I just got a great present in the mail!! I was notified of the annual adjustment to the interest rate on my Adjustable Rate Mortgage. It was reduced by 0.5% for the upcoming year and now has the stunning rate of 3.000%.
I originally took out the ARM 10 years ago. It is a 7/1 ARM meaning that the rate was fixed for the first 7 years, and adjusts annually after that point. The rate is based on a defined index with a 2.25% premium.
I chose this mortgage 10 years ago with the idea that it was highly unlikely that I would own this house for 7 years. The longest I had ever lived in a home previously was 4 years. I truly thought that I would have sold and relocated long before the rate ever adjusted.
However, in selecting the loan, I did make sure that future adjustments were based on a defined index and that the high end of the rate scale was capped. Although I didn’t expect to get this far into the term, you never know for sure.
As the loan started to adjust, I watched the market. With interest rates in steady decline, I have seen no reason to refinance. I will refinance as rates start to rise, which means that I will miss the bottom of the market. Had I already refinanced, I also would have missed the bottom of the market – I think we just got there. I’ll take a close look next Fall and see if refinancing will be beneficial, or if once again, I will let the rate on my loan adjust.
In the end, the strategy of using an adjustable rate mortgage is going to work well for me. Properly utilized, I don’t think all ARM’s are evil. In the right market conditions, they can be a very useful tool, and I believe there will be a resurgence in their use once interest rates inevitably rise to more historically normal levels. Given the current interest rates, an ARM may be a great product again if your borrowing needs have a short horizon.
First, if you have served in the armed forces, thank you for your service! I am proud to have served with the US Navy as both a Surface Warfare Officer and as a recruiter. During my service as a recruiter, I bought my first Dallas home using a VA loan. At closing, I wrote a check that was between $100-200 and got the keys to my brand new home. I also took advantage of a small loan from the Texas Veterans Land Board. Together, these benefits of military service helped me to achieve the dream of home ownership.
I recently received an e-mail with information on obtaining a VA Loan from VA Mortgage Center.com. As they are one of the leading service providers for VA loans, I wanted to share their information with you. Hopefully this will help you achieve the dream of owning a Dallas home.
More than 1.7 million veterans reside in Texas, and about 38,000 live in Bell County where Fort Hood fulfills the role of the largest active duty armored post in the U.S. Yet it’s highly unlikely that all these veterans take advantage of the VA home loan program since less than 10 percent of the nation’s 24 million veterans capitalize on the program.
The VA loan program is one of the last remaining home-buying options that lets borrowers put no money down. Compared to conventional loans, VA home loans tend to offer lower interest rates and eliminate the private monthly mortgage insurance. As a result, borrowing veterans’ monthly payments are greatly reduced.
Fort Hood is full of starter homes that veterans could buy with the help of a VA loan. In 2007 and 2008, homes that cost between $100,000 and $159,999 accounted for 44.3 percent and 45.2 percent of homes sold in the Killeen-Fort Hood area, according to Texas A&M’s Real Estate Center (REC). Even during hard economic times, homes in the Killeen-Temple-Fort Hood area appreciated about 2.5 percent in late 2008 compared to 2007. In the same area, the REC found that the annual average rate for a 15-year fixed mortgage was about 1.2 percent, which is quite borrower-friendly.
By the end of 2008, homes in the U.S. began to depreciate, but Texas’ home values did not, according to the REC. The median house or condominium value in Texas in 2008 was $126,800.
Veterans who want to make use of a VA loan to buy a home in Texas need to confirm their eligibility first. For the most part, veterans who are in one of these categories may have va loan eligibility:
-Military members who’ve served 181 days on active duty or three months during war time
-People who have spent at least six years in the National Guard or Reserves
-Spouses of those killed in the line of duty
The maximum VA loan limit in Texas is $417,000, but it’s important to note that VA does not issue loans, it simply backs about one-quarter of the loan. Because of that insurance, lenders, such as the VA-certified VA Mortgage Center.com, are often happy to help veterans get a loan.
The Federal Reserve announced that it will end the purchase program of mortgage backed securities as scheduled this month. I give this three hips and a giant hooray! After providing about $1.25 trillion in economic support, ending this program will force the private sector markets to fill the gap that the Fed has left. And I have all of the confidence in the world that they will do so. However, they will likely not do so at the same returns that the Fed was seeking. Rather, I suspect, the private sector will demand greater yield on their investment than did the US Government.
So what does this mean to the “average Joe” trying to buy a home? I suspect it will mean slightly higher interest rates. If the secondary markets begin demanding a higher return, it is going to force mortgage originators to write at higher rates. I don’t think this rate will have to be dramatically higher, but could be in the range of 500 basis points (0.5 percent). That’s a tough pill to swallow if you’re right on the edge of taking out a loan. If you have the option, I would recommend locking a rate quickly.
For the broader market, I think this is a promising move, thus my cheers at the beginning of this post. If the Fed is willing to cease this program, it must have confidence that the private sector will step forward to continue the function. Lacking that confidence, the program would have been extended to ensure that credit markets remained liquid. I take this as a very positive sign that the mortgage markets are healing.
It will be very interesting to see what happens with the first time home buyer tax credit at the end of April. I can feel the demand that this program is generating in the market. Homes that are in the range of both size and price to be attractive to first time home buyers are seeing significantly more demand than larger, more expensive homes. So, a final word of encouragement to those who own small homes and have been thinking about moving up – do it now!
Beginning in the spring of 2010 and continuing into the summer, The Federal housing Administration will be tightening the lending policies of one of the most highly sought mortgage loans in the country. FHA insured loans currently comprise about 30% of all new mortgages originated in the United States, up from only 3% just 3 years ago, cites a recent USA Today article.
So in a nutshell, here are some of the more relevant changes:
- Credit Scores increase – to qualify for a 3.5 percent downpayment, the hallmark characteristic of an FHA loan, borrowers must have a credit score of at least 580. Failing to achieve the 580 mark will not eliminate the possibly of obtaining an FHA loan, but it will increase the required downpayment to 10 percent.
- The limit on Seller contributions toward closing costs, currently 6 percent of the total sale (a amount generally sufficient to cover most to all of the buyers closing costs), will decrease to 3 percent. This is a return to a previous standard, and still offers substantial assistance to Buyers, but will in the end require the Buyer to show up with more cash at the closing table in the future than is currently needed. The purpose of this change is to help contain appraisal values. When Seller contributions are large, the value of the home must appraise for the sales price of the home plus the Seller contributions. By reducing the amount of the Seller contributions, the FHA hopes that appraisals will begin to more accurately reflect market conditions.
- The amount of prepaid mortgage insurance will rise to 2.25 percent, up from the current level of 1.75 percent.
So what’s the desired point behind all of these changes?
The quick answer is that these changes are the next attempt by the FHA to help stabilize the housing market in the United States. “These changes are overdue,” said David Stevens, the FHA commissioner, speaking to reporters. “FHA has a responsibility to be fiscally sound” and to provide homeowners with “financing that’s going to give them the ability to live in their home long term.”
The Wall Street Journal also reports that the FHA is also announcing a series of measures to boost its ability to police lenders that originate loans with FHA backing, and the agency will ask Congress for greater authority to take action against lenders who originate loans with high rates of default.
There are three great programs run by federal government that allow first time home buyers to buy a house with little to no money out of pocket. FHA loans are available through the Dept of Housing and Urban Development. The Veteran’s Administration offers US military veterans a $0 out of pocket opportunity and The The US Department of Agriculture sponsors Rural Housing Service Loans.