2020 is off to a hot start and its nice to see so many millennials getting into the market. It feels like yesterday (aka 2016) where the worry was millennials weren’t going to be purchasing homes because they wanted the freedom to travel. This is still true, but not to the extend that everyone was worried about! I hope all of you are off to an amazing start this year and I look forward to helping you with any financing you may need. Now, let’s talk about lending!
What is going on with interest rates?
What’s the current rate? As loan officers we get this question daily. While it seems like
an innocuous question that should be simple enough to answer, there are many variables that play a role in determining the “current rate.” While there is no such thing as the “current rate,” there is a current rate for your individual situation. In order to have the best possible rate, it is important to understand the various variables that play a role in rates.
The largest dictator of interest rates is the one that everyone reads on the news or sees on TV. This is the 10yr US Treasury yield. This factor is not specific to any one borrower and dictates the baseline for rates on a broad scale. The lower the 10yr Treasury yield, the better mortgage interest rates will be. The other factors influencing interest rates are individualistic. The most critical of the borrower specific factors is credit score. The better your FICO score, the better rate you will be eligible for. The remaining factors include amount of down payment, loan type (FHA, conventional, etc.), occupancy (primary, investment, etc.) debt-to-income ratio, and loan purpose (purchase or refinance). All have a similar weighting when
determining the current rate. Each variable outlined is critical to determining the interest rate you are eligible for.
Does down payment assistance hurt loan performance and increase chance for recession?
A common misconception in the mortgage industry revolves around down payment assistance and loan performance down the road. Are those that receive down payment assistance (DPA) for their down payment more likely to default on that loan than those that did not? That topic was the subject of a study recently by the Joint Center for Housing Studies at Harvard University. The results of the study indicated that when other variables such as FICO and DTI were controlled, loans with down payment assistance did not have a higher risk for default than those without.
Make sure to let us know if you have any questions. We hope to see you at the next AZREIA meeting!
by Andrew Augustyniak, Branch Manager/Loan Officer, Peoples Mortgage Company