About Government Refinance and Home Purchase Programs

Despite the federal government shutdown that recently ended, mortgage interest rates remain extremely low by historical measures. The dip we saw in mortgage interest rates in September and again in October after the Fed decided not to taper its stimulus program has persisted. That means now is still an excellent time to start the process of a refinance or home purchase.

Of course there remains a lot of uncertainty about what will happen with interest rates. If a new government shutdown happens, or worse, if the US defaults on its debts in the months to come, we would likely see a spike in mortgage interest rates. But as of now neither of those outcomes seem likely. With any luck a permanent resolution to the debt ceiling disagreements will be reached soon and rates will stay at the current low levels we are seeing through the end of 2013.

In any case, the odds that rates will be moving higher over the next few months remain high. So now is the time to contact us in the form on the right to get the ball rolling on a new government-backed mortgage. Rates are still near all time lows and there are excellent programs in place for consumers.

Recent reports have shown an uptick in the number of “jumbo” mortgage refinances and refinances into 15 year mortgages rather than the more traditional 30 year term.

Advantages of 15 year mortgages

There are several advantages to getting a 15 year mortgage rather than a 30 year. First, interest rates on 15 year mortgages are normally more than a half a percent lower than their 30 year counterparts. Second, by paying off the mortgage twice a fast, the amount of interest paid over the life of a 15 year loan is significantly lower that a 30 year loan. The main disadvantage to 15 year mortgages is that monthly payments are higher. But for families who can comfortably afford higher payments, a 15 year mortgage is often a very wise choice. Contact us to learn more about rates and costs associated with a 15 year mortgage.

On jumbo loans

The term “jumbo loan” refers to a loan that is larger than the national $417,000 loan limit for conforming loans. Jumbo loans have traditionally had higher interest rates than conforming loans but recently rates on jumbos have as low or sometimes even lower than conforming loan rates. If you have a large loan and feel your rate is too high, contact us in the sidebar right away to see about refinancing while jumbo rates are dipping to new lows.

There are new mortgage rules coming in January of 2014 that will make getting a government-backed mortgage more difficult. While there are several rule changes on tap, the one that will affect borrowers most is the new stricter debt to income ratio rule.

Debt to income (DTI) ratios take the total monthly mortgage payment, including property taxes, homeowners insurance, and homeowners association fees, and compare them to the gross monthly income of a borrower. So for example, a borrower who earns $4000 per month in salary before taxes, and who has a total mortgage payment of $1000, would have a housing debt to income ratio of 25%. Of course housing is not the only household expense, so if that person had other loans she were paying off, like car payments, student loans, or credit cards that added up to another $1000 per month, her total monthly debt payments would be $2000 per month. With a gross monthly income of $4000 that would put her total or “back end” debt to income ratio at 50%.

Currently debt to income ratios can be as high a 50% or even 60% in some cases on government-backed mortgages. Starting in January it will be very difficult to qualify for a mortgage if the total or “back end” debt to income ratio exceeds 43%.

While this news is not devastating, it will make it harder for many people to qualify for a refinance. Further, it will mean that home buyers will qualify for less money than they currently can.

With that in mind, if you are considering buying a home or refinancing now is the time to contact us to get the process started. Rates are still historically low and many people who can qualify for the mortgage they are seeking now may no longer qualify with the new, stricter guidelines begin in early 2014. Contact us in the sidebar today to learn more and to get started.