September 20th, 2013 8:56 AM by Richard T. Cirelli
Reasons To Buy or Refinance now!
1. Reduction In Fannie Mae, Freddie Mac and FHA Loans Coming:
There is still speculation as to how much the Government will lower the loan limits but we do expect an announcement soon. The FHA loan limit is currently at $729,750 and it is rumored that it may be reduced all the way back to $417,000. This was the limit before the Government stimulus programs were introduced a few years ago. Mortgage Bankers Association president and CEO David Stevens believes the Fannie Mae/Freddie Mac loan limits will adjust downward to $400,000 and $600,000 in the higher-priced markets.
2. Jumbo Loans Abundant
New Jumbo loan lenders are coming into the market place every week. This opens the door to buyers and borrowers who need loan amounts larger than the FHA, Fannie Mae/Freddie Mac limits, and at very competitive rates. But, traditionally, jumbo rates have been much higher than their conventional counterparts. I expect the spread between conforming and jumbo rates to widen as the market for these loans settles out.
Fewer borrowers will qualify Effective January 1, 2014, when lenders will be required to make mortgages that fit the definition of a “Qualified Mortgage” and “Qualified Residential Mortgage”. QM is designed primarily to indemnify lenders against future lawsuits from loans that later go into default. QRM is designed to not require lenders to put 5% of every loan in reserve to protect against future default. For lenders to be protected by the Government, they must make loans that meet the definitions of QM and QRM. These definitions include a maximum Debt-To-Income Ratio of 43% (presently it can be as high as 50%); no Interest-Only loans, no loans terms more than 30-years plus other restrictions. The definitions apply to mortgages made to be sold to the Government Sponsored Enterprises known as Fannie Mae and Freddie Mac but it could be expected that jumbo lenders will follow the same guidelines. The bottom line is that fewer applicants will qualify and if lenders do make a loan outside the QM/QRM definition, you can be assured that the rate and cost will be higher.
4. Higher Rates Are Coming:
Rates have fallen by about .5% in the past couple of months due to the Government’s continued policy of buying Mortgage-Backed Securities. They just decided yesterday to continue the policy for a little longer. But the day is coming, soon, that they will discontinue their policy and begin tapering or slowing down their purchases (see the section on Mortgage Rates below). Despite the recent fall in rates, they are still about 1% above the all-time low. They will go higher in the very near future.
Any combination of the factors listed above will influence rates. In the meantime, home prices have risen and are continuing to rise. The combination of higher rates and higher home prices only means one thing – Buy Now!