For those new home buyers and investors sitting on the fence, now might be the best chance to purchase or refinance while the rates are still low. The week ending November 18th posted the highest 30-year fixed interest rate in three months.

According to the weekly survey from the government run mortgage giant Freddie Mac, mortgage rates averaged 4.39% for a 30-year fixed loan in their latest survey ending Thursday, November 18. That 4.39% is up .22% from the record low posted the week prior at 4.17%. The average rates on a 15-year fixed rate loan were 3.76%, which was up .19% from the 3.57% the prior week.

This average posted for the week ending November 18th is the highest average since the week ending August 19th. This average also marks the largest single week increase since June 2009; and follows a few months of an overall steady decline in rates. There were weeks where the rate would slightly increase or stay the same, but until now, rates have not significantly changed week to week.

These increases will likely lead to a short-term increase in loan refinancing activity. Many of the borrowers who were waiting for rates to drop lower, or bottom out before they decided to refinance, may now want to lock in the best home loan rate possible before they lose the chance.

Mortgage rates have started to rise despite the efforts by the Federal Reserve to buy up all the Treasury debt in order to keep interest rates low. The Federal Reserve spent around $1.3 trillion on mortgage backed securities trying to keep interest rates.

As far as refinancing, the Mortgage Bankers Association reported recently that refinancing activity has recently tumbled. The MBA has estimated that refinancing will continue to fall and will end up around $370 billion for the year. That is a significant decrease from the $1.3 trillion in 2009.

See Also: Freddie Mac’s Primary Mortgage Market Survey
Mortgage Rates for U.S. Loans Increase for Second Week, Freddie Mac Says

Pros of financing through your builder

The pros of financing new home construction through your builder’s affiliated lender are given below:

Convenience: Getting your home loan from your builder’s affiliated lender is likely to take less time than seeking approval from independent lenders. The reason is the affiliated lender is familiar with the builder; therefore two companies can share relevant information and speed up the processing time.

Greater likelihood of approval: As the builders want you to buy their homes; they are more likely to work with mortgage lenders who are likewise eager to grant your mortgage application. After all, their own income would be affected if their affiliated lenders reject too many potential buyers.

Incentives: Some builders may agree to reduce the value of a home from $5,000 to $10,000 provided you use one of their favored lenders. Non-financial incentives are becoming extremely popular too, with builders offering to throw in everything from TVs to backyard landscaping.

Flexible closing: You might have to delay closing when your home is not completed on time. During these cases, a builder’s lender might be more flexible to work with than an independent lender.

Cons of financing through your builder

The cons of financing new home construction through your builder’s affiliated lender are given below:

Higher rates and closing costs: According to the National Association of Mortgage Brokers (NAMB), affiliated lenders offer interest rates 1/8th to 1/4^th % higher than what borrowers might get from an independent lender. Moreover, mortgages offered by affiliated lenders might carry higher closing costs. Thereby, you end up paying more in the long run. You can calculate the overall payments that you have to make with the help of a loan mortgage calculator without any problem.

Possible price manipulation: Although Federal rules specify that any price discount offered by builders for using one of their preferred lenders should provide genuine savings, you have to be careful that a discount incentive isn’t made up through charges hidden elsewhere.

You should take time to shop around for the best new home loan. You can check what the builder is offering and compare it with quotes from at least 3 outside lenders. You can compare the quotes with the help of a loan mortgage calculator.

See Also:
Can a builder require you use their lender?

The most common method of achieving 100% home financing was to split a transaction into two loans with the first mortgage accounting for 80% of the purchase price and a second 20% mortgage making up the balance. This allowed a borrower to avoid paying private mortgage insurance because as long as a loan amount is not over 80% of the purchase price, PMI is not required.  The number of lenders offering second mortgages has plummeted with the retraction of the mortgage market and now it is hard to find any lenders that are willing to offer second mortgages up to a combined loan to value of more than 75%.  Second mortgages have become too risky for lenders.

The other method of achieving 100% financing was to take out a single loan for the entire purchase price and pay private mortgage insurance.  This is still an option in some markets but for many markets in areas that are seeing property values fall, lenders have put declining market guidelines into place that reduce the loan to value that they are willing to go up to for those higher risk areas.  This means that the maximum loan to value drops by an automatic 5% for all of their programs.  A borrower may qualify for the 100% program that a lender offers but they will be required to put 5% down due to the declining market.

These changes in the mortgage market mean that it is constantly getting more and more important for borrowers to have some reserves in the bank when they go to purchase a home.  Those that don’t have the ability to put any money into the transaction are likely to find that they are unable to qualify at this point in time.  It is also vital that potential buyers take every possible measure to keep their credit scores as high as possible.  Making payments on time is the best way to keep those scores up.  A recent 30 day late on a $5.00 balance could drop a borrower’s credit score enough to make the difference in them qualifying or not qualifying to buy a home in the current market.

Happy house hunting,

Ben Hawkins

President

Arizona Home Loans

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