Let’s review some common misconception homebuyers have when considering a home purchase!  Most consumers believe a 20% down payment and 800 credit scores are needed to purchase a home.  This is not true! Most home buyers don’t contribute 20% in down payment on the loan, and the average credit score of the homebuyer is less than 700!  Some loan programs allow credit scores as low as 580.  

When it comes to the down payment, each loan program has a set minimum requirement.  For a Veteran/Active Service military individual, there is zero down payment. For a Conventional Loan (1st time homebuyer) the minimum down payment is 3% and for FHA it is 3.5%.

For home buyers wanting to purchase a home but don’t have enough for the down payment or closing cost, there are also down payment assistance programs that can provide up to 5% in down payment assistance!  The down payment assistance is a grant and is not paid back to the grantor and there are no requirements on how long the home buyer lives in the home.

Turning to interest rates, over the past two months there has been a significant drop in interest rates with rates currently in the low 4% range.  These are the lowest rates in nearly two years! From a historical perspective, the average interest rate in 1991 was 9.25% and as recently as 2008 they were 6.5%.

Today’s low interest rates creates purchasing power for home buyers.  In December 2018, interest rates were 5.125%. Calculating the principle and interest payment on a $350,000.00 loan (30-year amortization) with a 5.125% interest rate gives a monthly mortgage payment of $1906.00 per month.  The principle and interest payment on the same $350,000.00 today at 4.125% interest rate factoring a monthly mortgage payment of $1696.00 per month; a savings of $210.00.

Another way to look at it, a homebuyer could increase their loan amount from $350,000.00 to $400,000.00 and keep the principle & interest unchanged ($1906.00) because of the 1% drop in interest rates since December.  In short, now is the time to purchase a home, refinance or take equity out with a cash out refinance. Call your favorite Realtor today and get started! 

Source:  Freddie Mac Website & fedprimerate.com/mortgage_rates.htm

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