Very good news in the form of lower home loan rates is beginning to unfold across the nation. After peaking just above 6% in Spring 2008, rates are currently just above 5% and expected to continue to fall over the weeks ahead. According to The Wall Street Journal (Home-Mortgage Rates’ Next Stop: Below 5%; January 2, 2009, page C2) rates may fall even further, perhaps as low as 4.5% for a fixed rate thirty year loan.
This news comes at a time when the country’s housing market is battered and bruised. In some areas of the country, home prices have lost most of the gains realized since 2000 with the Detroit market experiencing price declines in negative territory. The lower interest rates on home loans won’t help all current homeowners especially those whose home values have retreated considerably these past few years.
However, the lower rates will help people who have sat out of the market and are still looking to buy. With home prices depressed and home loan interest rates dropping, demand may begin to pick up. This could translate into the market hitting bottom, the place where many buyers will want to jump in before prices rebound.
So what is driving the lower rates? That would be the Federal Reserve Bank which is planning to purchase $500 billion worth of mortgage backed securities by this coming June, a move which should stabilize the mortgage market. The US Treasury has also jumped in, purchasing $50 billion of mortgage bonds.
For consumers who are planning to buy a home in 2009, there are a few things you can do to take advantage of the coming lower rates including the following tips:
Obtain copies of your credit reports – Free copies of your credit reports are available through AnnualCreditReport.com, a website jointly managed by the three major credit reporting agencies – TransUnion, Experian and Equifax. Get copies of your reports and check them closely for errors; follow each company’s instructions for making corrections. In addition, pay the nominal fee to get your credit score from at least one of the companies; the higher your score the better – the more likely you’ll be approved for a home loan and at a favorable interest rate.
Raise your down payment – Few lenders will offer you a loan if your down payment contribution is only 5%. Many are now requiring as much as 20% down, an amount that could be well beyond the reach of many buyers. Still, you may have that money available in the form of bonds, stocks, retirement savings, etc. Now is the time to assess your portfolio and see which funds can be diverted to purchase a home. In any case, shop around for a mortgage; get prequalified for a loan before you begin to shop for a home. Finally, pay off as much debt as possible.
Begin preliminary shopping – Likely, you’re already familiar with the market where you want to purchase a home. However, even over the past few months prices in some areas have plunged considerably. Learn what the current housing market is like and plan accordingly. You don’t want to overpay in this market, but you do want to offer a competitive price to the seller.
Will the drop in home loan rates signal the end of the recession? That’s hard to say. However, it most certainly will open the door to homeownership to new buyers even as foreclosures continue to mount. If you have the funds to buy, 2009 could turn out to be the best opportunity to buy.
Get prepared now in order to be ready for the Spring home selling season. When Spring arrives you’ll be ready to jump in, perhaps finding the deal of a lifetime.
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