You may have seen recent news clips talking about RECORD LOW RATES like this one:
Housing struggles despite mortgage rates hitting new low
or this one:
Fannie Fees Fail to Offset Record Low Lending Rates: Mortgages
or this one:
30-year mortgage rates at new low
I think you get the idea!
You might be thinking that this post is going to tell you something about how rates aren’t really at all time lows. Actually they are and now is a fantastic time to buy or sell a home! Let me explain “the whole story”…
The PMMS
When you read these articles they explain that we have hit record low mortgage rates of 3.88% on January 19, 2012. This is down from the previous week where rates were at 3.89%. But wait a second…is every lender set at 3.88%. No. In fact there are some that are lower, some that are higher. The 3.88% rate referred to in these news headlines are based on a weekly survey conducted by Freddie Mac. Each week Freddie Mac conducts what they call the Primary Mortgage Market Survey (PMMS for short). They contact 125 mortgage lenders around the United States and ask them to quote rates for the primary loan options people obtain including:
- 30 Year Fixed
- 15 Year Fixed
- 5 Year Adjustable Rate Mortgage (ARM)
- 1 Year ARM
They then compile the results from their survey done Monday – Wednesday of the week, establish a weighted average rate, by volume in 5 different regions, along with the cost to obtain that rate and publish them on Thursday.
Understanding the Quote
Before you take the rate quote at face value and assume that 30 year fixed mortgages are really at 3.88% lets better understand how that rate quote is calculated. All rate quotes provided in the survey are based on 20% down conventional financing mortgage loan products. I have reviewed the Freddie Mac website for details surrounding other criteria such as credit score, debt-to-income ratios, property type, etc but could not find any additional criteria. Based on this being omitted I believe that the lenders participating in the survey are also going to quote rates based on the best possible credit scores, lowest possible debt-to-income ratios and lowest risk property types to generate the lowest possible rate quote they can.
Is the Survey Accurate?
The survey is as accurate as a survey of this type can be. Rates are gathered over a 3 day period of time where the market fluctuates and impacts rates during that time. They are then published a day later when those rates may or may not be available. Also keep in mind, based on the previous section of this post, that the rates being quoted are for the most qualified borrowers in the market. The PMMS is a great reference for a general feel of what the market is doing. That is why headlines about “Record Low Mortgage Rates” are truly accurate but just because they state that the rate is 3.88% doesn’t mean if you call a mortgage lender today you will be given the same quote. Your state, lender, credit score, debt-to-income ratio, property type, type of transaction (purchase or refinance) and a whole bunch of other things could impact your rate.
I am Not a “Perfect” Borrower – Is Now Still a Good Time to Buy?
Yes! I am not saying that just because I am a mortgage lender and I have an interest in people buying. I am saying this because the cost of real estate, based on inflation adjusted numbers, is at all time lows. Rates are at all time lows. Simply, the cost of buying a home now has never been less expensive. Not only is it a good time to buy but it is a great time to sell. Housing inventory is way down right now (at least it is in Colorado) which makes the time great for sellers. If you have a lot of buyers for a limited quantity of a particular product (your home) you can get a better price. Buyers, don’t worry you have the market and the rates on your side, so it still a perfect time to buy too. It is a Win-Win!
