With mortgage rates hovering below 4 percent into the new year and more “low downpayment” opportunities provided by Fannie Mae and
Freddie Mac, 2015 is looking to be a friendlier year for first-time homebuyers.
And things are looking up as well for existing homeowners who have seen their equity rebuilt with steadily rising prices and improving economic conditions.
Mortgage financing giants Fannie Mae and Freddie Mac, which do not lend but purchase most home loans for repackaging, are launching programs that will guarantee loans with down payments of as little as 3 percent.
To qualify for Fannie’s and Freddie’s mortgage programs with just 3 percent down, borrowers must have a credit score of at least 620. They must also be able to able to prove income, assets and job status, and purchase private mortgage insurance.
“With rents now rising at a seven-year high, historically low rates and moderating price growth are likely to entice more buyers to enter the market in upcoming months,” says Lawrence Yun, chief economist for the National Association of Realtors.
Yun says that falling gas prices will likely boost consumer confidence and allow a broader range of prospective buyers the opportunity to save additional money for a downpayment.
Fannie and Freddie’s move would create more opportunities for first-time homebuyers, but will interest rates remain low enough to attract a broader range of buyers?
Federal Reserve policy makers closed out a two-day meeting last month by holding to October’s pledge of keeping rates near zero for a “considerable time”, which is a bow to a relatively strong economic U.S. recovery. Wall Street continues to debate when the Fed will begin lifting its benchmark federal funds rate, with many saying it could begin at mid-year 2015. But that’s speculation based on many factors, including unemployment, inflation and other economic indicators.
Mortgage rates are not expected to stray too far from the 4-4.5 percent range for the 30-year fixed home loan for at least the first half of the year, if not most of the year. An jump to 4.5 percent from the current 4 percent would add about $60 a month to payments on a loan with a principal balance of $200,000.
Meanwhile, home prices continue to decelerate their robust gains and are expected to continue growing — but at a more moderate to weaker pace. With many more new homes slated to come onto the market, supplies should loosen up and take some pressure off of home prices for prospective buyers.