Question and Answer with Rick Scherer

BOSTON - March 6, 2015 - PRLog -- 1. How are mortgage rates affecting home ownership this year?

a. Mortgage interest rates are really affecting the purchase market in a positive way.  Last year at this time, both the real estate market and the mortgage market saw a significant pull back on business for the first quarter due to two big factors: the polar vortex and interest rates. Last year at this time, interest rates for a 30-year fixed loan hovered in the 4.5% range. Looking at today, we have seen record-breaking snow fall, and though upwards of 7 feet of snow has fallen, my purchase business is up 65% over the same 45 day period last year. I believe the key factor is that 30 year fixed interest rates have reached the 3.5% range.  At this time last year, a home buyer who could afford a $2,000 monthly mortgage payment would qualify for a loan amount of $394,500. This year, that same $2,000 monthly payment ability qualifies for $445,300. That is over a $51,000 increase in value just because the interest rate is down one percentage point.

2. If you have a less than perfect credit score, how difficult is it to get a mortgage today? What interest rate are you likely to pay?

a. Let’s start off with talking about which credit score gets you the best rates and terms.  For a standard Fannie Mae or Freddie Mac loan 30 year fixed mortgage, a 740 credit score is going to give you the best rates and terms.  This is determined by taking your credit scores from the 3 credit agencies and using your middle credit score.  If your credit score is lower than that, not to worry because there are many loan programs in the marketplace today which will still allow you to qualify for a mortgage, though interest rates could be a little higher.  Programs like FHA, VA, USDA and Fannie Mae / Freddie Mac will allow scores as low as 620.  These lenders will look at all of your

different factors including income, down payment, cash reserves after closing, credit score and debt.  This information is run through an automated system for approval. The more compensating factors involved, the easier you loan will be approved.

i. (I wouldn’t want to get into possible interest rates here because there would be such a big range.)

3. Do home buyers need to put 20% down?

a. No. This is one of the biggest myths we deal with in our industry. The days of needing 20% down are long gone and there are actually a few programs like the VA (Veterans Affairs) and USDA that do not require any down payment at all.  Fannie Mae and Freddie Mac have just announced a new mortgage program where they only require a home buyer to put down 3% and the FHA loan program only requires 3.5% down.  When you are putting less than 20% down on your first mortgage, there typically is a requirement to have PMI (Private Mortgage Insurance) on your loan.  This insurance protects the lender in the case of foreclose on your property.  There are 2 ways to pay this PMI: You can pay it as a line item on your mortgage statement or you can take a slightly higher interest rate and have the “premium” rolled into your mortgage interest.  There are pros and cons to both, so ask your mortgage professional to review with you.