Real estate roundup with Sharon Alva: Deadlines
If you’ve been out at open houses over the weekend, you know that there are many buyers looking at properties. This is partially a normal real estate cycle, and as we get deeper into spring, inventory will go up and more buyers will come out. But there’s another reason the traffic is high: Three important deadlines are coming our way.
1. The Fed Deadline
For more than a year, the Federal Reserve has been buying mortgage-backed securities. The Fed has said repeatedly that the goal was to keep mortgage rates down. It appears that the plan worked. In October 2008, the month before the Fed announced its mortgage-buying plan, the 30-year fixed rate mortgage averaged 6.49 percent in Bankrate’s surveys. Last month, the 30-year fixed averaged 5.19 percent.
The Fed says it is gradually slowing its purchases of mortgage-backed securities and that it will stop buying them by the end of March. What will happen after the Fed withdraws from the mortgage market? Predictions vary widely. Some predict that there won’t be much change in rates; others predict that rates could rise a percentage point. The rough consensus is that rates will rise about half a percentage point, but not overnight: It might take a few weeks.
2. FHA premium increase
Many buyers are relying on FHA loans. FHA loans are easier to qualify for, they require only 3.5 percent down and they allow a higher loan-to-income ratio. When you get an FHA-insured mortgage, you pay the premiums in two chunks: First, an upfront premium that is paid at closing, and then an additional premium every month. The FHA will raise the upfront premium in April. Right now the upfront premium is 1.75 percent of the sales price, but come April it will rise to 2.25 percent of the loan amount. That’s a premium increase of $500 for every $100,000 borrowed.
Also in April, the FHA will reduce the “seller concessions” that it will allow. These concessions can be closing costs, paying discount points on the loan or homeowners association fees. Your agent is likely to write them into the contract as a credit for either just “closing costs” or “nonrecurring closing costs.” FHA allows seller concessions of up to 6 percent right now. In April, the maximum seller concessions fall to 3 percent. This is more like conventional loans, although loan products vary and you should examine each individually.
3. Homebuyer tax credits
The first-time homebuyer tax credit offers up to $8,000, and repeat buyers can get up to $6,500. The tax credit will apply for transactions entered into by April 30 and closed by June 30.
I caution buyers not to rush just because they want the tax credit or other concession. The decision to buy is too great to feel pressured by a $6,000 bonus. But keep in mind that once it’s added up, the combination of higher interest rates, greater FHA premiums and loss of that tax credit can have a significant impact on your ability to buy. Choices should still be cautiously weighed, but some sense of urgency does not seem out of place.
Sharon Alva is a real estate agent with Alain Pinel, living in Alameda. You can reach her at firstname.lastname@example.org.