In 2007 the real estate market was in a good place. Homes were being bought and sold at excellent prices, rates were decent, and everything was running smoothly. Then, it all took a turn for the worst. The economy had a bit of a meltdown; the real estate market suffered. Homes stopped selling like hotcakes, values dropped, loans were harder to procure. It wasn’t the economic depression of the 1930’s but it put a lot of people in a really difficult spot. However, one good thing did come out of that situation, and that was a drop in interest rates. The FHA rates today are where they are at largely because of that economic spill.
Your Finances and Fees
Purchasing a home requires a large financial commitment, one that you have to prove you are able to meet each month. The state of your finances will determine multiple factors on your loan when it comes time to purchase; if your finances are in a terrible place you will not be able to qualify for the loan at all. So it’s wise to keep this in mind when you start looking to purchase.
The minimum qualifications for a federally backed loan require that you have two years of work history with the same employer, and you have to have a credit history that shows improvement over that two year period. Your score can be lower with a federally backed loan than it would need to be for a conventional lender, but if it has dipped below 600 you may not be able to qualify. The actual credit score necessary for approval will vary per lender. While the FHA rates today are lower than they were five years ago, as with any loan, the rates will change depending on your financial footprint. This is why it is so important to get your finances in the best working order possible. It may not be perfect, but if you can remove some of those blights, you’ll get a better rate. And even a half a percent difference on the interest rate can mean thousands of dollars saved on the loan.
All loans come with fees attached to them, whether they are federally backed or conventional. The fees associated with a federal loan are different than those of a conventional loan, however. A traditional loan requires that you have a credit score that is over 700, usually 740 is preferred. You also need to be able to put a decent down payment on the house. If you are able to do 20% of the value, that is ideal. However, that number will be determined by your lender. FHA loans are a bit different. They are easier to qualify for, but they do have strings attached. Because these loans are federally insured, you will be required to pay mortgage insurance on the loan. This is an added fee that is intimidating to some homeowners, especially since the mortgage insurance fee has been on the rise over the previous years. In addition to the insurance fee, the closing costs are sometimes higher than they are on traditional loans. That being said, these are often worked into the loan or worked out through other sources, so you don’t always end up paying those up front. Bear in mind that while there can be additional fees associated with these loans it doesn’t mean it’s not worth it. Take into account the FHA rates today and the options available to you with your current financial situation. You may find that a federally insured loan is your best option.
When is the Right Time to Buy?
While there are plenty of factors that come into play regarding when to buy, it all boils down to your financial situation. Are you in a place where you can afford a mortgage payment? Is your debt to income ratio low enough that a home loan would be less than 30% of your income? Do you feel comfortable enough to carry a loan? Some questions are personal, some financial, but they are questions you’ll want to ask. However, in terms of the real estate market the answer is yes. It is a good time to buy. FHA rates today are lower than they have been for a while, but they seem to be trending up. If you’re in a good place financially, you may want to take advantage of them before it’s too late.