By David Cawton, Staff Writer
In March, the Federal Reserve Board raised benchmark rates for the third time since the end of 2015, a signal that it is more bullish about the nation’s economy.
Lost in the hoopla surrounding the increases is that interest rates remain low for prospective homebuyers — a quarter of a percentage point change would likely have minimal impact on a home choice.
That’s because the Fed doesn’t set mortgage rates, at least not directly.
“Like other types of credit, mortgage rates are tied to 10-year Treasury notes,” said Phillip Berry, a senior loan officer in Jacksonville.
He says the Fed rate really impacts how banks do business with one another, and not so much on how they do business with consumers.
When he started in the business around 2004, Berry said interest rates for home loans were much higher, around 6.9 percent on average.
“Rates dropped in 2009, and dropped fast,” said Berry, who added that the average interest rate for a 30-year loan was around 4 percent at the end of 2016.
Through the first quarter of 2017, he added, rates are still low, under 4.3 percent on average.
But for many, hearing that “the Fed raised rates” is often a signal to buy before it’s too late.
Berry said that shouldn’t concern homebuyers, since rates aren’t expected to dramatically increase any time soon.
Instead, they should focus on securing the house they want, as soon as they find one.
“A bigger issue is finding a house you really like on Friday, and it still being there for you Monday,” he said, pointing to the shortage of housing inventory — a trend that continues into 2017.
Another reason for steady rates is that the Federal Reserve didn’t exactly catch the industry off guard.
“Because we knew there was a good chance of that happening, that rate change was already baked in to the products being offered,” said Robert Fleischmann, a senior loan officer at SWBC Mortgage in Jacksonville.
Fleischman said he believes interest rates for home loans will stay under 5 percent, adding, “I don’t see them going too much higher.”
Aaron Duez, branch manager and mortgage loan originator at HomeBridge Financial Services, points to a change in consumer investment priorities as another reason mortgage rates won’t soar.
He said over the past eight years, folks who’ve lost value in their 401(k) plans moved their money out of stocks and into bonds, which they feel is a safer bet. This trend, he believes, is helping to keep interest rates low.
“Look at it like this, I can either save money on a mortgage payment with a lower rate or make money for my future with investments in my retirement,” he said. “Now that I have that lower mortgage payment, I can go back to investing into my retirement.”
Interest rates aside, consumers still may face a tougher time securing a home loan in 2017. Since the last recession, Duez said the industry’s standards are higher.
“There is this perception that it’s harder to get a loan,” he said.
But that’s for good reason.
“The difference in today and eight years ago is that we are actually going to ask for the documentation to prevent all the fraud that was going on back then,” he said.
Fleischmann agrees, adding that the process today requires a much deeper dive into credit history and income, which is beneficial for both sides.
“It stops people who can’t afford a mortgage from getting one in the first place,” he said.
On average, Fleischmann said you’ll need to have a credit score somewhere in the mid-to-low 700s, if not higher, to secure a home loan.
Before trying to buy a home, he recommends checking credit history for any derogatory remarks.
It’s also important to make sure an actual mortgage broker is the one pulling your credit, since they’re looking for different factors, compared to when you apply for something like a credit card.
“The consumer often thinks that if you just pay your bills on time that you will have a great score and you’ll get approved, which isn’t always true,” said Duez.
He said brokers aren’t looking at how many credit cards you have; rather they’re looking at how many times you’ve maxed them out, how long you took to pay them down, and whether high credit utilization is a theme in your credit history.
Currently, there are several loan products available for homebuyers, all with pros and cons.
Again, it’s probably best to consult a mortgage broker before making that call, Berry said.
“A standard 30-year fixed -rate mortgage is always a safe bet,” he said, “But, if you’re looking for a lower down payment, consider a FHA (Federal Housing Administration) loan.”