Low rates make mortgages a good buy

Currently 72° | Thursday, September 09, 2010 | SIGN IN

E-Edition

Comment

RSS Bookmark

A “sold” sign marks a home in Mt. Lebanon, Pa. Mortgage finance company Freddie Mac says rates for 30-year fixed-rate loans dropped to 4.57 percent, the lowest level on records dating back to 1971. GENE J. PUSKAR/Associated Press

By J.W. ELPHINSTONE Associated Press
Published: 7/25/2010 2:20 AM
Last Modified: 7/25/2010 6:31 AM

NEW YORK — For those who can qualify, it's one of the best times to get a mortgage.

Last week, rates for 30-year fixed-rate loans dropped to 4.57 percent, the lowest level on records dating back to 1971, Freddie Mac said.

And for some who missed out on the government's homebuying tax credit, the rates may more than make up for that lost $8,000.

The mortgage game has changed since the housing bust, and more rules have been and are being added. One factor is for sure: Your credit score should be at least 620, or you'll have a hard time finding a loan. What varies is how much you have for a downpayment.

Buyer No. 1: You have a 20-percent downpayment and expect to retire in the house.

Take out a 30-year fixed-rate loan, the most popular type of mortgage. The interest rate stays the same over the life of the loan and right now, it is at historical lows.

Buyer No. 2: You have a 20-percent downpayment, but plan to move eventually.

Consider a five-, seven- or 10-year adjustable-rate loan, which has a fixed rate for a set period and then adjusts higher after that time. These loans carry a lower initial interest rate than the 30-year fixed-rate. After the fixed-rate period ends, borrowers typically refinance to avoid the adjustable rate.

Rates on five-year adjustable-rate mortgages averaged 3.75 percent this week. That was the lowest on Freddie Mac's records, which date back to January 2005.

ARMs

got a bad rap during the housing bust because most people who took out two- or three-year ARMs got caught with an unaffordable payment when their rates reset.

Buyer No. 3: You have at least a 20-percent downpayment for a house worth more than $729,500.

You need a so-called jumbo loan which is not backed by Fannie Mae and Freddie Mac.

To compensate for that risk, lenders charge higher interest rates than a conventional mortgage. The average rate for a 30-year fixed-rate jumbo loan fell to 5.48 percent this week, the lowest level ever in Bankrate.com's survey.

Buyer No. 4: You have more than a 20-percent downpayment.

Depending on how much you're putting down, you might consider a 20-year fixed-rate mortgage. Rates are sometimes lower than a 30-year fixed-rate by about a quarter-point.

Buyer No. 5: You have less than a 20-percent downpayment.

Consider a mortgage insured by the Federal Housing Administration. A borrower needs to put down only 3.5 percent of the purchase price.

Or, consider a mortgage loan that isn't backed by the FHA, which only requires 5 percent down.

However, you will pay mortgage insurance each month, which can add an extra $25 to $50 to your monthly payment.

Buyer No. 6: You have a gift downpayment.

Gift money can be used for a downpayment on a conventional loan only after the borrowers use their own money to make the 5-percent minimum.

Gift money can pay for closing costs or prepaid expenses like property taxes and insurance that are put into an escrow account.

However, FHA mortgages allow borrowers to use a gift to make the 3.5-percent minimum downpayment.

Buyer No. 7: You don't have a downpayment.

Your options are limited.

If you are a veteran or the surviving spouse of one, consider a mortgage backed by the Department of Veteran Affairs.

If the home you're buying is in a rural area, you may qualify for a USDA home loan.

Original Print Headline: Follow mortgage rules to get benefit of low rates

By J.W. ELPHINSTONE Associated Press

E-Edition

Comment

RSS Bookmark

Share

Reader Comments

Add Your Comment

Show: Newest First

Report comments and help our forums

If you see a comment that violates our terms and conditions, please help us by clicking the "Report Comment" link next to a comment. That will alert the Tulsa World web staff to review the comment and either let it remain or delete it. Comments that will be removed include those that try to bypass our profanity word filter, personal attacks or any other inappropriate comments. Thank you, Web Editor Jason Collington