Interest Rate Opportunity and FHA vs. Conventional

Timing Meena8/6/19- I hope you had a great weekend and I hope that everything is going well at this time.

I love the idea of timing a market for interest rate or price but timing is never going to be perfect!  So what are you waiting for when you want to buy Real Estate?   Do you really think it will go down in price?  How much was the first gallon of milk you purchased and how much is it now?  Your first cup of coffee? Your first Acai Bowl?  Prices go up and that is just how things go.  I had a client say something to me about 10 years ago that I will always remember.  He said, I am not spending more on a car than I spent on my first house!  I like the thought, but he drives a big Lexus and his first house was $37,000.00.  So today we have “high prices” with low interest rates that could go higher or lower at any time.  Will the price ever get to $37,000.00 in the Encino area ever again?   Will milk ever be 99 cents a gallon again?  Milk goes up and down and so does Real Estate, but taking advantage of these rates is a great opportunity especially since we don’t know if prices will ever go down and if they do will they go down enough to offset a higher rate?

FHA has great rates, but every FHA loan has PMI and an Upfront Mortgage Insurance Premium.  So an FHA loan at $400,000.00 would actually have a loan amount of $407,000.00.  There is also a monthly Mortgage Insurance that stays on a loan for 11-30 years.  It goes away after 11 years if you put over 10% down, otherwise the Mortgage Insurance is on the loan for the life of the loan.   The Mortgage Insurance is about $288.00 per month on a $400,000.00 FHA loan.  FHA Has no real minimum credit score, but it is very difficult to qualify for an FHA loan with a score less than 580.  FHA rates with a 740 credit score are better than the rates at 580, but a 680 credit score will likely get you the same rate as a 740 credit score.  The PMI factor is based on down payment and not credit score.

A conventional loan has a higher interest rate but there is no Upfront Mortgage Insurance Premium.  If you have less than 20% down then there is PMI or you can buy out the PMI with a higher interest rate.  If you have a 760 score with 5% down then your PMI Payment will be about half of the FHA PMI payment, but if you have a 680 score then your PMI will be about 25% more than FHA PMI!  PMI on a conventional loan can be removed by the lender if you have 25% Equity after 2 years or 20% Equity after 5 years.   If you have a 680 credit score then your rate will likely be about .375% higher than if you have a 740 credit score. The minimum credit score for a conventional loan is 620.  Your PMI rate will go down if you put more money down and if you put 20% down then you will not have PMI!

Interest rates are looking even better today, but still not at 2014 levels yet. Below are rates as of today:

  • 30-year fixed conventional 1st Mortgage with 25% down – 3.625% (3.673 APR). Loan amounts up to $484,350.00 = $2208.88
  • 15-year fixed conventional 1st Mortgage with 25% – 3.125% (3.210 APR). Loan amounts up to $484,350.00 = $3374.03
  • 5/1 ARM 1st Mortgage –  25% down – Fixed for 5 years and then becomes variable – 3.125% – (3.144 APR) Loan amounts up to $3,000,000.00 = $12851.26
  • 7/1 ARM 1st Mortgage – 25% Fixed for 7 years and then becomes variable – 3.250% – (3.261 APR) Loan amounts up to $3,000,000.00 = $13,056.19
  • 10/1 ARM 1st Mortgage – 25% Fixed for 10 years and then becomes variable – 3.375% – (3.385 APR) Loan amounts up to $3,000.,000.00 = $13,262.89
  • 30-year fixed 1st Mortgage FHA loan 3.50% down – 3.250% (4.663 APR). Loan amounts up to $484,350.00 = $2144.81 + $349.08 PMI = $2493.89
  • 30-year fixed 1st Mortgage VA loan 0% – 3.250% (3.296 APR). Loan amounts up to $484,350.00 = $2107.92
  • 30 Year Fixed rate 1st Mortgage Jumbo Loan 25% down – 4.125% (4.145 APR).  loan amounts up to $3,000,000.00 =14,539.49

I will be in the office the rest of the week so please let me know if you have any question or if you need anything.  Last night I was here until 9PM so tonight my goal is to leave before 8PM!  My office line is 661-260-2970  and my cell is  661-714-6258.  I hope to hear from you soon.