What You Need to Know in 2009 About Mortgages

Dave Nettles — Fri, 09 Jan 2009 15:25:55 +0000

The mortgages rates are at historic lows, there has never been a better time in history to buy a home or invest in one. There most likely will never be another time in history with opportunities like investors have today.

It’s a Fantastic Time to Get a Mortgage

We hear all the doom and gloom over housing; you would be surprised to know that this is a fantastic time to get a mortgage. If you have poor credit, or credit problems it will be a tough road to be sure. You will never be able to get a better deal on a 30-year, fixed-rate loan than today. You must have a solid FICO score, a manageable debt, and proof positive of a reliable income. With these you can just about write your own deal and terms.

The Last Time Rates Were This Low Was in the 60s

Some of you may remember back around 1961 to find a time when 30-year mortgages had rates this low. This is one to that, thank the U.S. government for, and that is trying to jump-start the stalled housing market by buying up mortgage-backed securities. On Dec. 31, Freddie Mac reported that average rates on 30-year fixed mortgages dropped to 5.1 percent for the week, down about 1.3 percentage points since late October and the lowest since 1971.

Shop Around for Your Mortgages and Here is Why

Ordinarily, one loan is about as good as another because most lenders are close in their offers on 30-year loans. Not now. With the economy in such a melt-down, lenders are lost in space on how much risk they're willing to take in making loans. So you can really win by shopping around. And keep a close eye on the rates because they are constantly changing. Back in late December 2008, Wells Fargo was offering 30-year loans at 5.0 percent plus one point, while Bank of America was offering the same kind of loan at 6.625 percent plus one point. So it pays to keep your eyes open.

What Ever You Do Get a Fixed Rate

Don’t believe what you were told about the pros and cons of fixed- vs. adjustable-rate mortgage loans. Today, the best deals are on fixed-rate loans because that's the segment of the market that the government has been targeting with support.

It Just Maybe a Good Idea to Keep Your ARM

And here is why! If you have an ARM and its coming due on an interest rate reset, don't rush to unload it. Short-term interest rates have gotten so low that you're very likely to see your monthly payment fall. Thank your lucky stars if your ARM happens to be indexed to the one-year Treasury bill, whose yield has fallen below half a percent. Even with the spread added on, you're still paying only around 3.25 percent a year.

Check Your Credit Ratings

The hoops to jump through to get one of those low fixed-rate loans are high. The reason for this is Fannie Mae and Freddie Mac has tightened standards for the loans. You'll need a FICO score that is in the clouds for the best interest rates, although for a big enough fee, Fannie and Freddie will guarantee loans with FICO scores down to the mid-600s. You will need the traditional down payment of 20 percent.

Here are the hoops you must jump through. Buyers must satisfy the lenders’ debt-to-income standards. Here is what they are looking for as of late December. Monthly mortgage payments cannot exceed 28 percent of gross income, while all debt payments (including student loans, etc.) cannot exceed 36 percent of gross income.

The Federal Housing Administration-guaranteed loan, figures are 29 percent for mortgage debt and 41 percent for all debt.