Winter real estate could get boost from recent changes
January is typically a slow month in residential real estate. Buyers are in Hawaii if they haven’t overspent during the holidays and homeowners are hunkered down, thinking about putting their home on the market come summer. So it was a pleasant surprise to hear about three financial announcements that should help stimulate late winter activity.
On Jan. 1, the Federal Housing Authority, or FHA, increased its maximum loan amount in Alaska from $355,350 to $388,700, which puts a maximum purchase up to $402,797 with the minimum 3.5 percent down.
This loan amount is now well above the average MLS sales price for Anchorage of $362,500. At the same time, the FHA reduced the cost of its annual mortgage insurance rate from 1.35 percent to 0.85 percent of the loan amount. The program still requires that mortgage insurance remain on the loan for 30 years or the lifetime of the loan, regardless of any principal reduction on the mortgage.
Prior to the last real estate recession, the monthly mortgage insurance payment could be eliminated once the loan amount was reduced to 80 percent of the home’s value. However, this reduction in the monthly rate is a step in the right direction and saves a borrower $161.96 per month on the maximum loan amount which allows a buyer to make approximately $640 less per month and still qualify for the maximum loan amount.
The new premium applies to all one-unit residential dwellings, including condominiums and is sure to spur on activity as it puts more work force buyers eligible for a home. This maximum loan amount varies by geographical location. In Fairbanks, the maximum loan amount is $274,850. However, Juneau has a higher maximum loan amount of $397,900. Interestingly enough, the Sitka loan amount is $451,950, the highest in the state.
The second financial move came when the 30-year fixed conventional rate mortgage fell to 3.625 percent, the lowest it has been in 18 months. No one in the market anticipated this move and the 15-year mortgage, always the best program, is now only 3 percent. Not exactly free money but still an incredibly low rate meant to spur home ownership for some of those millennials still living in their parents’ basements and paying off student debt.
The amount of interest paid over the lifetime of a mortgage is two to three times the original cost of the home which makes quibbling over a few thousand dollars seem irrelevant on the long term. Unfortunately, many buyers get hung up on negotiating the purchase price when in reality, interest rates play a much more important financial role.
A quarter percent drop in an interest rate is only 69 cents per month per $5,000 of loan amount, a lot less than four lattes. And, the Feds will not hold rates down forever. We’ve had mortgages at 4 percent or below since 2008, an unprecedented period of low rates.
Locally, Residential Mortgage, the state’s largest mortgage company, has now introduced the 3 percent down for conventional financing. Under this program the seller may also pay up to 3 percent of the borrower’s closing costs and pre-paid expenses. One buyer must be a first-time homeowner and reserves may be required from some borrowers but those reserves can come from a gift.
Although you still need a good credit score to qualify for any mortgage, it appears in general that the pendulum of overly restrictive constraints on mortgage applicants is somewhat loosening. Over 90 percent of all mortgage activity is from FHA, Fannie Mae and Freddie Mac.
Their reduction in the annual mortgage insurance premiums, the lowering of down payment requirements and the all-important low interest rates will continue to help generate the national housing recovery and locally allow more homeowners to move up, leaving inventory available for the first time homebuyer.
Connie Yoshimura is the broker/owner of Dwell Realty, and a residential land developer. Contact her at 907-646-3670 or [email protected].