In Orange County, homebuyers are finding out how quickly interest rates can go up. After several bad days for Mortgage Backed Securities, FHA interest rates have increased anywhere from .5% to 1% just in the last 10 days. Interest rates had dipped as low at 4.5% for FHA loans under $417,000 and 5% for FHA loans over $417,000 up to $729,750. Now rates are ranging from 5.5% to 5.75% for loans under $417,000 and 5.75% to 6% for FHA loans over $417,000.
How Much Will this Effect Orange County First Time Home Buyers?
For most people, the increase will have very little effect on what they qualify for. For example, a .25% rate increase will translate into a payment increase of approximately $15 per $100,000. So on a $300,000 loan, the monthly payment will be approximately $45 more per month with a .25% rate increase, or $90 per month with a .5% rate increase. From strictly a "debt to income rate" perspective, this should only increase the qualifying ratios by 1%-2%. Unless a buyer was pushing their debt to income ratios to the maximum limit there should be little problem in keeping currently PreApproved FHA home buyers approved for the price range they are interested in. The bigger issue will be the buyers payment comfort level. It can be tough for a first time buyer who was prepared for a certain payment only to see that payment increase because of an unexpected interest rate increase.
Will Interest Rates Come Back Down?
It's possible. However, there is also talk among the experts that rates could increase further. Historically we are still at very low rates even with the recent increase. One of the best features of FHA is the FHA Streamline Refinance program. This program does not require an appraisal, income or asset documentation. For a buyer who closes escrow with a 5.75% rate now, if rates drop to 5%, they could take advantage of the Streamline Refi and get the lower rate.
Orange County Rent vs Own Analysis
This is a great time to buy a home. With interest rates still very low and property values lower than they've been in years, this is the time to buy a home. Not to mention the First Time Home Buyer Tax Credit of $8,000, which goes away December 1, 2009. The first step is to talk to a lender. Find someone who can answer all your questions, and request a Rent vs Own Analysis.
Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage for more information about an Orange County, CA home loan. 877-786-4243 x 7.
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