Mortgage rates beckon but play hard to get

Mortgage rates reached new lows this week, as they continue to attract an increasing number of homebuyers and give existing homeowners a chance to reduce their mortgage payments. But that's not enough to fix the housing market, analysts say.

30 year fixed rate mortgage – 3 month trend
30 year fixed rate mortgage – 3 month trend

The benchmark 30-year fixed-rate mortgage fell to 4.05 percent, compared to 4.09 percent the previous week, according to the national survey of large lenders. The mortgages in this week's survey had an average total of 0.45 discount and origination points. One year ago, the mortgage index was 4.88 percent; four weeks ago, it was 4.25 percent.

The benchmark 15-year fixed-rate mortgage fell to 3.25 percent from 3.28 percent the previous week, and the benchmark 5/1 adjustable-rate mortgage fell to 3.02 percent from 3.03 percent.

Weekly national mortgage survey

Results of's May 2, 2012, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

 30-year fixed15-year fixed5-year ARM
This week's rate:4.05%3.25%3.02%
Change from last week:-0.04-0.03-0.01
Monthly payment:$792.50$1,159.40$697.43
Change from last week:-$3.82-$2.41-$0.89

Perfect time to buy -- if you qualify

As rents rise, mortgage rates and home prices stay low. There has never been a better time to buy a home, says Michael Becker, a mortgage banker at WCS Funding in Baltimore.

"Rates are so good that (in many parts of the country) you can buy a house and have a lower monthly payment than if you rent," he says.

But as with refinancers, many potential homebuyers face challenges qualifying for a mortgage under the still-tight lending requirements.

Featured Rates

"The low rates have not done much to help the housing market mainly because credit remains tight for both homeowners and builders," says IHS Global Insight economist Patrick Newport.

Strict terms

The average FICO credit score of borrowers who were approved for a mortgage loan in March was 749, according to technology firm Ellie Mae, which each month analyzes a large sample of mortgage applications from lenders that use its loan processing software. The average down payment or equity compared to the size of the loan was 23 percent. The average score of borrowers whose applications were denied was 699.

Self-employed borrowers, especially, find it difficult to qualify for mortgages, Becker says.

"I'm working with people with 800 scores (and have equity in their homes) who are having trouble qualifying," he says.

Newport says he doesn't see credit standards loosening anytime soon.

Quality borrowers enjoy the low rates

But buyers who have good credit, stable income, little debt and a decent down payment seem to be getting off the sidelines as they realize this is their chance to buy low, Becker says.

"There are many strong-quality borrowers with 20 percent down out there," he says. Many of them are young, first-time homebuyers getting down payment assistance from their parents.

Pending home sales contracts increased in March and are higher than they were a year ago, according to the National Association of Realtors. The association's pending home sales index, which is based on contract signings, rose 4.1 percent in March and is 12.8 percent greater than it was in March 2011, according to the latest data available.

Lawrence Yun, NAR's chief economist, says the market will continue to recover in the next few months.

"First-quarter sales closings were the highest first-quarter sales in five years. The latest contract signing activity suggests the second quarter will be equally good," he says.

While the low rates alone can't solve the problems in the housing market, higher rates could potentially hurt the recovery, Becker says.

How long will rates cooperate?

Mortgage experts don't expect rates to spike anytime soon, but borrowers shouldn't take a chance, they say.

"Mortgage rates will stay low as long as the Fed maintains its accommodative monetary policy stance," says Paul Edelstein, director of financial economics at IHS Global Insight. "This will probably end sometime in late 2014. But rates could move higher before then, depending on the growth rate of the U.S. economy and conditions in European credit markets."


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