Home buyers are out in force, buying up homes just as fast as they come on-market -- and it's making it harder to find good deals in housing.
According to the National Association of REALTORS¬ģ, the August¬†2016¬†Pending Home Sales Index posted above its benchmark value of 100 for the 28th straight month.
A home sale is "pending" once it's under contract between a buyer and a seller.
It's not surprising that contract signings remain high. With¬†today's mortgage rates¬†lingering near 3.5%;¬†and with¬†rents rising and lenders loosening¬†mortgage guidelines, today's housing market¬†favors home¬†buyers in a big way.
Low- and no-down payments remain popular, and new programs such as the¬†HomeReady‚ĄĘ mortgage¬†make it even easier to get mortgage-qualified.
Given today's market conditions, the¬†best deals in housing may be the ones you find today. By¬†this time next year, home prices and interest rates may be higher -- and so might your rent.Click to see today's rates (Oct 24th, 2016)
The Pending Home Sales Index (PHSI) is a monthly report, published by the National Association of Realtors¬ģ (NAR). It measures homes under contract, and not yet closed.
The Pending Home Sales Index is different from most housing market metrics.
Unlike traditional metrics¬†which measure how housing performed in the past, the Pending Home Sales Index forecasts how housing will perform in the future.
The Pending Home Sales Index is forward-looking.
The index tallies U.S. homes recently under contract to project future, closed home sales. This is possible because the National Association of REALTORS¬ģ knows that 80% of homes under contract "close" within 2 months of contract.
In August, the Pending Home Sales Index read 108.5¬†-- down¬†from July's¬†reading, but marking the index's 28th straight month above its¬†baseline reading of 100.
Beating the baseline is a big deal.
When the Pending Home Sales Index crosses¬†100, it's an indication that U.S. homes are going to contract at a faster pace than during 2001, the first year in which the¬†index was published.
2001 is generally considered a good year for U.S. housing. The current market, then, by comparison, is exceptional.
Results for the Pending Home Sales Index, mixed by region:
For today's renters, it's an excellent time to consider buying a home.Click to see today's rates (Oct 24th, 2016)
Today's housing market is getting a nice boost from¬†more home buyers who are getting mortgage-approved.
According to a recent report from¬†loan software company Ellie Mae, about 3-in-4 home purchase loan applications¬†were¬†approved and¬†"closed" in July. This means the¬†applicant successfully completed the loan process and purchased a home.
In 2014, only sixty percent of applications made it to closing.
Two major loan programs contributed to the high numbers: conventional and FHA.
The same report showed that buyers used FHA for¬†nearly a quarter of all home purchases.
FHA is even more popular among younger home buyers. A related Ellie Mae study showed that loan applicants¬†born between 1980 and 1999 use an¬†FHA loan 37¬†percent of the time.
First-time home buyers and repeat buyers alike gravitate toward FHA because of its flexibility. It requires just 3.5 percent down and accommodates buyers who have credit scores down to 580.
One of the lesser-known facts about FHA is that home buyers can use it as a 100% loan, if they can secure a downpayment gift. The program allows the applicant to cover the entire downpayment and closing cost¬†amount with a gift.
FHA requires modest mortgage insurance premiums (MIP)¬†that total about $70 per¬†month for every $100,000 borrowed. FHA MIP¬†cost does not rise with¬†lower credit scores, as does conventional mortgage insurance.
Applicants with a credit¬†score below 660 may¬†find that FHA¬†yields a cheaper monthly payment. And, home buyers can cancel their FHA mortgage insurance premium via a refinance when their home gains adequate equity.
A conventional loan is one that is approved to guidelines¬†set forth by mortgage agencies Fannie Mae and Freddie Mac.
This loan type¬†makes up 64 percent of the market according to Ellie Mae.
Conventional mortgages do not require a 20 percent downpayment, as many home buyers assume. Buyers can put as little as three percent down with the Conventional 97 program or the newer HomeReadyTM loan.
Buyers with larger down payments often choose an 80/10/10 piggyback loan. The home buyer opens a primary mortgage for 80 percent of the purchase price, a ten percent second mortgage, the puts ten percent down.
This loan structure allows the buyer to avoid private mortgage insurance (PMI) while making a reduced¬†downpayment.
Conventional loans are the first choice among many home buyers because they come with low rates and can beat FHA in monthly cost for well-qualified applicants.
Across the country,¬†homes are going to contract quickly. Demand from buyers is huge and, because of today's low rates and rising rents, the pool of potential buyers has stayed strong.
Take a look at today's real mortgage rates. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.Click to see today's rates (Oct 24th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)