After a tepid January, pending home sales found their mojo.
According to the National Association of REALTORS® (NAR), the March 2017 Pending Home Sales Index fell a scant 0.8% after a 5.5% surge in February.
A slight decline from a super-stellar month was expected.
Pending sales -- home purchase transactions for which a buyer has signed a contract -- are at their best 2-month total since April-May 2016. It's been a blockbuster 60-day period for future home sales.
Interest in buying homes has not waned in that time. Rather, home prices are up, and so are current mortgage rates. And, not enough homeowners are selling.
Despite these obstacles, buyers are out in force, downright determined to make something happen.
If you're looking for a home, no doubt you've noticed tough competition.
The housing market is growing. Today's Pending Home Sales Index points to stratospheric sales this summer.Click to see today's rates (Apr 30th, 2017)
Each month, the National Association of Realtors® publishes its Pending Home Sales Index (PHSI). The report measures homes under contract, and not yet closed.
The Pending Home Sales Index differs from most market reports.
Traditional metrics measure how housing performed in the past, but the PHSI forecasts how housing will perform in the future.
The index tallies U.S. homes recently under contract to project future, closed home sales. This is possible because the National Association of REALTORS® knows that 80% of homes under contract "close" within 2 months of contract.
In March, the Pending Home Sales Index read 111.4 -- down 0.8 points from February's very high reading, but marking the index's 35th 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. Despite the modest drop, current housing market activity 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 (Apr 30th, 2017)
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 March. 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: FHA and conventional.
The same report showed that buyers used FHA for about one-in-five 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 about 40 percent of the time.
First-time and repeat home buyers alike gravitate toward FHA because of its flexibility. It requires just 3.5 percent down and accommodates buyers with credit scores down to 580.
Home buyers can use FHA as a 100% loan. A buyer can secure a downpayment gift from a relative, employer, approved non-profit, or even long-standing friend.
FHA requires modest mortgage insurance premiums (MIP) that total about $70 per month for every $100,000 borrowed. FHA MIP cost is not more expensive for buyers with lower credit, as is the mortgage insurance that comes with conventional loans.
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 more than 60 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.
Additionally, Fannie Mae recently introduced new rules (currently known as Student Loan Solutions) that are designed to help home buyers and homeowners who carry student loans. In some cases, student loan payments are reduced or eliminated from the applicant's debt-to-income ratio. That will work wonders for many recent grads trying to get approved to buy a home.
An altogether new program, called the Student Loan Cash-Out Refinance, allows current homeowners with equity to pay off student loans at better rates and terms compared to traditional cash-out financing. It will potentially reduce overall payments for thousands of homeowners with both a mortgage and student loans in 2017.
Buyers with at least 10% down 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 (Apr 30th, 2017)
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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2017 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)