The timing was just right for mortgage rates to level out last week. The average for a 30-year mortgage dropped to 6.77%, down three basis points from the prior week as of March 27. For context, a basis point is one-hundredth of a percentage point.
While a three-point dip might seem slight, it ended a two-week stretch of rising rates. This minor drop arrived during the midst of the spring break rush, making it a timely respite.
Spring break schedules vary across the U.S., and solid statistics on its impact on local housing markets are hard to come by. However, many real estate agents note a surge in potential home buyers entering the market during and just after spring break.
So, if you’re diving into house hunting now, know you’re far from alone. The Mortgage Bankers Association reports a 7% increase in purchase mortgage applications compared to the same period last year.
Fortunately, more houses are hitting the market too. This spring, as interest rates creep down – though gradually – buyer interest is climbing, according to Bob Broeksmit, president and CEO of the MBA.
Conveniently, this heightened interest is being met with a growing inventory. More homeowners are listing their properties, and homes are lingering on the market longer. As of March 15, active real estate listings were up 28.5% nationwide compared to the same time last year, notes Realtor.com.
Kara Ng, a senior economist at Zillow, adds, “While affordability remains challenging, buyers might find this spring’s market more accommodating, with more homes to choose from and extra time to consider options and find the perfect fit.”
Interestingly, the latest increase in mortgage applications is largely fueled by heightened curiosity about FHA loans, says the MBA. These loans, backed by the Federal Housing Administration, allow down payments as low as 3.5%.
For many buyers putting less than 20% down, paying for mortgage insurance is mandatory. A 20% down payment is hefty, especially for first-timers—for instance, $80,000 on a $400,000 home.
There are two principal types of mortgage insurance: the FHA, covering government-backed loans, and private mortgage insurance or PMI for conventional loans. The FHA requires a minimum 3.5% down payment, while conventional loans with PMI might only ask for as little as 3%.
A significant distinction between the two lies in how premiums are calculated. PMI premiums fluctuate based on credit score, potentially costing more for lower scores. Conversely, FHA charges a flat premium regardless of credit standing.
For those with credit scores of 760 and above, PMI often proves cheaper each month, per Urban Institute’s data. Conversely, FHA can be more cost-effective for those with scores under 760.
This isn’t always set in stone. FHA-insured loan rates tend to be lower than those for conventional loans, contributing to FHA’s cost advantage. As credit scores drop, the FHA’s benefits become more pronounced, often emerging as the cheaper option for credit scores below 720.
