Despite the Federal Reserve raising the benchmark lending rate twice in the past 6 months, mortgage interest rates are trending at a 7-month low, according to data from Freddie Mac. Financial markets are feeling skittish, and mortgage lenders are keeping rates low in an effort to attract home buyers and refinancing applicants. This is good news for Chicago home buyers who hope to become homeowners this summer!
Here’s where interest rates were hovering as of the week of June 8, 2017. Keep in mind these represent the market averages. The actual rate you qualify for depends on your credit rating and other factors.
- 30-year fixed-rate mortgage rates are averaging 3.89%, with a point of 0.5. Last year, a 30-year fixed-rate mortgage averaged 3.60%.
- 15-year fixed-rate mortgage rates are averaging 3.16%, with a point of 0.5. A year ago, a 15-year fixed-rate mortgage averaged 2.87%
Remember that a “point” is prepaid interest. Basically, you can buy a lower interest rate by paying more cash up front. One point is equal to 1% of your mortgage amount. On a $100,000 mortgage, a single point would cost $1,000. A half-point, in the examples above, would be $500. Points are optional, so don’t sweat this too much.
Another piece of good news: Fannie Mae will increase the allowable debt-to-income ratio on new mortgages, effective July 29, 2017. The new DTI ceiling will go from 45% to 50%. This means it’ll be easier for some Conventional borrowers to qualify for a mortgage.
Here’s why that matters: FHA loans already allow back-end DTI’s to be as high as 50% and sometimes a little over. But if you have less than a 20% down payment, an FHA loan sticks you with mortgage insurance premiums for the life of the loan. It’s an extra expense you can’t get rid of, until you pay off your mortgage balance.
Conventional loans have become much more competitive with FHA loans in recent years. Both allow low down payments, and now, relatively high debt-to-income ratios. The big areas of distinction are:
- FHA loans allow lower credit scores
- FHA mortgage rates tend to be slightly higher
- FHA loans with down payments less than 20% require mortgage insurance for the life of the loan
- Conventional loans require higher credit scores
- Conventional mortgage rates tend to be lower
- Conventional loans with down payments less than 20% require mortgage insurance.. but you can get rid of it once you have built up 20% equity in the property. You can do this by paying down your mortgage, or by your property value going up, or a combination of both.
Overall, today’s mortgage interest rates are still amazingly good, and mortgage underwriting is easing. However, interest rates have crept higher on a year-over-year basis. Like the real estate market, the financial markets are always changing, and mortgage conditions shouldn’t be taken for granted. Keep yourself informed by reading our blogs and following StartingPoint Realty on Facebook!
StartingPoint Realty – dedicated to first-time Chicago home buyers!
StartingPoint Realty proudly serves first-time home buyers throughout Chicago and the Northwest suburbs. We provide complete education and guidance during the entire home buying process! Attend a free home buying seminar to begin your path to home ownership!
We also provide many other resources to help you become a successful home buyer! Need down payment assistance? Check out our list of home buyer assistance programs on our website! Visit our Chicago Resource Center for no-pressure information and assistance.
Always feel welcome to contact us for help with your Chicago home buying questions!
Ryan Gable Broker/CEO Starting Point Realty
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