Banks Offering Mortgages with Only 5% Down…

Banks offering mortgages with only 5% down payments

By Les Christie  @CNNMoney November 5, 2013

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NEW YORK (CNNMoney)

Good news for homebuyers who don't have a lot of cash on hand: Banks are offering loans with down payments of just 5%.

After the housing bubble burst, buyers needed to come to the table with as much as 20% down or they had to turn to the Federal Housing Administration for a low down-payment loan.

But now banks like TD Bank, Bank of America (BAC,Fortune 500), and Wells Fargo (WFC, Fortune 500)are loosening the purse strings, offering loans with down payments that are as low as 5%.

TD Bank's "Right Step" mortgage, for example, allows borrowers to secure a loan with a 5% down payment. It also allows them to receive as much as 2% of the sale price as a gift from a relative or other third party, so they would really only need 3% down.

Why the change of heart? Market opportunity for one thing.

FHA dominated the market for low down payment loans during the housing bust. Taking on all those risky loans, however, depleted the agency's reserves and has forced it to increase costs.

Related: Money 101 Tips for buying a home

Over the past couple of years, the FHA has been raising premiums. And this year, it started requiring borrowers to buy private mortgage insurance for the life of the loan — an expensive proposition that has sent many prospective borrowers looking elsewhere.

While the loans were far too risky for private lenders to take on before, rising home priceshave made them less of a gamble. Plus, the banks think they can offer a better deal than FHA.

"As the FHA selectively reduced market share by increasing premiums, we introduced a substitute for FHA loans," said Malcom Hollensteiner, the director of retail lending sales for TD Bank.

While the private lenders that are offering the 5%-down loans are also requiring borrowers to buy private mortgage insurance, they are only requiring them to do so until they build up 20% equity in the home.

Related: What will your monthly mortgage payment be?

The difference can really add up. Paying an insurance premium over the life of a $200,000, 30-year fixed-rate loan from FHA that carries an effective mortgage rate of 4.4% (5.75% when you tack on the insurance premium), can add up to nearly $60,000 over the life of the loan.

Of course, homeowners can always refinance to end their FHA insurance, but rates are so low that by the time an FHA borrower is able to refinance to a lower rate, it may not be worth it. 

 

 

Mortgage Rates Slightly Improve

Mortgage Rates Improve Modestly

BY MATTHEW GRAHAM

 

Mortgage rates moved slightly lower today, taking them to their best levels since last Tuesday.  Rate movements have generally been very small over the past two weeks with two notable exceptions.  Today was not one of them and in fact, many lenders will be putting out the exact same quotes today vs yesterday.  There was little by way of economic data or events for markets to digest, but the afternoon's 10yr Treasury auction was mildly positive.  Conventional 30yr Fixed best-execution remains at 4.5% and buydowns to 4.25% are less attractive today than they were yesterday in most cases.

Today's improvement is best seen as just another ebb and/or flow in a sea of rates that's currently quite calm.  The bouts of stormy weather are generally agreed-upon as coinciding with the delivery of the most important employment data and official policy statements (and meeting minutes) from the Federal Reserve.  With that in mind, next week's forecast is a bit stormier and the week after, even more so as the Fed meeting minutes are released on Wednesday afternoon.  As I said yesterday, the risk/reward for locking and floating is minimal and today's decent gains in underlying bond markets compared to meager improvements in rates is evidence of the light reward for the risk of floating. 

It's a reward nonetheless though, and one that continues to be available in equal proportion to the reward for locking ahead of moderate increases in rates.  Bigger storms can come without warning, even if they probably won't.  Above all else, keep in mind that the long term readings on the so-called 'sea of rates' show gradually rising tide levels.  In other words, we're sideways now, and we even have some OK days here and there, but nothing has happened to call the long-term rising rate environment into question yet.

Loan Originator Perspectives

"Bit of a rally today, as we broke (at least for the moment) some MBS levels we hadn't seen this month. While not a decisive move, it is encouraging, and certainly helps further support our current price range. Not adverse to watching this run to see if it continues since today's treasury auction was the bulk of the week's pertinent data, but still not expecting 30 year rates in the 3's anytime soon." –Ted Rood, Senior Originator, Wintrust Mortgage

"A decent 10 year auction has helped rates rally today. The improvements are not huge, but many lenders did reprice for the better. Tomorrow we get claims data and the final auction of the week. Quite often, after treasury auctions are finished, we get a rally. So tough call to lock or float. Better than expected claims data can pressure rates higher while a higher than expected number of claims could help rates improve further but don't expect anything grand. Investors still worry that tapering will begin next month. "  –Victor Burek, Open Mortgage

"Although the consensus would be to lock on any improvement from the previous day, we feel firmly that the 10 year US Treasury has hit certain resistance thresholds around 2.74-2.75. Additionally, the charts indicate a double top at that level, further concluding that the market is range bound as far as finding resistance. High 2.5's low 2.6's have provided that resistance for now, but we believe the market will make a move towards the high 2.4's before the next attempt to test and break 2.75%. Technicals tell us to float, as we have been for the previous few weeks. Fundamentals are a mixed bag. Tough call to make, but we are testing the market with loans closing with 3 weeks or more time." –Constantine Floropoulos, Quontic Bank

Ongoing Lock/Float Considerations

• After rising consistently from all-time lows in September and October 2012, rates challenged the long term trend higher, but failed to sustain a breakout
• Uncertainty over the Fed's bond-buying plans is causing immense volatility in rates markets and generally leading rates quickly higher 
• Fears about the Fed's bond-buying intentions were proven well-founded on May 22nd when rates rose to 1yr highs after the Fed indicated their intention to taper bond buying programs sooner vs later
• The June 19th FOMC Statement and Press Conference confirmed the suspicions.  Although tapering wasn't announced, the Fed made no move to counter the notion that they will decrease bond buying soon if the economic trajectory continues
• Rates Markets "broke down" following that, as traders realized just how much buy-in there was to the ongoing presence of QE.  These convulsions led to one of the fastest moves higher in the history of mortgage rates and market participants have not been eager to be the among the first explorers to head back into lower rate territory until they're sure they'll have some company.
• (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario.  There are many reasons a quoted rate may differ from our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

I really hope you find this information helpful

Best Regards, Chris Mesunas