Thursday, January 12, 2017

Higher Loan Limits and Lower MI Make 2017 a Great Year to Buy Despite Rising Rates

The rates are rising…The rates are rising.   Like Paul Revere riding through Boston we are hearing alarms from a lot of the industry.  To read the headlines, we would think that the sky really is falling in and about to crush us.

Truth be told, we have a lot to look forward to in 2017 including a potential relaxation of over regulation and the opportunity to possibly see Dodd Frank rewritten (I hate to say this but I honestly think repeal is too much to hope for).  But assuming that nothing earthshaking happens with regulations, here are three reasons this is still a great year to buy in spite of rising rates.

1.       Rates are still very low.  Even with all the talk of rising rates, we are still well under 5%.  When I started in this industry in 1998, Bill Clinton was president and mortgage rates sat between 8.25% and 8.5%.  Alan Greenspan was chairing the Federal Reserve and most Americans were pretty happy with the economy.  When rates dropped to 7.125% in the first part of 2000 there was a refinance boom as people rushed to save 1.5% on their mortgages. Today even in the increasing rate market, a thirty-year fixed mortgage rate is sitting about 4% lower than the thirty year fixed rate was then.  I have spent this entire week in industry meetings, and most experts seem to believe that although the Fed is is scheduled for three interest hikes this year, mortgage rates may not exceed 5% by the end of the year.  But let’s say that they go up to 5.875%.  In 2005 5.875% was a good rate.  The housing market was booming.  As the economy improves and millennials are able to find higher wage jobs, they may want to start leaving those apartments and getting into homes.  And while a 6% rate won’t be as low as the one their parents have, it will be substantially lower than most of the rates their grandparents paid.  Perspective is important here.
2.       Fannie, Freddie and FHA have all raised their loan limits for 2016.  Fannie and Freddie’s increase, though relatively small, is the first increase in 10 years.  The new conforming loan limit for 2017 is $424,100.00.  That number makes it possible for a person purchasing a $530,000 home to put 20% down and get a conforming loan.  With a second lien, homebuyers can go even higher on a purchase price without tapping into jumbo rates and jumbo restrictions governing credit, assets and debt to income rations.  The FHA increase is even more significant.  The new FHA loan limits for DFW—which includes Dallas, Collin, Denton and Tarrant is $362,250—a pretty significant jump from the previous $335,000.00.  FHA loan limit increases mean that more borrowers can qualify with higher debt to income ratios of 55% allowed by FHA.  Since FHA loan limits vary by county, you need to know the specific limits in your area before you start to shop.  You can check these here on the HUD website at

3.       MI rates are going down as interest rates are going up.  Last year we saw mortgage insurance companies significantly reduce premiums on mortgage insurance (which insures the loan to the lender for borrowers making less than a 20% down payment.  The biggest reductions are for those borrowers with higher credit scores, and the reductions were high enough that it made sense to refinance borrowers out of second liens and into one loan with MI.  This year FHA is reducing its annual MI premiums by .25%.  Outgoing HUD Secretary Julian Castro says that this action is directly tied to the rise in interest rates, but it really is significant.  The former MI premium of .85% on the 30- year fixed 96.5% LTV is now just .60%.  This is a big enough savings to offset much more than a .25% increase to rates.  And with rents rising, an affordable monthly payment on a home is going to make a lot more sense.

If you are thinking of buying a home, don’t let the negative media discourage you.  Home ownership is still affordable and a home purchase is still one of the best long-term investments you can make.

Alexandra Swann has a master's degree in history with emphasis on the French Revolution. Her novel, The Planner about an out of control, environmentally-driven federal government, is available on Kindle and in paperback. For more information, visit her website at

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