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Robert Nusgart: Home prices, rates, loan limits moving lower

This week we learned that mortgage rates are moving lower, housing prices nationally are moving lower and FHA loan limits are gearing to move lower. So all mixed together, what does it mean as we head into summer?

Obviously, low interest rates benefit everyone. Lower prices benefit those looking to purchase, but sting sellers or those who want to refinance but now are losing more equity in their home. And come Oct. 1, those seeking a government-insured FHA mortgage are going to find that they won’t be able to borrow as much.

First, let’s look at mortgage rates. Just when you thought that rates would start creeping up, along comes Greece and fears that it will default on its financial obligations, sending money into the U.S. bond market and moving rates lower. Add the growing concern that the economy is not doing as well as previously indicated, and that accelerates momentum of a rate drop.

After a Wednesday swoon, rates ticked up Thursday, but if Friday’s employment report comes in under expectations, it could fuel speculation that the economy is heading more south than north, hence rates could start seeing their lowest points since last summer.

Generally, rates for a conforming ($417,000 or less) 30-year fixed mortgage are in the vicinity of 4.50 percent with zero points. But if you are in a situation where you may not be in the home for the next 10 or 15 years, certainly consider an adjustable mortgage, because rates for these are well below 4 percent.

For example, the rate for a 5-year ARM is around 3.125 percent; for a 7-year ARM, the rate is 3.375 percent. Every lender prices loans differently, but generally this is where rates are right now. What does that mean dollar-wise? On a $250,000 loan, the principal and interest at 4.5 percent is $1,266. Go with the 5-year ARM at 3.125 percent, and the payment drops to $1,077, a monthly difference of $195.

If you are looking to lock into a rate, you should be focusing and consulting with your lender or exploring scenarios to see if refinancing makes sense.

But the biggest roadblock to refinancing continues to be home values. If the equity is not there, then many a homeowner can’t participate in a refinance. This week, Standard and Poor’s released its Case-Shiller Housing Price Index for the first quarter of 2011, and it showed that home prices nationally have declined by 4.2 percent and are back to where they were in 2002.

The Baltimore metro area, however, seems to have held its own, with the average sales price up 2.09 percent year over year. Even so, many homeowners are still seeing a decline in their values, and if they have put a home equity line on top of their original mortgage in the last several years, that makes it even more daunting for them to be able to take advantage of these low rates.

Finally, another consideration to take into account is that beginning Oct. 1, FHA is reducing its high balance loan limit to $494,500 in the Baltimore metro area from the current $560,000. That matches what Fannie Mae and Freddie Mac had previously announced.

What that means is if you purchased a home in the last couple of years and were close to the $560,000 limit, but wait until after Oct. 1 to refinance, the most you could get is $494,500, meaning you would most likely have to bring thousands of dollars to the settlement table.

Congress extended the loan limit ceilings for FHA, Fannie Mae and Freddie Mac in 2009. Now those limits are expiring, and it doesn’t seem likely that Congress will allow the agencies to revert back.

A person in the marketplace today for a mortgage has a lot to consider, and with the upcoming changes it makes sense to figure out with your lender if you can restructure your mortgage to put yourself in a better financial situation or if you are searching for a home whether to speed up the process so that you can still take advantage of the higher limits that are in place.

Robert Nusgart is a loan officer with Prospect Mortgage LLC., which is associated with The Strata Group in Baltimore. He can be reached at 443-632-0858 or by email at Robert.Nusgart@prospectmtg.com. Visit his website at www.RobertNusgart.com for the latest mortgage and financial news.