Recently, there have been a lot of changes in the mortgage industry. Some of these changes came from Fannie Mae and Freddie Mac when they announced new pricing adjustments that were effective on May 1, 2023. These changes have a direct impact on the interest rate and closing costs potential buyers would have to pay for a loan. We used to consider a 740 credit score the gold standard in lending, but now that has increased to 780. Fannie Mae and Freddie Mac were also considering charging an additional fee if the buyer’s debt-to-income ratio was over 40%. With today’s purchase prices and higher interest rates, this would have caused a lot of buyers to pay more. However, on May 10th the FHFA (the governing body of Fannie/Freddie) rescinded this adjustment, which was a good win for the consumer.
Other recent changes were to FHA loans. The private mortgage insurance amount that borrowers must pay was reduced significantly. In many deals, FHA loans now have a lower monthly payment than conventional deals because of the reduction in PMI. However, getting a seller to accept an FHA offer is harder than ever before because there is so much competition on each deal.
On mortgage interest rates, we did not receive the news we were hoping for on May 10th. May 10th was when the Consumer Price Index (CPI) numbers came out and we expected to see a significant drop in inflation, but unfortunately that did not happen. Mortgage rates follow inflation. So, when inflation goes down, then interest rates go down. According to economists and experts we follow, the next likely chance for inflation to come down significantly is when the CPI numbers come out on July 12th. This date is circled on our calendars in hopes of positive signs that inflation is coming down and that interest rates will also be coming down. By the end of the year, many experts think that mortgage rates will start with a 5 instead of a 6, and that would be welcome news for all the buyers.
Speaking of buyers, I was talking with a realtor recently, and he told me his clients made an offer on a house in Madison, but so did 40 others. There was a total of 41 offers written on this house! Their offer was $40,000 over list price, waived every contingency, and they didn’t even get a call back. I felt bad for him, his buyers, and the other 39 offers that did not get accepted. Everyone is working so hard, writing a ton of offers, with the hopes that their deal will finally get accepted. We are having luck getting some of our buyers’ offers accepted with our Cash Guarantee and Fairway Advantage programs. These are some of the creative ways we have been helping clients and Realtors get their offers accepted. If you would like more information on these programs, please contact your local Fairway loan officer.
As real estate professionals, we do our best to help our clients achieve the American Dream of home ownership. As we all know, some deals are easier than others to get done, but at the end of the day, we do our best to help each client. I believe now more than ever it helps to work with your local professionals in trying to put together an offer. Knowledge of the local market and better communication between the client, Realtor, and lender give you the best shot at success.