It is a Good Time to Borrow Again

“Low” is the operative word of the day.

According to the US Energy Information Administration, U.S. weekly regular gasoline retail prices averaged $2.78/gallon (gal) on December 1, the lowest since October 4, 2010. U.S. regular gasoline retail prices are projected to continue declining for the remainder of the year, and average $2.60/gal in 2015.

But wait, there’s more. Mortgage rates are below 4% again, hovering around their lowest level since June 2013.They started the year a little over 4.5 percent. A 15-year-loan is now averaging 3.1 percent as opposed to 3.9 percent for a 30-year loan, according to today’s averages

And that’s not all. The Federal National Mortgage Association (“FNMA” or “Fannie Mae”), as of December 13, 2014, and Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) as of March 23, 2015 will back loans with 3 percent down payments for first-time home buyers. Fannie Mae, Freddie Mac, the National Association of Realtors (“NAR”) and other groups believe the “3% Down Payment Mortgages” could provide a boost to first time home buyers with good credit, but little cash. Industry surveys have shown that 40-45% of those who rent, do so because they cannot afford a down payment.

Critics are concerned that the program will just create more mortgage availability for customers who are more likely to default. In a recent press release, Federal Housing Finance Agency Director Mel Watt disagreed with the critics, stating that the program “provides a responsible approach to improving access to credit while ensuring safe and sound lending practices.”

Among the safeguards and other requirements to qualify for a 3% Down Payment Loan are:

“First Time Home Buyer” (Not having owned a home in the last 3 years)

·         “Primary Residence” (Not for vacation homes or investment property)

·         Minimum Credit Scores (FannieMae-620; Freddie Mac- 660)

·         Documentation of income, assets and employment

·         Credit Counseling

·         Private Mortgage Insurance (but may be canceled once mortgage balance drops below 80% of home’s value)

Whether or not the 3% Down Payment Loan opens the flood gates for first time home buyers, or clutters foreclosure dockets, one thing is clear: It is good time to borrow again. We may not see gasoline prices and mortgage rates this low and incentives this high again, without a time-traveling DeLorean.

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