NEW YORK (MainStreet) — The housing crash put a lot of homeownership dreams on hold. Lending went from paperless applications and mindless approvals to stringent restrictions, pristine credit requirements and creeping rates. Not only was buying a home growing out of reach for first-timers, but refinancing an existing mortgage was practically out of the question. A lot of people felt like they had missed an opportunity for owning a home of their own. Now, they may be getting a second chance.
Housing prices have risen, but moderated. Lenders are once again open for business – and rates have slipped back to those "near historic lows" that tempted us so much in the first place. And revised mortgage fees recently implemented by the Federal Housing Authority could mean even more incentives – for buyers and re-fiers alike.
"The average interest rate for 30-year fixed-rate mortgages has fallen 92 basis points since mid-2013, and is currently at a 20-month low of 3.66%," says Fitch Ratings in its latest quarterly index report.
"Conditions are very favorable for first-time homebuyers to start getting back into the market," says Fitch director Sean Nelson in an analysis. "Mortgage rates are falling, FHA insurance premiums are coming down, home prices are cooling and employment is steady."
The FHA has lowered its mortgage insurance premiums, which guarantee loans issued by lenders. Fitch says that move alone could mean a savings of $900 per year, on average, for new borrowers. The FHA program is preferred by many first-time homeowners because of low down payment requirements.
The National Association of Realtors recently estimated that about 234,000 creditworthy borrowers were "priced out of the market" in 2014 due to high mortgage insurance premiums, before the new, lower fees going into effect.
"Over the past four years, as the fees increased, the percent share of first-time buyers using FHA-backed loans shrank from 56% to 39%," National Association of Realtors president Chris Polychron says in a press release this month. “NAR estimates that a reduction in the annual MIP of 0.50 to 0.85% from the current 1.35% would price-in an additional 1.6 million to 2.1 million renters along with many trade-up buyers, resulting in 90,000 to 140,000 additional annual home purchases.
The good news is not just for first-time buyers, either. Homeowners who thought they had missed out on the refinance boom may be in luck, too.
"Those borrowers that did not already take advantage of the historically low interest rates of 2012-13 may be restricted by credit issues or insufficient home equity," Nelson says. But now, with the substantial recovery of home values in many areas of the country, combined with the current trend of falling rates, borrowers may be able to revisit their refi opportunities.
"Borrowers who were unable to refinance in 2012-13 because they were underwater on their mortgage may have built up enough home equity to refi after several years of strong home price growth," Fitch says. "In addition, those who took out a mortgage in the last year and a half when rates were higher could benefit from refinancing with today's rates."
Hal M. Bundrick is a Certified Financial Planner and contributor to MainStreet. Follow him on Twitter: @HalMBundrick