Yesterday’s Fed interest rate drop…

… of 1/2% doesn’t directly affect homeowners, or especially those of you thinking of buying a home and watching mortgage interest rates. As you know, when you go to Citi, Wells Fargo, B of A, etc, to get a loan, the money doesn’t come from them, it ultimately comes from investors who buy the pools of loans sold to Fannie Mae, Freddie Mac and the like. The investors are the ones who determine your interest rate, because they determine what interest rate they are willing to accept for their perceived risk of their investment.

And right now, investors are demanding higher rates for their perception of risk. That’s why the credit markets are still jammed up. However, over the past week there are indications things are starting to loosen up, especially as lenders react to federal guarantees for loan modifications they might make to troubled homeowners. What’s this mean for buyers looking to buy this 4th quarter?

Basically, interest rates are still low, plus or minus hovering around 6%. The big news is buyers can generally request a seller (especially on a bank owned property) for “seller concessions”, that is, get money from the seller that will enable you to buy down your interest rate (what lenders call “discount points”). Over the past week, that would mean getting a fixed rate loan around 5 3/4% which is a killer deal!

Much has been written in the general media about “tight money”, harder to get credit, etc, etc. WRONG! First, lending was too loose (that’s what got us in this mess in the first place) but now it’s gotten to where it “should” be – to borrowers with good credit, some money for down payment and closing costs, steady and verifiable income; in other words, back to where we should have always been.

For those of you looking to buy, there’s plenty of money out there, so don’t believe everything you see or hear in the media!

Filed under article topic: Mortgages/Interest rates
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