29 Nov 2016 — In the three weeks since the United States general election, interest rates for home mortgages went up .5%-.65%, according to several local mortgage experts. Since rule of thumb suggests a 1% increase in mortgage rates generally equates to ~$100 increase in the monthly costs to the prospective homeowner, the climbing rate isn’t good news for those struggling to access the Bozeman area marketplace.
Inventory of properties around Bozeman is low, and the demand in the last twelve months has been—you guessed it—high. In October, most houses new on the market were under contract in the first 30 days. It should be no surprise then that prices continue to go up locally, but the costs of home ownership are climbing nationally, as well. In a report this week from the Federal Housing Financing Agency, in the third quarter of 2016 the average U.S. home price surpassed for the first time the previous market peak, dating back to 2007’s 3rd quarter.
Before you run off, there is good news.
First, mortgage rates remain at the bottom of the curve. Historically, a rate of 4.5% on a conventional, 30-year mortgage would be regarded as “a great time to buy a house,” according to a Bozeman broker. That hasn’t changed. Consider that, from 1963-2009, the national average contract mortgage rate never dropped below 5%.
In Montana, we have more good tidings to speak of. MontanaCDC has a new opportunity, called the HomeNow Down Payment Gift Program, which “helps people buy homes and does not require repayment.” This isn’t “yellow” marketing or a new loan program with a fancy handle—what they’re offering is a gift to qualified buyers on eligible properties. Those qualified borrowers may receive 3.5% or 5% to use for a down payment or to cover closing costs on a home loan, what could amount to a $10,000 head-start on a home loan.
Let’s look at the specifics.
Eligible properties: According to MontanaCDC, this includes “new or existing homes,” “single-family detached homes, duplexes, townhomes, condos/PUDs,” and “stick-built modular homes.” That’s pretty much everything in home-ownership except for a “manufactured houses” or your buddy’s 1973, mildly-used Coachmen Travel Trailer.
Qualified buyers: The nonprofit requires a credit score of 640, and the gift program is only for those purchasing an owner-occupied residence in Montana. That means the borrower will need to live in the residence within 60 days of the closing date.
The HomeNow program is not limited to first-time homebuyers and is available for borrowers “who qualify for FHA, VA, or HUD-184 who are at or below 115% AMI” (Area Median Income). This may be a surprise to some, but that AMI includes an individual borrower making up to or less than $85,330 (Gallatin County), $70,955 (Park County/statewide baseline), $72,795 (Madison County), and $90,275 (Jefferson County). There is also the program’s top-end to be considered; FHA loan-amount limit in Gallatin County, as one example, is $346,150.
Joe Post, a loan officer who’s been presenting the program across southwest Montana, noted that the program “allows non-occupants to co-sign.” To clarify, a family member or close friend who wanted to help the borrower could do so without the requirement of having their name on the deed. Co-signors aren’t required to live in Montana, either.
The national mortgage rate hike isn’t good news, it’s true, but a little insider knowledge could go a long way right now for those striving toward home ownership. While the local newspaper and some Bozeman city commissioners are leading locals to believe the circumstances are dire, options do exist.
Forecasters believe that interest rates will continue to climb, perhaps as early as December. So news of this program isn’t a moment too soon and, like anything else, the early bird still/always has better odds of scoring the best worm.
As of today, there are 87 residential listings in the area encompassed around Bozeman, Livingston, Belgrade, Manhattan, and Gallatin Gateway—all with an asking price at or below $275,000. Depending on individual income, a borrower who qualifies for the Montana CDC Down Payment Gift Program and a 30-year conventional mortgage needs demonstrable income of approximately $44,600 per year. For those on a wage, that’s about fifty, 40-hour weeks per year at a wage of $22.30, or about what a local construction foreman makes.
So, you ask, what’s 5% of an 80% loan on the hypothetical, $275,000 house? An $11,000 gift.
‘Tis the season.
Melanie Calahan, Director of HomeNow, mtcdc.org/homenow
Joe Post, www.loansbyjoepost.com
FHFA 23 Nov 2016 announcement, http://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Increase-in-Maximum-Conforming-Loan-Limits-for-Fannie-Mae-and-Freddie-Mac-in-2017.aspx