Quantitative Easing and House Interest Rates

Quantitative Easing

Quantitative Easing

Buying a home is a big deal whether you are doing it for the first time or the twentieth, and if it’s your twentieth home purchase, we want to know your secret. We should all be drinking some of what you are! There are at least a million (it seems) factors that influence your house interest rate, and rates can change daily.

Read below to learn more about a financial climate called Quantitative Easing and what you should know when buying your next home.

At TwinCity Lending, we want to take the guesswork out of all your major financial decisions. Schedule an appointment today with one of our lending specialists today to find out how much buying power you have in today’s home market.

What is Quantitative Easing?

Quantitative easing is a tool that governments can and have used to assist their country in getting back on its feet after a significant downturn in the economy. It is a controversial decision and has historically been used as a “last resort” to avoid deep economic depression.

The goal of quantitative easing is to provide short-term economic stimulus via lower interest rates and raise money supply.  In the U.S., quantitative easing has been used three times in our history.

The principle of quantitative easing is to flood the economy with money.  This flood happens when the federal reserve increases its printing of new money to get central banks to purchase government treasuries.

This ramp-up in government-backed treasuries helps banks to have more money to lend.  With increase money “supply,” the “cost” of capital (federal interest rates) reduces to encourage more borrowing by the public, and in turn, more spending by the public. Hence, a short-term boost to the economy.

QE can be a slippery slope.

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Even though QE provides short-term relief for dire economic circumstances like the 2009 market crash and homeowner crisis, many believe the long term risks of QE outweigh the benefits.

In the US, we are currently in a period of QE.  It is a grand experiment, truly. While we have seen encouraging economic recovery nationwide since the financial crisis of 2009, the long-term benefits and consequences of using QE remain to be seen.

Some possible long term “side effects” of employing QE include:

A negative impact on the global economy.

Inflation goes up when the extra money supply causes the prices of goods to rise disproportionately.

The strength of the U.S Dollar is threatened comparatively with other countries.

When QE is removed or suspended (remember, QE is a “last resort” option in tough economic times), economic growth can stall or even reverse.

QE encourages both businesses and individuals to take on more debt

How can you be smart about home buying during QE?

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It’s no joke that knowledge is power.  By leveraging your knowledge of QE with your understanding of personal finance, you could come out a real winner as a homeowner during a period of QE. Here’s what we mean.

When QE is enacted, federal interest rates generally fall, or they may already be lower, as was the case in 2009. In our present economic climate, interest rates are currently as low as 3.15% fixed  (meaning this rate is locked in for the duration of the loan) on a 15-year mortgage. Be sure to check with us at TwinCity Lending frequently, as interest rates can fluctuate, and each day may be a little different.

Because money is so “cheap” right now, it can be tempting to buy a little more house than you would generally consider because the mortgage payments could be seen as “doable” in your household budget. Here’s what we suggest for home buying that is not only celebratory at the close of the sale, but will keep you stress-free for the duration of your mortgage.

Take a careful look at your take-home income. Your total mortgage payment, including taxes, insurance, and homeowners association fees, should total no more than 28% of your income after taxes.

Lower your consumer debt. Begin now to pay off other loans like student debt, credit cards, or car notes. Eliminating even one monthly payment means, even more, buying power can go into your home, especially if the home you choose may need some repairs or updates.

Get a home inspection. When shopping for your next home, a qualified home inspection is essential to increasing your peace of mind and preparing for the many extra expenses that home-ownership brings. Pay extra attention to the age and condition of the roof, the state of the foundation and basement, as well as major appliances like water heaters and HVAC which are among the most expensive to repair or replace for homeowners.

Make a significant down payment. When money is cheap like it is now, it can be tempting to purchase more house with less of a down payment; financing as much of the purchase price as the lender will allow.

Paying as much as you can in a down-payment will assist you in building home equity right away, as well as lowering your mortgage payment. A significant down-payment (20% or more of the asking price) may potentially eliminate the need for mortgage insurance as well.

Create a Home Emergency Fund. Begin immediately to fund a savings account for both emergency repairs or replacement, as well as planned large expenses like roof replacement or kitchen/bath updates.

In the end, Quantitative Easement periods can give homebuyers an edge with low-interest rates. The vital key to being a stress-free homeowner is to not “go wild” with your home purchase so that you paint yourself into a corner later by taking on too much debt in a changing economy.

When searching for your next home, use your common sense, keep your overall debt low, and be honest about your behavior around debt and spending. Don’t forget to call on professionals for help like our team at  TwinCity Lending.

Schedule a consult with us today and let us help you land great home in which you can truly relax because you know you made the best decision.

First Time Home Buyer Grants: What They Are and How to Get One

First Time Buyer

First Time Buyer

Shopping for the home is the fun part, especially if you have never owned your home before. Maybe you have spent years looking and dreaming, wondering when it will be your turn to own your home. If you take advantage of one of the many first time home buyer programs out there, you may be able to take that leap sooner than you think.

Shopping for the home might be the fun part for you, but financing your home is the fun part for us. We love to hand people their dreams. Let TwinCity Lending help you look through your financing options, and help you decide which programs are right for you.

FHA Loans

  • The Federal Housing Authority is part of the Federal Department of Housing and Urban Development. HUD offers multiple educational programs, grants, and loan assistance to help get you in your first home. An FHA loan is a mortgage loan that is insured by the Federal Housing Authority so that the lender can offer more flexible terms than a conventional loan. FHA loans only require 3.5% down, which can make entering the market possible when you have not had the chance to stock away the cash required for most conventional loan down payments.

To qualify for an FHA loan, you will need:  

A credit score of at least 580 (for a loan with a 3.5% down payment)

A credit score between 500 and 579 (if you have a 10% down payment)

Debt to income ratio of 46% (we can help you figure this out – call us at 651-303-4236)

Mortgage insurance in addition to your monthly mortgage payment

An appraisal from on FHA approved appraisal company

Documentation that you have had a steady income for the last two years

You must be 18 years old

To live in the home you are purchasing

203k Rehab Loan

If you are looking to buy a fixer-upper, this FHA loan covers your mortgage and gives you cash to turn your property into your dream home. The requirements are similar to the FHA loan, but you will need a higher credit score.

Conventional 97% LTV, 3% Down program

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Fannie Mae and Freddie Mac created a program to offer an alternative to the FHA loan. Since the hardest part of buying a home is finding the down payment, they started offering a loan program that requires only 3% down. The debt-to-income ratio requirement is not as easy to achieve as an FHA loan, and the credit score requirement is higher. But you could save more up-front by putting 3% down with the conventional loan vs. 3.5% with the FHA loan.

Requirements of the Conventional 97 loan:

Debt-to-income of 41% or lower

$424,100 Maximum loan limit

Minimum credit score requirement of 620

One borrower must not have owned in the last 36 months.

PUD, condo, co-op, and single family homes are all eligible.

Like FHA, the borrower must occupy the home.

Start-Up for First-Time Home-buyers

Minnesota Housing, the state’s housing finance agency, can help you get into your first home.

Their start-up program offers:

Low, fixed interest rates for the life of the loan

As little as 3% down

Down payment and closing cost loans – up to $15,000

Low or no mortgage insurance

This program is offered only in Minnesota, so it is worth a look if you’re planning to buy a house on this side of the river.

USDA Loan Programs

The U.S. Department of Agriculture offers home loans with zero down payment for homes in qualifying areas. The idea is to celebrate rural America, and take care of the homes that have a little more wide open space around them. If you are considering a move to the country, see if the properties you are looking at qualify. We can walk you through the process, as well, if you give us a call at 651-303-4236.

HomeReady HomePath Mortgage

Mover & Packers

HomePath is a program offered by Fannie Mae that sells the homes they own. The properties are “real estate owned,” and have returned to the lender from their previous owner, so the homes often need some TLC and financial investment. Fannie Mae offers loans with a down payment as low as 3% but waives the mortgage insurance usually required with such a minimal down payment. Also, if you complete their free ReadyBuyer™ course, they offer up to 3% closing cost assistance as well.

HUD’s Special Home Buying Programs

Good Neighbor Next Door

HUD has designated particular neighborhoods as “revitalization areas,” places they want good neighbors to move in. Law enforcement officers, teachers, firefighters, and emergency medical technicians can qualify to buy a home in one of these areas for up to 50% off the list price. They commit to living in the residence for 36 months.

Homeownership for Public Housing Residents

If you are living in public housing and currently renting, HUD offers a program to help you purchase your home.

Indian Home Loan Guarantee Program

Also known as a section 184 loan, HUD offers special assistance to Native Americans to help them obtain a mortgage.

HUD Dollar Home Program

If a foreclosed FHA home has been on the HUD website for more than six months, HUD can offer it to low-income home-buyers to help revitalize the community.

VA Loans

Active military and veterans can buy a home with no down payment and no mortgage insurance, making a VA loan the best option for anyone qualified.

Adapted Housing Grant: Veterans can also get an Adapted Housing Grant to help make their home accommodate their active duty injury.

We Can Help

If you’re not sure which program or loan type is the right one for you, let TwinCity Lending help you walk through your options. We would love to get to know you well so we can tailor your financing to your particular situation, and make sure you are taking advantage of all the right programs. And please forgive us if it looks like we’re having fun while we do it.