Borrowing costs

When it comes to owning a home, people are typically going to need to borrow to make that purchase. And there are a number of areas to consider while doing this.

Mortgages

According to the Mortgage Bankers Association, for the first time in September, the price of a conforming loan exceeded the price of a jumbo loan. During the first week of September the average interest rate for 30-year fixed-rate conforming mortgages (which are mortgages less than $417,000 that can be purchased by Fannie Mae and Freddie Mac) was 4.73%.

In comparison, the average interest rate for jumbo 30-year fixed-rates (higher than $417,000) was 4.71%.

Conforming or full government-backed loans being less than those provided by banks (assuming all the risk) is an unusual development. Be mindful that rates offered to each borrower may be different depending upon their personal credit history. In many instances, conforming loans may be less. Borrowers with excellent credit, however, can take advantage of a bank’s need for higher-yield loans.

Jumbo mortgages are one of the best ways for many banks to increase their portfolios while still complying with regulators’ requirements for “high-quality” capital. Given that Treasury bonds are still low and commercial loans are not in big demand, banks are making jumbo loans.

Borrowers having excellent credit are being sought as underwriting requirements are tighter as compared to the peak of the real estate market. In Greenwich and other areas of Fairfield County, jumbo loans are key as home prices can often exceed conforming loan limits.

Private mortgage insurance

The Federal Housing Administration (FHA) has been raising rates for borrowers. Reportedly, the high-FICO borrowers are “subsidizing” the low-FICO borrowers. The FHA has provided loans for borrowers that have less than 20% for a down payment on a home.

Whereas the private mortgage insurance (PMI) market is doing just the reverse. The borrowers with the best credit history are getting the lowest rates while the borrowers with the lower credit ratings are paying more for PMI. Some higher-qualified borrowers are moving away from conventional FHA loans to look for lower borrowing costs in the private market.

According to critics, HUD had a history of providing insurance at “unsustainable” low rates and credit requirements. The increase in premiums was necessary to bolster the fund and future of FHA lending. HUD wants to reduce its market share, which was as much as 50% of the market.

The Consumer Financial Protection Bureau with its qualified mortgage (QM) rule that goes into effect this coming January will restrict lenders’ origination of mortgages that don’t comply with Fannie Mae, Freddie Mac, FHA, VA, or USDA guidelines. Buyers have adjusted and will continue to adjust to borrowing changes.

Recent commercial and residential sales

 A commercial Greenwich property recently sold for $38,583,000. It was a 291,852-square-foot parking lot located at 777 West Putnam Avenue.

To put this in perspective, the next largest commercial sale reported was almost $8 million. A residential property most recently sold for $14 million (135 Taconic Road) in Greenwich. The price of a commercial property can rival that of a residential property in Greenwich.

 

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]

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