Five 2019 Mortgage Trends and What They Mean for the Market
The vast majority of homebuyers take out a mortgage. If you’re thinking of buying a home in 2020, it’s helpful to know a little about current mortgage trends and the impact they are having on the housing market. Here are 5 key mortgage trends that emerged in 2019:
1. Consistent Rates
Mortgage rates go up and down over the years. There are numerous factors that can affect mortgage rates, from the performance of the overall U.S. economy to the rate of inflation.
Mortgage rates have been very low — in the 3% range — throughout 2019. Experts predict these rates will stay about the same or perhaps drop a bit lower in 2020. Specifically, 55% of experts say bank rates will stay about the same and 36% believe rates will fall. This means the housing market will likely remain a seller’s market for 2020, since buyers will continue rushing to take out loans while the rates are low.
2. It’s Getting Easier to Take Out a Mortgage
After the housing market basically collapsed in 2008, mortgage lenders raised their standards and became more restrictive. They started requiring larger down payments, looking for applicants with longer job retention, and requiring higher credit scores. More than ten years later, these standards have begun to relax.
The minimum FICO score required to get a mortgage is now 580, and the median down payment percentage is only 3%. This means buying a home has become a more approachable goal for young professionals and those with lower credit scores. Lower-priced starter homes are selling well to these buyers.
3. FHA Loans Are More Popular
FHA (Federal Housing Administration) loans became a bit more restrictive after the 2008 housing crash, too, but as standards have relaxed, they’ve become more popular. With an FHA loan, the loan is insured; FHA agrees to pay the bank if the borrower defaults.
FHA loans require lower down payments and lower credit scores than conventional loans. They are available only to first-time homeowners and make it more realistic for these buyers to purchase smaller starter homes.
4. Refinancing is Common
With rates being so low, homeowners are also refinancing more often. If homeowners have mortgages at 5%+, refinancing to 3.5% can save them thousands on their payments over the years. This trend also makes it easier for people to stay in their homes if circumstances have changed and their payments have become less affordable. Instead of selling and downsizing, they can simply refinance, enjoy lower payments, and stay in their homes.
5. Fixed-Rate vs. Adjustable-Rate Mortgages
The two basic types of mortgage are “fixed-rate” mortgage and “adjustable-rate” mortgage. With a fixed-rate mortgage, your interest rate stays the same throughout the life of the loan. With an adjustable-rate mortgage, your rate starts low and increases after a certain agreed-upon amount of time has passed.
Fixed-rate mortgages remain the most common type of loan. This means payments are predictable, which makes buyers more confident when purchasing. Fewer people default on fixed-rate mortgages, which makes for a more stable market.
These mortgage trends are just a snapshot of the housing market and how it has performed in 2019.
Equal Housing Lender