May 25, 2020
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Not long ago, few people would have expected to see 30-year mortgage rates drop below 3%, but borrowers who are good mortgage comparison-shoppers are starting to find interest rates at those jaw-dropping levels.
Daily surveys show rates on mortgages backed by the Federal Housing Administration (FHA loans) and the Department of Veterans Affairs (VA loans) have already fallen into the sub-3% cellar.
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And while the surveys indicate average rates on conventional home loans are getting nearer and nearer to the 3% mark, a major mortgage wholesaler has rolled out a conventional 30-year mortgage with a rate as low as 2.5%.
All of this has been going on amid alarm bells from Federal Reserve Chairman Jerome Powell and steps by the Fed itself to bolster an economy ravaged by the coronavirus.
Why rates are going through the floor
Fed chief Powell has made a series of speeches and appearances warning that the COVID-19 pandemic is beating up the U.S. economy like nothing the country has seen in a long time.
"The scope and speed of this downturn are without modern precedent and are significantly worse than any recession since World War II," Powell told the Senate Banking Committee last week.
The central banker has been saying the economy may not recover until the end of next year, and that lasting damage is a possibility unless the government does more to help.
"We are now experiencing a whole new level of uncertainty," Powell said on Thursday.
While the chairman has been making his Debbie Downer tour, mortgage rates that were already at or near record lows have been sliding further.
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Powell is worrying investors about the potential for a drawn-out recession, so they've been moving into safer investments like bonds, says Brendan Philips, capital markets analyst with the online mortgage lender Better.com. That's causing interest rates to plummet.
"The worse the economic forecast becomes, the more likely we are to see similar moves in interest rates in the future," Philips says.
Another major factor pushing down mortgage rates is the Fed's purchases of mortgage-backed securities to prop up the economy says Frank Nothaft, chief economist with CoreLogic.
Those securities are mortgages bundled together into investments similar to bonds. The Fed has been on a buying spree with mortgage-backed securities, which is raising their prices — and helping mortgage interest rates go down.
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Where to look for rates under 3%
Rates are falling quickly to 3% and beyond.
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Though mortgage giant Freddie Mac says 30-year mortgage rates are currently averaging 3.24% — which is a near-record-low in its nearly 50-year old weekly survey — Mortgage News Daily says its survey showed that 30-year rates plunged to an average 3.03% one day last week.
Mortgage News Daily also says 30-year fixed-rate FHA-backed loans have fallen to 2.75%, on average. Another daily survey, from The Mortgage Reports, shows rates on both FHA loans and VA loans are down to an average 2.5%.
One of the nation's biggest home lenders is moving swiftly to go below the 3% line with conventional mortgages. United Wholesale Mortgage has announced a loan that can be offered to borrowers at an incredible 2.5% interest.
"We believe that the housing market is going to be strong and we want to do our part to help more people get into their dream homes as we get through this pandemic together as a nation," says UWM's CEO Mat Ishbia.
His company has been receiving up to 10,000 calls per day about its "Conquest" mortgage, according to multiple media reports. But you can't get one directly from UWM — only from a broker. The fine print includes a stipulation that a borrower cannot have taken out a UWM loan within the last 18 months.
How to bag a mortgage below 3%
Mortgage rates have room to move lower, but lenders who are concerned about coronavirus-era defaults have been raising the bar for some borrowers, notes Zillow economist Matthew Speakman.
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"Borrowers with great credit who are seeking a straightforward loan are being quoted at significantly lower rates than less creditworthy borrowers, resulting in a range of rates that tells a broader story than just the average," Speakman writes, on his blog.
That means if you're determined to score a rate at or below 3%, you need to be sure your credit score is exceptional (in the 800 to 850 range) or very good (740 to 799). If you haven't seen your score in a while, you can check it for free.
It also means you're going to have to shop around. A lot. Gather and review rates from several lenders to find the best deal, one that will give you an exceptionally low monthly payment.
And never try to "time the market," says Philips, with Better.com.
"The cost of waiting to see if rates go lower could backfire, not making it worth the risk. The best rule of thumb is that if the numbers make sense, seize the opportunity," he says.
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Doug Whiteman was formerly the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."
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