The economy may be gloomy but it's a great time to buy a home if you can afford it and have the credit to qualify for a prime rate. Rates are as low as they have been in almost 40 years. During October 2011, rates actually dipped to lower than four percent for both 30 and 15 year fixed mortgages. In addition there are also tons of affordable foreclosures on the market. You would think that the combination of low priced homes and low interest rates would prompt in a rush of home sales. However, the fact is that many consumers are hesitant to purchase a home.
Curious as to why rates have dropped so much? Part of the reason is because the rates of treasury bonds have also dropped sharply. Treasury yields have declined recently due to the European debt crisis and that in turn has pushed rates lower than ever before.
Even though mortgage rates are at an all-time low, that doesn't mean that Americans are rushing out in droves to purchase a home. Buying a home is not going to be a priority for individuals if they are out of a job and unemployment is at an all-time low. In addition, it is more difficult than ever to qualify for a home loan.
Gone are the days when it was easy to apply for a loan. Lenders are much stricter now as a result of the subprime mortgage crisis. Anyone who wants to buy a house needs to put down a down payment of at least twenty percent. An applicant's monthly income also needs to be at least three times the monthly mortgage payment in order to qualify. Even qualified applicants are being denied loans because of restrictive credit requirements.
Another issue that is preventing many individuals of buying a home is a low credit score. 700 is the minimum score that an individual needs in order to obtain a decent interest rate. Almost forty percent of Americans do not have a score over 700. Twenty five percent of all consumers have a subprime score of under 599. This number is substantially higher than it was a decade ago.
Instability abroad is another factor; there is a lot of civil unrest in the Middle East which has many Americans feeling nervous. In addition, Europe is also in a financial debt crisis. Europe's debt crisis is actually helping U.S interest rates stay low because investors are investing heavily in treasury bonds.