Home Purchase Motivation in April 2010

The $8,000 first-time homebuyer and $6,500 repeat homebuyer tax credits can only be taken on homes for which sales contracts are signed by April 30, though buyers have until June 30 to actually close the sale. Congress already extended and expanded the credit after it was originally due to expire last November; there doesn’t seem to be much support for extending it again, so if you miss the April 30 deadline, you’re probably out a luck on this one.

A potentially bigger impact will occur when the Fed buys the last of $1.25 trillion in mortgage securities it has been purchasing over the past year. Also scheduled to conclude on April 30, the program has been credited for driving mortgage interest rates to record lows in the spring and again in the fall of 2009, and keeping them at or below 5 percent for most of the year.

Though 30-year fixed rates held steady around 5 percent through Jan. 2010, most observers expect them to rise sharply once the Fed purchase program concludes. Many observers expect rates to almost immediately shoot up to 6 percent and hold there, an increase of a full percent. On a $250,000 30-year loan, that 1 percent translates to an additional $150 a month, or $1,800 a year.

Finally, in early April the FHA is increasing the mortgage insurance premium it charges on all loans by half a percent, from 1.75 percent to 2.25 percent. A onetime fee charged upfront at the time of closing, it means that the premium on a $150,000 FHA loan would increase by $750, to $3,375. However, this only applies only to borrowers seeking an FHA-backed loan, although those are making up a larger share of the market.