FHA mortgage demand rises as borrowers face affordability challenges

Mortgage rates and overall demand for conventional loans were unchanged last week, but borrowers are actively seeking other loan products that offer greater savings.

Total mortgage application volume increased 0.3% last week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with loan balances of $832,750 or less remained unchanged at 6.21%; Points including origination fee for loans with 20% down payment remained unchanged at 0.56.

Applications to refinance a mortgage increased 1% this week and were 101% higher than the same week a year ago. Mortgage interest rates were 74 basis points higher a year ago. Most lenders say the cost of refinancing is significant if the borrower can save 75 basis points.

Mortgage applications to buy a home fell 2% this week and were up just 4% from last year. Homebuyers still face an expensive market, and supply is starting to drop again after rising for much of last year.

“FHA purchase and refinancing applications increased, which in part helped the FHA rate fall and remain 20 basis points below the affordable 30-year fixed rate,” said Joel Kan, MBA vice president and deputy chief economist. “Borrowers are increasingly using FHA loans as affordability challenges persist despite recent advances.”

Additionally, the share of adjustable rate mortgages in total applications rose to 8%, the highest level in seven weeks. Last week, ARM rates were almost a full point lower than fixed rates.

Mortgage rates fell slightly on Tuesday, according to a separate survey from Mortgage News Daily. This follows a weaker-than-expected retail sales report. All eyes are now on the monthly employment report to be released on Wednesday.

“Some recent rate hikes have been slightly larger than they otherwise would have been because the market may be bracing for a pessimistic employment number,” wrote Matthew Graham, chief operating officer of Mortgage News Daily. “If it is weaker than expected, there is certainly room for the rise in rates to continue, but if the report shows resilience, rates are likely to move higher.”