Just a few months ago, not many people would have expected to see 30-year mortgage rates fall below 3%, but borrowers who are good mortgage comparison-shoppers are starting to come across interest rates at those unbelievably low levels.
Daily surveys show average rates on mortgages backed by the Federal Housing Administration (FHA loans) and the Department of Veterans Affairs (VA loans) have already fallen into sub-3% territory.
And while those same reports indicate that typical rates on conventional home loans are sliding nearer and nearer toward 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 is going as Federal Reserve Chairman Jerome Powell sets off alarm bells and the Fed itself takes steps 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 pandemic is beating up the U.S. economy like nothing the country has seen since World War II.
The central banker has been saying the economy may remain shaky until there's a COVID-19 vaccine, and that lasting economic damage is a possibility unless the government does more to help.
"A full recovery of the economy will really depend on people being confident that it’s safe to go out," Powell said during a Princeton University webinar on Friday. "A second wave [of infections] would really undermine public confidence, and might make for a significantly longer recovery, and weaker recovery."
While the chairman has been on his Debbie Downer tour, mortgage rates that were already at or near record lows have been falling further.
Powell has been getting investors worked up over 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 pulling down mortgage rates is the Fed's current program of buying up 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, and that's raising their prices — and helping mortgage interest rates go down.
Where to look for rates under 3%
Though mortgage giant Freddie Mac says average 30-year mortgage rates hit an all-time low of 3.15% last week in its nearly 50-year old weekly survey, Mortgage News Daily says the typical 30-year rate plunged to an average 3.03% one day recently.
Mortgage News Daily also says 30-year fixed-rate FHA-backed loans are already down to 2.68%, on average. Meanwhile, The Mortgage Reports says its survey shows rates on both FHA loans and VA loans are at an average 2.5%.
One of the nation's biggest home lenders is moving swiftly to take conventional mortgages below the 3% line. 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 reportedly been receiving up to 10,000 calls per day about its "Conquest" mortgage. 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.
"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 provide you with 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.