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The newest weekly mortgage applications survey data, released Wednesday by the Mortgage Bankers Association (MBA) included the lowest mortgage rates in months, which created a stir in the number of applications.
According to the MBA, the Federal Housing Administration (FHA) share of the market dipped to 6.42%, while refinance activity posted its fastest pace since October 2024.
“Conventional refinance applications rose 34% and government refinance applications increased by 42% over the week,” Joel Kan, the MBA’s vice president and deputy chief economist, said in the announcement. “The move in government refinances was driven by a 75% increase in VA loans, which have been prone to large changes in recent months.”
On-the-ground observations
Loan officers say they’re seeing an increase in government loan demand. Donella Strickland, an LO with CMG Home Loans, said that if mortgage rates continue to go lower, there could be a wave of refinances to follow.
“It takes about a .75 difference in rates to make a refinance worth it, though,” Strickland said. “In general, I’ve seen more activity across the board from buyers since the rates have been coming down a bit.
“Since government loans tend to have lower interest rates and easier qualifications than conventional loans, the increase is exacerbated with these programs.”
Strickland said that 75% of the business she closed in 2024 was government-backed purchase money loans. She added that while she may not do as many government loans this year, she’s observing hunger in the marketplace among FHA and VA loan seekers.
David Whitley, a North Carolina-based loan officer for Whitley Mortgage, said that out of the 15 current loans in his active pipeline, eight are government loans.
“With first-time homebuyers, if your credit score is under 720 and you have a minimal down payment, then it’s usually better going FHA,” Whitley said. “With home prices at an all-time high, it’s just tough to fit folks inside that box, so FHA has definitely seen an uptick.”
More renovations?
Specific geographic areas are more prone to government loans. Christopher Shank, a Clarksville, Tennessee-based LO for AXEN Mortgage, said that nearly 70% of real estate transactions in Clarksville involve VA loans.
“When rates started dropping a little bit around September 2024, people started to get excited. But there was a lot of this belief out there that rates are going to hit record lows still,” Shank said. “And there are a lot of folks that were holding off because they wanted to score a 5% rate, but then October hit, and then we saw rates go back up.
“I can’t say with certainty whether we’re going to go ahead and see a rate drop as optimistic as what people were quoting last year,” he added. “But you still have a buyer’s market. Not everybody is caught up on the fact that it’s a good time to buy now.”
While Shank admits that most of his book of business is tied to VA loans, he’s seeing an uptick in renovation loans across the FHA and VA channels.
“Rates on renovation loans are usually around half to a full percent higher than what you would normally quote up on just a standard purchase of that program,” he explained. “But that being said, if your average starter home in central Tennessee is like $306,000, that requires a bit of an income. So now that rates are dropping, a renovation loan will be in the 7% range.”
Shank noted that after securing a VA renovation loan, buyers can wait 210 days and do an Interest Rate Reduction Refinance Loan (IRRRL) if the market’s in a better spot.
“And if the market’s not in a better spot, well, congratulations, you still got yourself a 7% VA renovation loan on a home that you walked into $80,000 of equity,” he added.
