Mortgage rate predictions remain grim. Nobody expected to see a 4% mortgage rate in their lifetime let alone see it fall as fast as it has. Rates are at a six decade low making home ownership within the reach of many more people. That’s the positive spin on this story.

The negative spin is much different. While we are at a historic low mortgage rate, qualifying for a home loan is tougher than it has ever been.

If mortgage rates are this low, why is the housing market still deeply depressed and still falling in many localities? According to recent Case-Schiller home value survey results, the housing market is already seeing a double dip recession in many cities. Let’s get to the bottom of this and see if it’s possible for you can get the home of your dreams.

Case-Schiller

Unless you’re a student of the financial markets, there’s a strong possibility that you haven’t heard of the Case-Schiller price index. Case and Schiller are economists who track the value of homes nationwide and their results show that the large majority of homes are selling for less than they sold for in the past.

Unless you’re planning to sell your home, you’re probably unaffected by this, right? That is partially true but if your home has depressed in value too much, refinancing at those ultra-low 4% rates may be difficult or impossible. Assuming you’re making regular on-time payments on your current mortgage, the bank would rather you pay for the lower value in your home. The alternative is for them to write a new mortgage at the depressed value which locks in their losses.

But What if I’m not?

When mortgage rate predictions indicated that rates would continue to fall, homeowners who had a home that was worth less than what they owed on their mortgage thought that the Federal Government would find a way to refinance their home at a lower rate. This has not happened as of yet. If you’re behind on your payments, don’t expect to refinance and if you’re hoping to transition from a renter to a buyer, any missed payments on other bills may keep you from qualifying.

You Need 20%

Here’s the biggest frustration for those who want to take advantage of those 4% mortgage rates. Because of tighter lending standards, those applying for mortgages find out that they need a 20% cash downpayment to receive the loan. In the current economic environment, what are the chances that a person or couple who wants to purchase a $140,000 home has $28,000 to put down? Even somebody who recently sold their home may not have captured enough of the equity they had in it when it sold.

What can I do?

First, as you probably know, you need a flawless credit history. If you can qualify for the loan you won’t get the lowest rate unless you credit score is excellent. Second, although interest rates are low, home values are as well. If you don’t have to move, it may be best to wait until the housing market and the economy as a whole shows a more impressive recovery. Finally, if moving is an essential, consider renting. In many areas of the country, rental rates on homes are as low as mortgage rates.

Although mortgage rate predictions don’t currently see rates dropping much more than current levels, home prices could continue to fall. If you plan to refinance, use one of the many online calculators to see if the current low mortgage rate truly is worth the expense. If you’re planning to purchase a home, it may be best to wait since any further drop in value would leave you upside down in your loan.