Housing taking off?

Another day, another positive report for housing. The Census Bureau reports rising New Home Sales nationwide  -- one day after the National Association of REALTORS® did the same for Existing Home Sales. The housing recovery remains on course.

New Home Supplies Sinking

The number of new homes sold rose to 343,000 on a seasonally-adjusted, annualized basis in April -- a 3.3 percent jump from March and a 10% improvement from one year ago.
Excepting February 2012, April's figures marks the second-highest tally for New Home Sales since the end of the 2010 federal home buyer tax credit. It's also the seventh out of the last 8 months during which sales for newly-built homes increased.
During that time, the supply of new homes for sale has dropped 13% to 146,000 homes nationwide. At the current pace of sales, the nation's complete new home inventory would be sold in 5.1 months.
A 6-month supply is believed to indicate a market in balance. Anything less than 6 months suggests a bull market for housing; a market in which sellers have negotiation leverage over buyers.
In the "new construction" market, this leverage is especially important.
As compared to a home resale, new homes are specifically sold by builders to individual buyers -- first-time buyers and move-up buyers alike. Builders are less likely to offer deep discounts and/or free upgrade when market conditions favor sellers, and when homes are in high demand.
Consistent with the New Home Sales data, home builders report buyer foot traffic to be at its highest levels since 2007.

Low Mortgage Rates, Stimulus Boost Home Sales

New home sales have been boosted by an improving economy and sagging mortgage rates. The economy has put more people back to work, and boosted consumer confidence. Falling mortgage rates have helped, too.
Freddie Mac reports this week's average, 30-day fixed rate mortgage rate at 3.78% nationwide with and accompanying 0.8 discount points. As compared to one year ago, that's an improvement of 0.86 percent.
As a real-life example, assuming a mortgage at the conforming loan limit of $417,000, today's mortgage payments are $210 less.

• May 2011 : $2,148 monthly payment (principal + interest only)
• May 2012 : $1,938 monthly payment (principal + interest only)

Loans at the $625,500 conforming loan limit in high-cost areas including Orange County, California and Fall Church, Virginia would save more.
Low rates and the availability of low-downpayment mortgage program such as the FHA's 3.5% downpayment program; the VA 100% financing program; the USDA 100% financing program; and Fannie Mae and Freddie Mac's 5% downpayments should help keep home demand high through the spring and summer months.

Buying New Construction? Good "Deals" Disappearing

If you're in the market for new construction and newly-built homes, consider that rising demand and shrinking supply result in higher prices. If you're looking for a deal, the best values may be the one you find today.
See today's mortgage rates and build your housing budget. Low-downpayment or 20% downpayment, it helps to know your options.

Housing Headed UP

More good news from the housing market. The number of home resales rose in April nationwide, and median sales prices rose, too. The former is a function of an improving market conditions; the latter a function of the actual homes getting sold.

Existing Home Sales Up 10% Since Last Year

In its April Existing Home Sales Report, the National Association of REALTORS® reports 4.62 million homes sold on a seasonally-adjusted, annualized basis. This is the second-highest reading since May 2010, the month after the expiration of that year's federal home buyer tax credit.
It's also a 10% increase over April 2011, a noteworthy statistic in its own right.
Since late-2011, the housing market has been improving. Steadily, home sales have moved higher; builder confidence has reached multi-year heights; and, in many U.S. markets, home values have climbed. On a month-to-month basis, it's hard to spot longer-term trends. Beginning this month, it should become easier.
We're only now beginning to see the effects of the government's massive market interventions. As the housing market improves through 2012, 2013 and 2014, we'll look back at Spring 2012 and dub it the "turnaround".

3 Years Later, Markets Respond To Stimulus

Along with the U.S. economy, the housing market cracked in mid-2007. The government stepped in, adding spot-stimulus where Congress deemed necessary. By mid-2008, though, with the economy still stalled, elected representatives hatched larger, more wide-reaching stimulus plans.
Some programs were passed, many were not. The housing market, though, received its fair share.
Since 2009, in broad categories, the housing market has been subject to (1) Home buyer federal tax incentives meant to spur home buying, (2) Mortgage market stimulus meant to make homes more affordable, and (3) Legislative and judicial efforts meant to promote fair and expedited foreclosures.
It's taken 3 years to take hold, but we're finally seeing results. April's Existing Home Sales data shows how the housing market stimulus has moved the market forward.

The Housing Recovery's Foundation Is Built

There have been tomes written about the housing market's collapse last decade; and who's to blame; and how it happened. Those arguments take a macro approach, focusing on the U.S. economy, the bets of Wall Street and financial instruments known as mortgage-backed securities.
From a micro-angle, the conversation looks different. There were really only two reasons why the housing market tanked between 2007-2010 :

1. Home sellers could not (or would not) sell their homes
2. Self-employed and commissioned workers could not (or would not) get a mortgage

It's these micro-issues that the government attempted to relieve. And, as we're seeing now, those attempts were successful.
When Congress passed the first version of its home buyer tax credit, the credit was for first-time buyers only. The program was meant to add new home buyers to the housing pool, creating demand for "entry-level" homes.
Of course, the sellers of these entry-level homes need a place to live, too. They become what's known as a "move-up" buyer and, in this way, one home sale becomes 2 or 3 homes sold. Real estate is a trickle-up business.
The first-time home buyer tax credit program was deemed effective and was eventually expanded to include buyers of all types -- not just first-timers.
This built the foundation for the housing market's recovery.
And, meanwhile, as this all was happening in housing, stimulus for other parts of the economy were gaining traction.  After a terrible run as a result of the economy, many businesses returned to profitability in 2010 and business spending resumed rising. This reversed the annual income decline that most business owners and commissioned salespersons experienced between 2007 and 2008.
Mortgage underwriters don't like to see declining income. As a result, many self-employed mortgage applicants -- especially the high-income earning households -- found themselves turned down by their respective banks during 2009, based on the adjusted gross income shown on the prior year's tax returns.
The country's move-up buyers, therefore, got stuck. Owners of jumbo and luxury homes couldn't get financing to move out. So, they stayed.
Today, with the economy moving forward, these homeowners can show strong income, and get be approved for their next mortgage. The housing market's ceiling is lifted.

High-Valued Homes Lead The Housing Recovery

When we look at April's Existing Home Sales report in the context of government stimulus, it makes complete sense that home sales in the sub-$100,000 price range fell over the last 12 months but that all other price ranges improved.
Last year, the foundation was built. This year, it's the trickle-up effect.
Move-up buyers are leading the recovery. Higher price points should continue to fare well through the rest of 2012 while lower-priced homes sell well, too, but without the effects of direct market stimulus.

Build Your Housing Budget Using Today's Mortgage Rates

Today's home buyers -- first-time buyer, move-up buyer, or investor -- can benefit from low mortgage rates and a recovering housing market. Home values are higher in many U.S. cities but all-time low mortgage rates have made homes more affordable than ever before.
Even in the jumbo housing market.
To buy a home, get started with a budget. Get today's mortgage rates and know your housing payment.

Where can you afford?

Everywhere you look, mortgage rates are down. Conforming mortgage rates, FHA mortgage rates, USDA mortgage rates and jumbo mortgage rates are each posting all-time lows.Combined with slowly rising home values and an increase in the national median income, for the first time in history, more than 77 percent of home sold were "affordable" for everyday Americans.

Low Mortgage Rates Make For Low Mortgage Payments

According to the National Association of Home Builders, 77.5% of homes sold last quarter were affordable to families earning the national median income of $65,000. "Home affordability" is defined as having housing payments that fall below 28 percent of household income assuming a 30-year fixed rate mortgage and a 10 percent downpayment.
The NAHB's definition of "affordable" is akin to what mortgage underwriters call a "front-end ratio". You can be approved for a mortgage with a front-end ratio north of 28 percent, but it may not be advisable. In defining home affordability in terms of front-end ratios, in other words, the homebuilders' association promotes a conservative approach to homeownership.
That said, home affordability moved to record levels last quarter for three main reasons :

1. Home prices climbed in many U.S. markets, but only slowly. The list of real estate markets experiencing rapid appreciation last quarter was a short list one (e.g.; San Francisco, California)
2. The median income level improved nationally, rising 1% from the quarter prior
3. Most mortgage rates dropped to their lowest levels in history between January-March

Rising home prices are no match for falling mortgage rates with respect to home affordability. So long as mortgage rates stay low, home affordability should remain high.

Cincinnati, Dayton, South Carolina Remain Affordable

Keeping with the adage that all real estate is local, on a regional basis last quarter, home affordability varied.
Cumberland, Maryland topped the national rankings; 99.0% of homes in the Maryland border town were affordable to households earning the median income there. Fairbanks, Alaska followed in the number two slot with an affordability ranking of 98.9%.
Midwestern cities then stuffed the rest of the Top 10 Most Affordable Markets, a list that features Indianapolis, Indiana in the 5th slot for all housing markets, and the top slot for "big cities".
95.8% of homes in Indianapolis are affordable to households earning the median income there.
Other noteworthy cities scored as follows :

• Dayton, Ohio : 93.7 percent
• Lakeland / Winter Haven, Florida : 93.2 percent
• Springfield, Illinois : 92.0 percent
• Cincinnati, Ohio : 90.2 percent
• Columbia, South Carolina : 89.3 percent

On the opposite end on the home affordability scale, the New York-White Plains, New York-Wayne, New Jersey region ranked last in home affordability for the 16th consecutive quarter. Just 31.5% of homes there are affordable to families earning the local median income.

Looking For Low Mortgage Rates?

The housing market has good momentum. Home sales are higher and low mortgage rates deserve at least some of the credit. So does the availability of low downpayment mortgage programs.
The FHA's 3.5% downpayment program, and the USDA and VA programs allowing for 100% financing have both helped keep home buyers in the market. See how today's low rates and low downpayment loans can help you, too.

Can you Qualify for the Lowest of the Lows?

Freddie Mac says mortgage rates are 3.79% nationwide with an accompanying 0.7 discount points nationwide -- an all-time low. Yet, few people actually get that rate from their lender with the same number of points.

What's the real reason why you can't lock Freddie Mac's 3.79% rates?
Turns out, there are 3 of them.

30-Day Mortgage Rates At 3.79%? Only For Some.

Each week, Freddie Mac publishes a national mortgage rate survey. The survey results are based on the mortgage rate responses from roughly 125 banks nationwide. The banks tell Freddie Mac their "going rates" for a 30-year fixed rate mortgage, 15-year fixed rate mortgage and 5-year ARM, and Freddie Mac dutifully reports it to the American People.

Unfortunately, the posted rates make a gross assumption -- they assume a 30-day rate lock agreement between the bank and the customer. And, lately, except for purchase money transactions, 30-day rate lock agreements have been rare.

Few banks are giving 30-day rate locks anymore because it's getting tougher and tougher to close a refinance in 30 days. There are multiple reasons for this, including :
oLow mortgage rates have created a surge in active mortgage loan applications
oNew federal loan compliance regulations have added extra days to underwriting
oThere are fewer appraisers to service a growing number of requests, increasing turnaround times from scheduling to completion.

In addition, banks employ fewer "back-office" personnel as compared to during other growth cycles. In short, people can only work so fast and today's mortgage applications are subject to thorough vetting process. When loan volume's low, banks work through files quickly.
Volume has not been low in 9 months. Mortgage lenders are working through backlogs as best as they can, but until they're caught up, refinancing homeowners in California, Virginia, and everywhere in between will be forced to take 45-day rate lock or, in some cases, 60-day rate locks. These longer rate locks add to mortgage costs, and push mortgage rates up.

The mortgage rate for a 45-day rate lock is typically 1/8 percent higher than for a comparable 30-day; a 60-day rate lock is often 1/4 percent higher.
This is why it doesn't matter than Freddie Mac says mortgage rates are 3.79% nationwide. If your bank can't close a loan start-to-finish in 30 days, your mortgage rate will be higher, or your required discount points will be higher. Period.

What is the FOMC is doing

According to the recently-released FOMC Minutes, the Federal Reserve stands prepared to launch new market stimulus should Europe not contain damage from its current political and economic environment.

Fed : Vigilant On Europe

The Fed Minutes are released 8 times annually -- three weeks to the day after the FOMC adjourns. Fed Minutes are similar to the minutes of a shareholder meeting; or, minutes from your condo board.
For the Fed, Fed Minutes are a follow-up statement; an opportunity to provide additional insight into the mind of the nation's central bank beyond the group's more well-known post-meeting press release.
For example, when the Fed adjourned April 25, it made a press release that totaled 444 words. Its minutes spanned 6,618.
The extra words matter, of course. They are what gives the markets insight into how the Ben Bernanke & Co view the U.S. economy, its strengths and weaknesses, and its threats.
Among today's biggest threats, says the Fed : Europe. If Greece and, to a lesser extent, Spain, trigger a default contagion, it could harm U.S. businesses and the economy. Already, U.S. financial institutions have reduced their exposure in Eurozone nations.

Mortgage Underwriting Harming Housing

In addition to its comments on Europe, the Fed also remarked that the housing market is being "held back" by a glut of distressed properties, and by restrictive mortgage underwriting. Until these hurdles are removed, it's likely that housing market will by suppressed.
Some of the Fed's other comments included :

• Unemployment rates are expected to remain elevated through 2014
• Fiscal contraction is likely in 2012 if Congress can't reach a budget agreement
• The Fed Funds Rate should remain near 0.000% until late-2014

Despite these threats, however, the U.S. economy remains in growth mode and is expanding. Normally, an economic expansion would cause mortgage rates to rise but given the uncertainty that Europe has introduced, and the growing possibility of new, Fed-led stimulus, mortgage rates are sinking.
In jumbo-conforming areas in the western U.S. such as Orange County, California and Honolulu, Hawaii; through to the eastern markets of Miami, Florida and Portland, Maine, conforming mortgage rates continue to drop.
This week, the 30-year fixed rate mortgage made a new, all-time for mortgage applicants willing to pay discount points and closing costs. The published Freddie Mac mortgage rate is now 3.79%.

Check Your Mortgage Rates

The Federal Reserve next meets in three weeks, a 2-day affair scheduled for June 19-20, 2012. Between now and then, mortgage rates will move based on developments in Europe and on changes in the U.S. economy. Rates may rise, or rates may fall. However, today, mortgage rates are as low as they've been in history.
Whether you seek purchase money, a refinance, HARP or FHA Streamline, take a look at today's low mortgage rates. Qualified homeowners stands to save hundreds each month.

Housing is Starting

Slowly and steadily, the housing market plods ahead. In April, for the third-straight month, the data backed up what today's home buyers have already found out -- in many U.S. markets, the bottom is behind us.

Housing Starts Rise For 3rd Straight Month

The Census Bureau reports that Single Family Housing Starts rose 2 percent in April, climbing to 492,000 units nationwide on a seasonally-adjusted, annualized basis.
A "housing start" is defined a home on which ground has broken and, after accounting for the upward revision to March's Housing Starts results, last month's Single-Family Housing Starts marks the third-straight month during which starts have climbed.
In addition, the number of building permits for single-family homes rose, too, in April.
As compared to the month prior, the number of permit issued to build new homes rose 2 percent, notching its second-highest reading since March 2010 -- the month before the end of that year's federal home buyer tax credit.
More than 85 percent of permit-granted homes break ground within one month.

 

Mortgage Rates Ignoring Housing Data?

When the U.S. economy sank last decade, employment and housing were two main casualties. More than 7 million jobs were lost, half of which have since been recovered.
The housing market, however, has a longer climb back. After dropping close to 19% from its April 2007 peak, on a national basis, values have remained somewhat steady. Some markets including San Francisco, California; Phoenix, Arizona.; and Detroit, Michigan have lifted from their respective lows.
Other markets, including Atlanta, Georgia, have failed to make the same bounce.
This is one reason why Wall Street reacts more to jobs data than to housing data -- the jobs market is closer to recovery and its growth is more even. The other reason is Europe.
As Greece, France, and Spain slog through political and economic reform, they've spawned market uncertainty which, in turn, is driving investors to U.S mortgage-backed bonds. Mortgage bonds are viewed as a low-risk investment and a safe place to "park money" when global economies move toward distress.
In most months, the strong showing in U.S. Single-Family Housing Starts would lead all types of mortgage rates higher -- conventional mortgage rates, FHA mortgage rates, VA mortgage rates, and for jumbo loans, too. This month, though, with the future of the Eurozone uncertain, mortgage rates are slipping.

 

Check Your Housing Budget With A Real Mortgage Rate

Whether you're buying new construction, or buying an "existing home", you'll want to know what the home will cost you monthly, and to do that, you'll need a legitimate mortgage rate quote.
With mortgage rates low and low-downpayment programs including the FHA's 3.5% program for purchases up to $729,750, and the USDA's 100% program in qualified suburban and rural markets, you may find home affordability surprisingly high. Get started with a rate quote.

Builder Confidence Rising

Buyers of new construction are on the clock. With builder confidence rising and new home sales expected to pop, the best time to buy a new home this year may be right this very minute.

Builder Confidence At 5-Year High

After a seasonal dip in April, the National Association of Homebuilders reports that the May Housing Market Index rose 5 points to 29.
The 5-point jump marks the sharpest one-month climb for homebuilder confidence in close to 10 years.
It also raises the benchmark index to a 5-year high.
As an index, the NAHB's homebuilder confidence report is scored from 1-100. Readings north of 50 indicate favorable conditions for builders. Readings south of 50 indicate unfavorable conditions.
The HMI has been below 50 since April 2006. It's never been higher than 78 (December 1998).

Buyer "Foot Traffic" Soaring

The Housing Market Index is different from most home market statistics in that it's a psychological reading as opposed to a physical one. It doesn't measure actual homes sold but builders' expectation for how many homes will sell.
The HMI is a composite of three separate surveys sent to NAHB members. The survey questions are as follows :

1. How are market conditions for the sale of new homes today?
2. How are market conditions for the sale of new homes in 6 months?
3. How is prospective buyer foot traffic?

Based on the responses from homebuilders, the Housing Market Index is scored.
This month, builders are reporting strong improvement across all three surveyed areas. Current home sales are up 5 points from April; sales expectations for the next 6 months are up 3 points form April; and, perhaps most importantly, buyer foot traffic is up 5 points from April and is now its highest point since 2007.
Higher "buyer foot traffic" tells us there's an increased demand for new construction -- the highest in 5 years, actually.

Buying New? Find Your Mortgage Budget.

With buyer traffic up and home supplies down, new construction prices appear set to rise later this summer. And, although builders aggressively compete with home resales and foreclosures for today's home buyers, don't expect to buy a home on a steal.
Builders know their market and price it right.
The good news, though, is that mortgage rates remain low and low downpayment programs are plentiful. In addition to the FHA's 3.5% downpayment program, the VA and the USDA both offer 100% financing to home buyers who meet underwriting criteria.

Have you seen today's mortgage rates?

Harp 3.0 Framework

 

Since 2009, the Congress, FHFA and the FHA have introduced and/or improved a myriad of homeowner-friendly mortgage programs including the HARP refinance, the FHA Streamline Refinance, the USDA Streamline Refinance and other low-equity loan terms.
Just because the government creates a mortgage program, though, that doesn't mean that mortgage banks will adopt it.
HARP 2.0 was an attempt to get additional mortgage lenders to participate in the HARP mortgage program. Now, the White House is requesting a second round of updates to Home Affordable Refinance Program.
It's the refinance program that would be known as HARP 3.0. The proposed changes to HARP are sensible and would render millions more U.S. households HARP-eligible.
A few of the proposed changes to HARP for HARP 3

• Extend the HARP eligibility date from May 31, 2009 to May 31, 2010
• Require Fannie Mae and Freddie Mac to remove barriers to competition among lenders by requiring the same streamlined underwriting process for "new-servicer" loans as "same-servicer" loans.
• Eliminate employment and income verification completely
• Sanction second lien holders which fail to subordinate to a HARP first mortgage
• Sanction mortgage insurers which refuse to transfer existing mortgage insurance coverage to a new loan
• Extend the loan-to-value range for certain HARP loan types
• Prohibit risk-based pricing adjustment on Fannie-to-Fannie loans, and Freddie-to-Freddie loans

Under the proposed terms for HARP 3, a HARP homeowner could, theoretically, receive a pre-approved mortgage application by mail or secure email, which would only require signatures for a final approval. The HARP mortgage approval process would, truly, be a streamlined one.
HARP 3 is just in discussion phases now and, if it passes, its final form may not resemble the loan described above.

FHA New Rules

For certain FHA-backed homeowners, refinancing via the FHA Streamline Refinance program is about to get a lot less expensive.
Beginning June 11, 2012, the FHA implements a new policy for its mortgage insurance rates.

Millions Of FHA Homeowners Now Eligible

FHA mortgage rates have been steadily falling. Unfortunately, the FHA mortgage insurance rates have not. Today's FHA homeowners pay up to 1.50% in annual mortgage insurance premiums -- triple the rates that FHA-backed homeowners paid just 4 years ago.
For new FHA homeowners -- the ones using the FHA's low downpayment mortgage program, for example -- the FHA's rising mortgage insurance rates are a nuisance more than anything else. High insurance premiums are the price you pay for getting access to a mortgage with just 3.5% down.
But, for homeowners already with the FHA, rising mortgage insurance rates have made it exceedingly difficult to qualify for the FHA Streamline Refinance, the FHA's "no appraisal needed" refinance program. This is because the program rules state that a mortgage applicant's mortgage payment fall by at least 5% in order to qualify for the FHA Streamline Refinance.
"Mortgage payments" are defined as (1) monthly principal + interest payments, plus (2) monthly mortgage insurance payments.
Principal + interest payments have dropped significantly since 2008, but rising mortgage insurance rates have negated these effects. Making that 5% savings marker has become exceedingly difficult. Potentially millions of FHA-backed homeowners have been heretofore eliminated from the FHA Streamline Refinance program and from access to today's low rates.
For long-time FHA-backed homeowners, that's all changing.

"Grandfathered" FHA Mortgage Insurance Premiums

June 11, 2012, the FHA introduces a new mortgage insurance premium schedule for long-time, FHA-backed homeowners.
If your current FHA mortgage was endorsed by the FHA prior to June 1, 2009, you are eligible for the FHA's "grandfathered" mortgage insurance premiums. The new premiums are dramatically lower than the premiums paid by today's new FHA customers.
For eligible homeowners, the new FHA MIP schedule is as follows :

• All loans : 0.01% upfront mortgage insurance premium
• All loans (except 15-year fixed with LTV of 78% or less) : 0.55% annual mortgage insurance premium
• 15-year fixed with LTV of 78% or less : No annual mortgage insurance premium

As a real-life example of how the new FHA mortgage insurance premiums work, a homeowner in Chicago, Illinois with a $400,000 mortgage from 2008 could refinance under the new FHA Streamline Refinance program, paying just $40 in upfront MIP and $183 per month in annual MIP.
This is a huge savings over the FHA's current MIP schedule which would require $7,000 to be paid in upfront MIP and $417 per month in annual MIP.
With the grandfathered FHA Streamline Refinance schedule, there are no other fees, no other adjustments, and the terms are available to all FHA-backed homeowners whose mortgages were endorsed prior to June 1, 2009.
Mortgages endorsed post-June 1, 2009 are subject to the current FHA mortgage insurance premium schedule.

Don't Wait Until June 11. Start Today.

The FHA's new mortgage insurance premiums go into effect June 11, 2012. However, you don't need to wait until June 11 to get your loan application started. You can start your loan application today, and lock your mortgage rate, too.
You'll be among the first in the country to use the FHA's new, lower MIP schedule. And you'll get today's great rates. Get started with a rate quote and see what lower MIP can do for you.

Which loan is right for you?

Two Main Mortgage Types – Fixed & Adjustable

When selecting an appropriate mortgage, it generally comes down to two main choices. Fixed or adjustable. A timeless question to be sure.

Do you go with the relative safety of a 30-year fixed-rate mortgage, or do you try your luck with an adjustable-rate mortgage?

Well, the answer depends on your unique financial position, the state of the economy, and your own individual risk appetite.

If you’re the type that likes to play it safe, a fixed-rate mortgage is probably the best choice.

With a FRM, you won’t have to worry about the interest rate changing throughout the life of the loan, which means you won’t ever see your monthly mortgage payment increase.

This is certainly great peace of mind, but you do pay a bit of a price for it.

Currently, mortgage rates on 30-year fixed loans are hovering around 4%, while 5/1 ARMs are pricing about a percentage point lower.

That brings us to adjustable-rate mortgages. These days, most ARMs are in fact hybrid ARMs, meaning they’re fixed for a certain period of time before becoming adjustable.

One of the most popular ARMs is the 5/1 ARM, which is fixed for five years and adjustable for the remaining 25 years.

This means you get five years of absolute certainty, followed by 25 years of the great unknown.

Of course, you get a “discount” for taking on that risk, in the form of a lower mortgage rate. However, the big question is whether it’s worth it.

Again, this depends on a number of factors.

Some Reasons Why You Might Go With a Fixed-Rate Mortgage

• You are risk-averse and don’t want to stay up at night worrying about your mortgage rate rising.
• You can’t handle a larger monthly mortgage payment if your mortgage rate adjusts higher.
• You plan to stay in your home for the long-haul and pay off your mortgage.
• Mortgage rates are low so locking in a fixed-rate now will save you money long-term.

Some Reasons Why You Might Go With an Adjustable-Rate Mortgage

• You don’t plan on staying in your home for a long time (you may move or upgrade).
• You think mortgage rates may hold steady or drop in the future, allowing you to refinance to a lower rate later on.
• You don’t want to pay off your mortgage because you think you can do better investing your money elsewhere.
• Your interest rate could actually drop when it adjusts. Rates move up and down.

What Mortgage Term Do You Want?

Once you’ve decided on a fixed-rate or an adjustable-rate mortgage, you’ll need to decide on a mortgage term as well.

If you want to pay off your mortgage early, a 15-year fixed could be the best choice for conservative borrowers with deep pockets.

The payment will be significantly higher, but you’ll pay a lot less in interest and own your home free and clear a lot sooner.

If you’re not quite convinced an ARM is for you, take a look at longer-term ARMs, such as the 7/1 and 10/1 ARM, which are fixed for seven and 10 years, respectively, before becoming annually adjustable. That way you get the best of both worlds.

So there you have it – a primer on what mortgage you should pick and why.

Remember, this is a huge financial decision, and should go well beyond reading one article. Sit down and compare all available options. Do the math. Do your homework. Make a plan. And SHOP AROUND!

Tips for First Time Home Buyers

 

 

Tips for First Time Home Buyers

So you’re thinking about buying your first piece of real estate? Congratulations!
But before you even begin to comb through real estate listings, you need to make sure you can actually qualify for a mortgage. And the best way to do so is by getting pre-qualified/pre-approved.
That said, the following are some useful “tips for first time home buyers” and seasoned buyers alike to ensure you qualify for the best mortgage possible:

Check Your Credit!

The first thing any potential homeowner should do is obtain a free credit report, either from AnnualCreditReport.com or via a free trial website.
The latter actually provides a credit score so you can see where you stand (what credit score do I need to get a mortgage?). The first link only provides your credit history, which is useful, but you shouldn’t go into a mortgage without knowing your credit scores too.
Once you’ve got your credit report at your fingertips, analyze it and determine what your monthly expenditures are. You will see a monthly payment next to each liability on the credit report. Add up all those payments and jot it down somewhere. These are your total monthly liabilities and will be important when determining how much house you can afford.
Also scan the credit report for derogatory accounts and clean them up as best you can. If you’ve got delinquent accounts, resolve them. If you see collections/charge-offs, call the associated creditors and ask to get them removed (or dispute them online). If everything looks good, you can move on. If not, you may want to work on your credit before applying for a mortgage.
A credit score of 620 or higher is probably the minimum you’ll need before beginning your property search. Just know that the lower your credit score, the higher your mortgage rate, assuming you are able to qualify at all.
*One important note: Do NOT open any new credit accounts or make any large purchases using your credit cards within a few months before applying for a mortgage. This includes buying that plasma screen on a Best Buy card for your new crib. It can drive your credit score down needlessly which will result in a much higher interest-rate.

See What You Can Really Afford

Now that you’ve got your credit in order, it’s time to figure out how much you can afford. Most banks and lenders allow borrowers to have a debt-to-income ratio up to 45%, though that number has probably dropped post-mortgage crisis. Read more about debt-to-income ratios.
By taking your total liabilities and adding it to a monthly housing payment, and dividing that number by your monthly gross income you’ll come up with your DTI ratio.
Let’s look at an example:
$10,000 monthly gross income
$1,500 total monthly liabilities
We know from the above example that your total monthly payments can’t exceed $4,500, or 45% DTI based on your $10,000 gross monthly income.
So if you already have $1,500 in total monthly liabilities, you can add a housing payment of $3,000 a month. That doesn’t leave much room in this market.
Let’s look at the same example with a housing payment, including taxes and insurance, based on California rates:
$550,000 purchase price
$440,000 loan amount
6.25% interest rate

Bankrate Daily Mortgage Rates

Mortgage Payment:
$2291.66 monthly interest-only payment
$572.92 monthly taxes
$128.33 monthly insurance
$2,992.91 total monthly housing cost
In the above scenario, a prospective homeowner making $10,000 in gross income a month can barely afford a $440,000 loan making just the interest-only payment. What does this tell us?
It tells us that there are a ton of homeowners out there living paycheck to paycheck and overstating income to qualify for homes they simply can’t afford. At least not in the eyes of banks and lenders that require borrowers to keep their DTI below 45%.
So now you’ve got an idea of what you’ll be able to afford. There are a number of mortgage calculators out there that will give you a better idea of what you can qualify for.

Document Rental History and Assets

Now that you’ve got your credit profile in check and you know what you can afford, you’ll need to make sure you’ve got a verifiable housing history and seasoned assets.
Most lenders ask that you verify your last 12 months housing history. You can do this with cancelled checks or a VOR (Verification of Rent) from your landlord. This is important to determine the payment shock effect on the borrower.
Liquid assets are always helpful when applying for a loan, and are almost always a necessity for a first-time homebuyer. Make sure you have an account with at least two months PITI (Principal, interest, taxes and insurance) available.
Also make sure the money in said account has been there for at least two consecutive months to ensure that it is seasoned. Banks and mortgage lenders don’t give much weight to unseasoned assets, as any friend, relative, or even a mortgage broker or loan officer can easily dump assets into your account before you apply for a mortgage to boost your net worth.
Now that you’re prepared, it’s time to be vigilant and proactive. Avoid predatory lenders and do your interest rate homework. Check out a rate sheet from the bank or lender that you’re being quoted from. Ask what the interest rate adjustments are. Ask if the loan carries a prepayment penalty and for how long? Get all the facts before you sign anything. And once you like it, lock it!
With all this preparation behind you, the loan flow will be a comfortable process with few surprises. It might not be perfect, but if you follow these rules you will definitely save money and reduce stress!

Let’s review the tips for first time home buyers in a condensed format:

• Order a free credit report and view your credit scores
• Review your credit and clear up any derogatory accounts
• Do NOT open any new credit accounts or make any large purchases
• Calculate your total monthly liabilities
• Figure out your DTI and what you can afford
• Make sure you have a 12-month verifiable housing history
• Make sure you have a seasoned asset account with at least 2 months PITI
• Do your interest rate homework
• Get pre-approved

How to Qualify for a Mortgage?

 

How to Get a Mortgage

Mortgage Q&A: “How to get a mortgage?”

If you already know what a mortgage is, you may be wondering how to obtain one. In short, a mortgage is just another way of saying a home loan.
Mortgages serve different purposes – some are used for the purchase of a home and others are used to refinance an existing mortgage. You may even open a second mortgage behind an existing mortgage to tap into the equity of your home (home equity line of credit).

Can You Afford a Mortgage?

Either way, the first step to getting a mortgage is figuring out how much you can afford, or if you even qualify.

The best way to accomplish this is by figuring out your debt to income ratio. At the same time, you’ll want to organize all your assets and take a hard look at your credit score to make sure it’s in good shape.


Once you’ve done all your homework, you can start looking for a a bank, mortgage lender, credit union, or mortgage broker to work with.
They can get you pre-qualified to help determine how much you can borrow and at what interest rate, at least a ballpark. If the mortgage is for a purchase, you’ll also need to get pre-approved to show the home seller (and their real estate agent) that you’re a serious candidate (pre-qualification vs pre-approval). They surely won’t want to waste their time with ineligible borrowers.

The Mortgage Loan Process

Once you’re actually ready to apply for a loan, the bank or mortgage broker will pull your credit and ask you to provide documentation for the loan.
In return, they are required to provide you with a Good Faith Estimate and Truth in Lending disclosure within three days of loan application. This is essentially a loan summary and an estimate of the charges you’ll incur upon settlement of your loan.

Bankrate Daily Mortgage Rates

After everything is submitted, it will take anywhere from a few days to a couple weeks to get a decision on your loan. Generally it doesn’t take too long, but after the mortgage crisis, things got a little backed up.
Assuming you get approved, you’ll be issued a loan approval with a list of conditions that must be met before loan documents are released. Once you satisfy these and receive your loan documents, they must be signed and a list of funding conditions must also be met. Once they are satisfied, your mortgage will fund. Yes, it sounds like a lot, and it is, but mortgages are no joke folks.
If for some reason your loan application is declined, you can make an appeal with the bank that denied you or apply elsewhere. In some cases, you may need to restructure the loan or simply wait until your credit/asset/employment outlook improves. Not everyone is eligible for a mortgage…

Where to Get Your Mortgage

I’d guess that most prospective and current homeowners seeking a mortgage would go to their bank or credit union first. After all, if you keep your money with them, there must be a certain level of trust and some kind of relationship.
That relationship could equate to savings and special deals on a mortgage, and perhaps a streamlined process. If they already have information about you, they may be able to assess your borrowing profile more easily, and get you an answer sooner.
However, a bank or credit union is only as good as the loan programs it offers. In other words, you’re stuck with whatever they’re selling. This might mean you can only get a fixed-rate mortgage or the loan-to-value may be capped at 80 percent.
If you want more options, consider a mortgage broker. They work as middlemen between banks and borrowers, and can offer loan programs from an infinite number of lenders. For example, a mortgage broker may be able to get you mortgage rate quotes from Bank of America, Wells Fargo, Chase, and many others. Then you can compare them all side by side.
To ensure you don’t miss out on anything, you can speak with both your local bank/credit union and a mortgage broker (or two). And grab a quote or two online while you’re at it. That way you can compare mortgage rates, programs, closing costs, and more to determine which is best for you.

Credit Matters Period.

 

 

Credit Score Still the Main Concern

If you’ve got a 620 Fico score, you’ve got bad credit. There’s really no way around it. It’s not awful credit, but it’s about 100 points shy of the American average, and not far from being abysmal.
Still, the FHA may still consider you for a mortgage if a subprime lender won’t.
In fact, many banks cited borrowers having higher costs and/or greater difficulty in obtaining mortgage insurance coverage as a top factor contributing to the reduced appetite for such loans.
But even with a 20% down payment, bankers still indicated that they were much less likely to extend home loans to borrowers with 620 Fico scores.
So it appears as if a prospective borrower’s Fico score is more important to bankers than their down payment.
By the way, the higher risk of putbacks of delinquent mortgages by the GSEs was listed as the most important factor in not wanting to originate such loans.
Another common issue was the less favorable or more uncertain outlook for home prices and the economy.
If a homeowner puts next to nothing down and their home’s value abruptly slips, they could fall into an underwater position. And that would increase the likelihood of default.
Additionally, bankers noted that the current spread of mortgage rates over the cost of funds has been insufficient to compensate for risk, which may explain why rates aren’t as low as they technically could be.

HARP 2.0 Happening

Finally, roughly a third of bankers said they were actively soliciting HARP 2.0 applications, and were satisfying most demand for the negative equity loans.
Most expect about 60 percent or more of the loans to get approved and eventually fund.
However, half of the respondents said they had very little program participation.
And roadblocks are a plenty. There are putback risks, mortgage insurance transfer issues, and difficulty in identifying and subordinating existing second mortgages.
But it’s good to see that the program is actually off the ground and expected to help some people.