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.