November 1, 2018 by

A new law recently took effect allowing consumers to freeze and unfreeze their credit with the three main credit bureaus – Equifax, Experian and TransUnion. The push for this changed started in 2017 with the the massive data breach at Equifax, which exposed the personal information of more than 145 million consumers to hackers.

What is a credit freeze? When a consumer “freezes” their credit, they have essentially locked their credit. No one (not a person, bank, car dealership, etc.) can access a consumer’s credit while frozen. This means new credit accounts cannot be opened, and is the surest way (not a 100% guarantee) to prevent fraud. Freezes can become problematic when a consumer needs to apply for credit as one has to go through the process of unfreezing their credit before applying.

The change was put in place by the Economic Growth, Regulatory Relief, and Consumer Protection Act signed into law earlier this year. Before the change, every state had their own rules about credit freezes. It could cost as much as $10 to freeze (and throw on another $10 to lift a freeze) one’s credit. The days of fees are gone. Some other highlights of the new law:

  • As discussed, consumers can now freeze and unfreeze their credit for free.
  • Parents can put a freeze on their children’s credit for free (applies to children under 16).
  • Guardians, conservators, and those with a valid power of attorney can also get a free freeze for their dependents.
  • Fraud alerts placed on a consumer’s credit file will be extended from 90 days to one year.

It hopefully just got a little more difficult for scammers to abuse someone’s credit information! How to put a freeze on your credit? Consumers must contact each of the three major credit agencies independently to place a credit freeze on their accounts.

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Cash Out Refi or HELOC – Key Questions

October 25, 2018 by


 

 

In the last post we covered the fact that American households have over $6 trillion of accessible home equity and described the two main ways home owners can access that equity – a cash out mortgage refinance and a home equity line of credit (HELOC).  I promised to make my recommendations on which option is best for a home owner, based on a set of questions.  You will find my recommendations below:

Question #1:  Do I want a fixed payment, or can I live with changing interest rates and payments?  Recent economic conditions show rising interest rates.   HELOC accounts typically carry a variable interest rate that increases as market interest rates increase and decrease as the market decreases.  Borrowers obtaining a cash out mortgage refinance often secure fixed rate mortgages, so the payments do not change over time.  Which do you prefer?

Question #2:  Am I disciplined to proactively pay down my loan over time, or will I only make minimum payments?  HELOC accounts typically require interest-only payments.  If you only plan to make the minimum payments, you may be surprised in a few years when your HELOC account matures and the bank expects you to pay off the remaining account balance.  If you will proactively pay down the balance, you will not have this surprise.  Refi mortgage payments fully amortize over the loan term, so your monthly payment always includes a principal component.  And when you make the last payment, your original loan balance will be fully repaid.  Which option is best for you?

Question #3:  How much money do I need, $100,000 for a home renovation or $10,000 for a home repair?  In short, if you do make extra principle payments, how long will it take you to repay the loan balance?  The lower the amount and the faster you repay it, the less likely increasing interest rates will burst your budget.  If you need a renovation amount of cash, selecting the long-term fixed mortgage rate may be a better option since it provides a fixed payment over a long time period.

Question #4:  Why do I need access to my home’s equity?  In my opinion, home renovations, repairs, and debt consolidations serve as good reasons to tap home equity.  These are steps that ultimately increase your equity or improve your overall financial position.  To me, that’s a wise use of your home equity.  On the other hand, tapping home equity for expendable items or vacations may not be the best use of a home’s equity.

Do you have a friend pondering whether to access their home’s equity?  Please refer them to me.  I will ask them these questions (and more) and coach them to make the best decision for their own unique circumstances.

Is Your Home Your Piggy Bank?

October 18, 2018 by

A recent study shows that for the first time ever, accessible (or “tappable,” the term used by the study) US home owner equity has exceeded $6 trillion.  The number of home owners with equity that they can access has reached about 44 million.  In the first half of 2018, this tappable home equity increased by about $636 billion.

Ultimately this means that many Americans can utilize their home equity to fund home renovation projects, cover education costs, consolidate higher-interest debt, or fund other household needs.  Americans typically access their home equity in one of two ways, a home equity line of credit (HELOC) or doing a cash out refinance on their entire mortgage.  Here are some costs and benefits of each option:

Cash Out Refinance:

  • Interest rate is typically fixed.
  • Fully amortizing – some of each monthly payment is principal.
  • Pays off existing mortgage so borrower starts with a new loan term and interest rate.

HELOC:

  • Variable interest rate.
  • Interest only payments – balloon due at end of loan term, often 10 years
  • Lower closing costs than a cash out refinance.
  • Does not change your current mortgage interest rate or amortization term.

So which option is best you ask?  Well, that depends considerably on the home owner’s circumstances.  As a mortgage lender, here are some questions I think a home owner should ask him / herself to help determine which option is right:

  • Do I want a fixed payment or can I live with changing interest rates and payments?
  • Am I disciplined enough to proactively pay down my loan quickly, or will I only make minimum payments?
  • How much do I need?  $100,000 for a home renovation or $10,000 for a home repair?
  • Why do I need to access my home’s equity?  Is the reason really worth tapping my equity?

Answers to these questions form the basis for a home owner’s decision.  In the next post, I will opine on my preferred options based on these questions, and give a recent client scenario.

Do you have a friend considering a renovation or needing funds for a child’s education in the next 3 months?  Please refer them to me.  I will ask them these questions and coach them to make the best decision for their own unique circumstances. 

 

Mortgage rates rise again

October 16, 2018 by

Mortgage rates are on the rise (from the dead?!? 🎃🎃🎃Happy Halloween! 🎃🎃🎃) again in the month of October. Mortgage rates jumped sharply to yearly highs and to levels not see in over seven years. Mortgage rates for a 30 year fixed loan are nearing 5%. What is going on!?!

Mortgage rates rising can be scary!

A year ago, mortgage rates were just under 4%… that is about a full point lower than they are today. I know what a lot of people think… “it is because of the Federal Reserve raising rates.” Not exactly.

The Federal Reserve raised rates three times so far this year at 0.250% each time. That means the Federal Funds Rate is up 0.750% on the year, but mortgage rates are up almost 1%. Why the difference?

  • the Federal Funds rate directly impacts the rate on second mortgages, car loans, credit card rates, etc.
  • bond values – specifically mortgage backed security bonds (or MBS bonds)- impact rates for first mortgages. As these bond values decrease, mortgage rates increase.

That is what we’ve seen this year. Stocks are up on the year, the economy is better, and MBS bond values are down… meaning, higher mortgage rates. Remember the reason we saw all time historic lows for mortgage rates was two-fold.

First, the economy went through the Great Recession. In this environment, investors move money out of stocks and into bonds. The more money into bonds mean those values go up, and mortgage rates go down. As the economy improved, more money is going into stocks and out of bonds (bond values drop and mortgage rates rise).

Second, the Federal Reserve purchased bonds (quantitative easing or QE) to help push rates down to stimulate the housing market. The economy is now doing well, the Federal Reserve ended QE, and the Feds are now selling off some of the bonds they bought during QE. All of the factors pushing rates to historic lows are gone, and the current environment on rates is pushing them up. This trend doesn’t look like it will change anytime soon.

What can we expect? Earlier this year, mortgage rates jumped 0.75%, but recovered about half of those losses. We can expect to see some market fluctuations, and possibly some positive improvements in mortgage rates. Those looking for rates to get below 4% again? Those days are long behind us now, and probably not returning anytime soon.

Worried about rates going up even more? Considering buying a home but waiting for the right time? If you are buying in Georgia, contact me today. Let’s talk about what buying a home would look like for you, and see how the current dynamics in play will impact your next home purchase.

The end of the seller’s market

October 2, 2018 by

I know it seems we are stuck in a seller’s market. It feels like an eternity at this point! I’ll be back to that theme in a moment, but right now… If you have been putting off buying a home because of fierce competition, now is a good time to look at the market again. Homes are staying on the market longer now than they have all year. There are fewer buyers out looking to purchase a home. This is the best opportunity for buyers so far in 2018!

Regarding 2018 as a whole though, and back to the theme of this post, there are too few homes on the market for the number of buyers wanting to own a home. Sellers tend to receive multiple offers, and can be picky when it comes to whom they choose to sell their home. According to a recent study by Zillow, the market will balance out in the near future.

Zillow’s study says there are signs that the inventory levels are beginning to get better (as I mentioned above), but the country is still dealing with the fallout of limited new construction over several years during the Great Recession. Expect to see conditions continue improving over the next year, and around 2020, Zillow expects the market to become a buyer’s market again. By then, Zillow expects new construction will have caught up to demand. As people move from their existing homes into the new construction, it will put more homes on the market for other people to buy/enter the home ownership market.

It is coming… not as quick as we may like it, but a more balanced market is on its way. In the meantime:

  • Remember there are a lot of myths out there when it comes to buying a home. For example, you do NOT need 20% down to purchase a home. For more on this, check out my previous post.
  • There are things buyers can do to make their offers more competitive. For more on this, check out Rodney Shaffer’s recent post.

Better days are coming, but that doesn’t mean you have to wait another year. If you are buying in the state of Georgia, contact me today. I can help you get prequalified to purchase your home, and we can discuss the variety of options to make your offer more competitive in this market.

 

Atlanta Home Market Update

September 26, 2018 by


A new report on the Atlanta housing market shows a significant decline in home sales, year over year, along with a much greater decline in Atlanta home sales as compared to the national housing market.  The number of August Atlanta home sales declined 7.1% from 2017 to 2018.  The national decline in home sales was only 1.1% for the same period.  The data shows varying results for different parts of the metro area:

  • Cobb County sales declined 9%
  • DeKalb County sales declined 8%
  • Clayton sales declined 17%
  • Gwinnett County reported a more than 10% sales decline
  • On the other hand, Fulton County sales increased 14%

Atlanta home prices continue to increase, even while the number of sales decrease.  One example of this is the Old Fourth Ward section of Atlanta.  From 2017 to 2018, the number of home sales declined 19%.  But at the same time, average prices in the Old Fourth Ward have risen by about 35%.

Atlanta’s housing challenge is an inventory shortage, especially at the lower end of the home price spectrum.  ReMax reported that the supply of homes listed for sale in metro Atlanta was down 13% in August as compared to August 2017.  Ultimately, buyers compete against each other for desirable homes and this forces prices up.

From my experience, it seems that homes priced under $300,000 have seen strong competition this year.  One client found a home priced around $260,000 in an attractive Gwinnett neighborhood.  My client’s offer was one of about 20 offers on this one house.  Some Realtor friends have told me about making offers on Atlanta condos where the listing agent received 12 – 15 other offers.

It is very tough for buyers to compete in this market.  I have several clients who have decided to put home ownership on hold until 2019.  It takes patience and persistence to keep going.

For pointers on how a lender can help a buyer compete, see this prior Mortgage Blog post:  https://wp.me/p1Gub-YJ.  Buyers should talk with Realtors about other ways to make their offers more attractive.  Effective ideas include:

  1. If cash is available, the buyer can offer to pay the purchase price regardless of the property’s appraised value.
  2. The buyer must have a flexible schedule to visit homes and make offers right when they hit the market.
  3. The buyer can consider writing a personal note to the seller explaining why the house is perfect.  (I’ve seen this work before.)

Experienced Realtors can offer more effective tips for winning the contract.  If you have a friend or coworker wanting to buy a home in Atlanta, ask if they want their lender to help them beyond financing a house by helping win the contract.  Then refer them to me.  We at Dunwoody Mortgage will do all in our power to help them win the contract and close on the purchase, and we will do it quickly too.


Credit scores on the rise

September 11, 2018 by

Some consumers credit scores are going up! A recent overhaul in the way the major credit bureaus factor in negative credit information is prompting millions of consumers’ credit scores to rise. The main reason? The removal of some collection items.

Over the past 12 months, collection items were removed from eight million consumers’ credit reports. The NY Federal Reserve said consumers who had at least one collection item/account removed from their credit reports saw on average an 11-point increase to their scores. Why the change in collection items being part of the credit score? Some collection categories often have mistakes/errors that lower potential buyers credit scores and keep them out of the borrowing market.

The three main bureaus (Equifax, Experian PLC, and TransUnion) all agreed to rework credit reports reports stemming from a 2015 settlement. In the settlement, some of the collection items removed were non-loan related items such as gym memberships, library fines, traffic tickets, and some instances of medical debt. This change would not include credit cards or loan related accounts. Those type of accounts that enter into a collection category will still negatively impact a potential home buyer’s credit score. any firms agreed to remove some non-loan related items that were sent to collection firms, such as gym memberships, library fines, and traffic tickets. They also agreed to strike medical-debt collections that have been paid by a patient’s insurance company. According to an article in the Wall Street Journal, those seeing the biggest boost to their credit scores are those with a score in the mid 600s.

This is a great move by the credit bureaus. Sometimes it is easier to prove that one owes money with the account in good standing, and harder to prove one no longer owes a debt. Some debts such as tax liens, credit card collections, back taxes, car/student loans in default, etc. are easier to prove the debt is actually in arrears. Arguing about a library account in a city one may have lived in 5 years ago becomes troubling and difficult to prove. While these accounts aren’t being removed from a credit report/history, they are being ignored when it comes to producing the credit score.

How the Lender Can Help Win the Contract

August 14, 2018 by


The last post covered reasons why we have such a sellers’ market in Atlanta real estate.  Now let’s cover how a lender can help win a contract.  We lenders have a few ways to help strengthen our buyers’ offers relative to competitors.

Firstly, many listing agents prefer to work with local lenders rather than the national and online lenders.  The Realtors also like the ability to communicate with local lenders – they can call us with any issues or questions and often get a faster response than with a national lender.  I once had a Realtor who was listing a home tell me, “We chose your client’s offer because they had a letter from you, and we know that you would make the closing happen on time.”  Trust is important and we local lenders work hard to build that trust in our markets.

Secondly, when my clients make an offer, sometimes the listing agent will call me to verify the information provided in the prequalification letter.  I’m always happy to talk with the agents, and I use this as a chance to actively promote my client’s strengths.  I once took a call from a Realtor on the Saturday of a holiday weekend.  When I answered she immediately responded, “Oh thank goodness!  A lender who works Realtor hours not bankers hours.”  We can be available on weekends and in the evenings to help our buyers.  I have volunteered to proactively call listing agents on my client’s behalf.  It helps to promote my client’s strengths.

The most powerful way a lender can help a buyer win a contract is to underwrite the buyer with a “to be determined” property — before the buyer actually makes an offer.  We fully underwrite the buyer, but without the property-specific details.  So there’s no appraisal, no title work, etc. (until a house is under contract).  This gives the ability to provide a letter stating that underwriting has already approved the borrower.  It also allows us to shorten the closing timeframe (since we don’t have to underwrite the buyer again) and potentially eliminate the financing contingency, which is standard on most home purchase contracts.  Having underwriting approval positions the buyer strongly relative to other offers with only prequalification letters.  The only offer stronger is a cash offer.  In competitive markets expecting multiple offers on listed homes, this approach can position the buyer to better win.

If you have a friend or family member who has been making home purchase offers and is frustrated about not winning, have them contact me.  We at Dunwoody Mortgage will do everything possible (from a lender perspective) to help them win.

 

Government impact on housing

August 7, 2018 by

Sometimes the government gets involved in areas, and things get worse. Here is one area where inaction would be really bad – flood insurance.

On the last possible day, Congress avoided a lapse in the federal flood insurance program when the Senate voted to extend the program through the end of November. The National Flood Insurance Program would have expired July 31 without this action. So the program has been extended, but still doesn’t include any reforms to the program. Despite years of debate and proposals to reform the program, reforms have stalled. In lieu of any changes, Congress has kicked the can down the road another few months. We’ll get to do all of this again in a few months.

This isn’t a case of “they’ll do anything to prevent a lapse of flood insurance coverage.” Congress has let the national flood insurance program lapse some in the past few years. Here is hoping the next change/extension/reform won’t be at the very last minute, but something tells me it will be.

In other mortgage news from the government, it appears the current set up for FHA mortgage insurance will remain the same. There will be no decrease in the monthly premium AND the insurance will still be permanent for the life of the loan.  FHA’s insurance program works differently from private mortgage insurance, which typically falls off after a certain amount of time.

The FHA’s policy wasn’t always this way. The FHA’s previous policy required borrowers to pay mortgage insurance premiums until the outstanding principal balance reaches 78% of the original home value, but the FHA instituted the life of loan policy back in 2013. This action was part of the effort to improve the status of their mortgage insurance fund. While there were some good years of rebuilding the fund, the decline of the funds balance in 2017 caused FHA to pause in potential changes to mortgage insurance.

Currently, the mortgage insurance is so high on FHA loans that it rarely makes sense for a borrower to consider using an FHA loan unless they have really low credit and/or a very high debt threshold. Good credit, low debt, but short on the down payment? Conventional loans allow only a 3% down payment (compared to FHA’s 3.5% down payment). Hopefully FHA can update their mortgage insurance policy in the near future to provide more options for well qualified borrowers.

Looking to buy a home before the end of the year? Ready to have a new home for the holidays?!? If you are purchasing in Georgia, contact me today. I’ll get you ready to make an offer in one quick phone call.

A Seller’s Market – Thoughts on Why

July 26, 2018 by


The seller’s market continues on in the Atlanta area.  I have recently heard Realtors talking about their clients making offers on homes that have 12 – 15 competing offers.  One Realtor friend told me about a home that he listed last December.  The Realtor did painstaking research on the neighborhood and comparable properties.  The analysis said a fair price was $299,000.  The winning offer was $355,000!  That’s about 18% over the asking price.

So how did we get to this point?  According to a recent Wall Street Journal article, one key factor is that for over 10 years now, home construction has not kept pace with US population growth.  The article stated that current home construction per household is close to its lowest level in 60 years – since the late 1950’s.  In years past, this lower construction level was somewhat offset by the number of foreclosed homes available for purchase.  But that is no longer the case as foreclosure rates have decreased dramatically since the Great Recession.

In the Atlanta metro area, this housing “shortage” is compounded by population growth.  The Atlanta Journal Constitution reported in June that the metro area’s recent annual population growth of 1.5% exceeds the rates for eight of the top ten US metro areas.  With this growth rate, Atlanta is on pace to surpass the population of Philadelphia by 2022, becoming the eight most populous city in the country.

See the source image

All of this affects the mentality of a big group of potential home buyers.  They currently own a home, and they want to move to meet the needs of a growing family or shorten their commute.  But their income level will not support two mortgages, so their offers must be contingent on selling their current home.  That creates two problems.  The first is that sellers can choose from multiple offers and they are much more likely to choose a non-contingent offer than a contingent one.  Secondly, these would-be home buyers are very reluctant to list their current home without having a new home under contract.  And it makes sense – they don’t want to sell their current house and not be able to buy a new one.  Let’s face it…moving stinks, and having to move twice stinks twice as much.  So many would-be home buyers are “sitting on the sidelines,” waiting for the market to get less competitive before they seriously look for homes.

Dunwoody Mortgage can actually help our clients better position themselves to win competitive home purchase situations.  You ask, “How can the lender help the buyer win a contract?”  I’ll tell you…in the next blog post.  If you or someone you know wants to buy a house and doesn’t have time to wait for the next post, call me.  I would love to tell you how Dunwoody Mortgage can help home buyers win in this sellers market.