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.

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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.


Education is the key to home ownership

July 10, 2018 by

My colleague, Rodney Shaffer, is putting together a series on the advantages of home ownership. There are four posts as of this entry. They all focus on how home ownership, over time, provides a solid return in investment along with stabilizing/increasing the home owners own net worth.  Those are very good reasons to consider home ownership, but there is still on major hurdle for potential home buyers.

Many potential homebuyers are not aware of the realities of getting a mortgage and may be putting off their purchase because of it.

A new survey from FDIC-insured bank Laurel Road asked college-educated Americans about their homebuying plans. The poll found many misconceptions about the housing market and arranging financing, with down payments, interest rates, and affordability all weighing on potential buyers. The survey found that almost half of respondents are unaware of alterative down payment requirements; instead, believing that 20% down is barrier to their homeownership dreams. This is fundamentally untrue. Conventional loans require as little as 3% down and this is not limited to first time home buyers. FHA loans only require 3.5% down.

There is also a misconception about interest rates with many thinking they will hit 6% by year-end and believing they’ve missed out. This is also untrue. The Mortgage Bankers Association forecast for year end is just 4.6%, which is about where rates sit now. Why do people think mortgage rates will continue to rise? While mortgage rates can rise, most believe they will rise exponentially due to the Federal Reserve raising rates. The Federal Reserve raising rates doesn’t directly impact mortgage rates (it does impact home equity lines, car loan rates, credit card rates, etc.). This blog has discussed ad nauseam the fact that mortgage rates are not directly tied to the Federal Reserve raising rates. Recent examples can be found here, here and here. For the full list of entries dealing with this topic, check out this link. It is a lot of posts.

In reality, you STILL do not need 20% down in order to qualify to purchase a home. While rates are higher in 2018 versus previous years, they are not anywhere close to 6%. Don’t get mortgage rates confused with prime rate (that is over 5% and will be closer to 6% by the end of the year. Prime rate and mortgage rates are not the same thing!

Wanting to buy a home in Georgia but don’t have 20% down? Not a problem! Contact me today, and I can help you toward owning your new home!

Feds raising rates again?

June 12, 2018 by

This week the Federal Reserve meets again with the prospects of another hike in the Federal Funds Rate. While there seems to be positive sentiment for an increase, the excitement for an increase is lower than it was a few weeks ago. There are concerns in the markets with events overseas, increased prices in oil, and a sluggish first quarter of economic growth in the US.

If the Fed raises rates, it would be the seventh increase within the past 30 months. That said, rates would still be well below where they were at the start of the recession. Whether they raise rates or not, analysts will be watching carefully for the Fed’s statement which will be released on Wednesday along with the rate decision. This statement may give us a clue of what the Fed is thinking about rate increases for the rest of the year and perhaps even into next year. A major question to answer will be at what level will they consider rates “normalized.”

In terms of mortgage rates, the last several times the Feds have raised the Federal Funds Rate, mortgage rates have either improved or at least stayed the same. Why? The higher the Federal Funds Rate, the more inflation is kept in check. Since mortgage rates hate inflation, this can help push mortgage rates down. Considering mortgage rates have increased by 0.750% this year, any relief would be welcomed. So don’t worry about hearing the Feds are raising rates because that may actually help mortgage rates improve.

Looking to get prequalified to buy a home in Georgia? Contact me today today and I can help you toward owing your new home!

Study Shows Financial Benefits of Home Ownership – Part 4

May 30, 2018 by


Here is another observation from the homeownership study by Laurie S. Goodman and Christopher Mayer (https://www.urban.org/research/publication/homeownership-and-american-dream) – home ownership is especially prevalent for Americans near retirement age, and this suggests that “most households view homeownership as a critical part of a life-cycle plan for savings and retirement” (p. 43).

The study notes that home ownership rates peak at or near retirement.  80% of Americans aged 65 to 74 own a home.  In most European countries, the ownership rate at this age peaks between 75 and 90 percent.  This is much higher than the ownership rate for younger households.  Home equity for older households in large European countries exceeded 8 trillion euros in 2013.  At the same time, seniors in America held 5 trillion euros in home equity. 

Regarding home ownership effects on retirement savings, the authors conclude, “This pattern suggests that home equity often plays an important role in retirement savings, although homeowners often don’t access the equity directly except for the rent-free use of the property” (p. 34).  The bottom line is that wealth built from home ownership plays a key role in retirement savings for many, many people.

Do you have a friend in Georgia who is renting and laments that she will never be able to retire?  Connect your friend with me at Dunwoody Mortgage.  We will explore all options to see if we can get her in a home.  If not now, we can help her plan for a future home purchase.  Then she can start building her wealth every month instead of building wealth for her landlord.

Low housing inventory

May 22, 2018 by

It is definitely a seller’s market. The amount of inventory on the market is well below what is considered a balanced market – 6 months of homes is ideal. In the metro Atlanta area, the actual inventory is hovering around 3 months. Atlanta is not alone. Most major cities and almost all of the US faces a shortage of homes.

How did we get here?

I am sure many of you have heard the stat that a couple of hundred thousand jobs need to be created each month to keep up with population growth/new people entering the job market. Well, the same holds true for the housing market. Due to homes becoming dilapidated, burned down, flooded, disaster area, etc. you need new homes built every year to keep up with population growth. That is where one of our inventory problems lie. You see, housing construction has not kept pace with population growth in the U.S. for more than a decade. In order to catch up across the nation, builders will need to construct 7.3 million more homes. Also, home construction per household is near the lowest level in 60 years, John Rappaport, an economist at the Federal Reserve Bank of Kansas City, told the Wall Street Journal.

From 2009-2013/2014, it was a buyer’s market. There were too many homes on the market due to foreclosures and short sales from the housing crash. Now the pendulum swung the other way, and it is a seller’s market. Eventually, it will balance out, but that is of little solace for someone buying a home right now. Is there anything a buyer can do in this market to be more competitive with other buyers?

Yes, there is! Instead of doing a prequalification or pre-approval, buyers can start the loan process prior to being under contract to purchase a home. By going through underwriting early, I can provide my clients with a letter that says they are credit qualified and can close once an acceptable appraisal is back on the home. This can turn into a very quick close for a seller and gives the seller confidence in the buyer’s ability to close on the home loan.

Out there looking for your new home? Are you finding it to be a competitive environment? Give yourself an advantage by going through the underwriting process prior to being under contract. If you are looking to buy in the state of Georgia, contact me today. We can get the loan process started and put you on your way to home ownership.

Changes to loan guidelines

May 15, 2018 by

Guidelines for getting approval on a home loan can seem like a moving target – they always seem to be changing. While that isn’t true, technically, what is true is this… there are so many guidelines in terms of a buyer’s qualifications (assets, credit, income, etc.) that small changes do tend to happen often. Here are some changes that we may have missed.

IRS Tax Payment plans – this one can be handy when looking to buy a home BUT a larger-than-expected tax bill comes due. As long as there is not a federal tax lien filed, the borrower can move forward with the home purchase using an accepted IRS tax payment plan. The borrower would provide the monthly tax payment, proof of IRS tax payment plan acceptance, and the reminder payment coupon for the second payment. Only one payment needs to be made. In regards to qualifying, the monthly payment is calculated as if it were any other debt such as a monthly car payment, student loan payment, etc.

Sourcing funds – all of those cash or check deposits made into a bank account… during the crash, it seemed we would need to document any deposit that was over $100. It was a nightmare. Fortunately, it has relaxed now. The guideline is any deposit that is less than half of monthly income can be ignored. This means the number of deposits that need to be documented dramatically decreased. One caveat to this is the number of deposits. If no individual deposit is over half of monthly income, but there are multiple deposits adding up to over half of the monthly income, and underwriter can request all of the deposits be documented to ensure no one gave our home buyer extra money as an incentive to purchase the home. While this caveat can be used by an underwriter, it is rare.

Liquidating retirement funds – in some cases (depending on the amount being liquidating and/or loan program), we no longer need to document the liquidation of retirement assets for funds to close. We just need to show the money exists and is accessible to our borrower.

IRS Tax Transcripts – we’ll begin and end with the IRS… IRS tax transcripts are no longer required in a majority of loan situations now. There are some programs that still require it, but tax transcripts are no longer ordered for every single loan. This helps speed up the process of buying a home. Over the past few years during the IRS busy season (think April 15th and Oct 15th), getting copies of transcripts could be delayed. That, in turn, could cause delays for getting loan approval.

In all of these examples, the requirements for loan approval has lightened up some from the housing crash, which is especially helpful during the home buying process.

Wanting to buy a home this year? Looking in the state of Georgia? If so, contact me! I can get you prequalified and well on your way to owning your new home.

 

Study Shows Financial Benefits of Home Ownership – Part 3

May 8, 2018 by

Here is another conclusion from the homeownership study by Laurie S. Goodman and Christopher Mayer (https://www.urban.org/research/publication/homeownership-and-american-dream) – although homeownership carries risks, over time, homeownership correlates with strong wealth accumulation.  The wealth accumulation benefits show the strongest links to owners who maintain their homeownership during market fluctuations (page 53).  In my opinion, this is one of the strongest arguments for home ownership.

With every mortgage payment, the homeowner increases equity and wealth because each payment has a principal component.  If you want to keep your house, you must make your payments, and you grow your equity with each payment.  You grow your wealth by paying a bill.  This means that even folks with less financial discipline – who may not set aside money for “savings” – still build wealth with every mortgage payment.  So homeowners grow wealth first by making their regular payments.

 

Secondly, price appreciation also provides long-term wealth benefits.  The study notes that “Homes have generally appreciated in price over time,” (page 52).  So over time, the homeowner increases his / her ownership percentage of a generally appreciating asset.  Since we humans have to pay for a place to live, why not build wealth as you pay for housing as opposed to rent payments that are simply an expense?

The study also states that homeowners can increase their home’s value by making some improvements themselves.  The home owner’s “sweat equity” serves as yet another way to grow wealth through home ownership.

To wrap up, I’ll quote this statement, “There is little evidence of an alternative savings vehicle (other than a government-mandated program like Social Security) that would successfully encourage low-to-moderate income households to obtain substantial savings outside of owning a home” (page 43).  Like the regular Social Security contributions we make, mortgage payments serve like a “forced savings plan.”  Unlike Social Security, which is subject to the whims of politicians and bureaucratic calculations, homeowners own a specific asset which can appreciate and in which they can invest more.  What’s not to love?

As noted in the first paragraph, home owners must be able to hang on during market fluctuations.  Buying a home with a short-term horizon can decrease wealth.  We all endured a home price roller coaster from 2006 to 2013.  Although this period is fresh in our minds, remember that the only other time when we had home price swings of that magnitude was during the Great Depression.

In the next post, we will explore some other “pitfalls” of ownership, from a financial perspective.  For now, do you have a friend who expresses frustration about ever-increasing rent payments?  Ask them if they would like to increase their own net worth every month (instead of their landlord’s net worth).  Then refer them to me.  We at Dunwoody Mortgage will help them plan effectively for long-term ownership and wealth accumulation.  And we will take great care of them through the process.