Author Archive

Education is the key to home ownership

July 10, 2018

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!

Advertisements

Feds raising rates again?

June 12, 2018

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!

Low housing inventory

May 22, 2018

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

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.

 

When volatility became normal

April 11, 2018


Welcome to 2018. The year where daily 400 point swings on the Dow became normal. In the words of Théoden, King of Rohan, “How did it come to this?”

 

There are a few economic events playing into the recent volatility seen on Wall Street. In no particular order:

  1. Stocks are a little more nervous about inflation.
  2. Stocks are unsettled from rumors of trade wars coming with countries imposing tariffs on one another.
  3. Stocks seemingly rebound after big drops because the numbers on the economy itself are still sound.
  4. The Republican tax plan may also be encouraging businesses to spend.
  5. Businesses are expecting more overall to some of the regulations imposed on them.

Those are some good reasons for stocks to be bouncing back and forth – sometimes literally daily swings in the 100s of points.

This being a mortgage blog, our readers want to know how the volatility impacts mortgage rates. Normally, when stocks have a rough day and lose hundreds of points, mortgage rates improve. How have mortgage rates responded over the past 6 weeks?… they’ve been flat.

Mortgage rates haven’t really improved on days stocks tumble, or got worse on days stocks have rebounded. This is a sure sign the market is expecting volatility and not overreacting to a single day. Will this continue? If stocks drop below 20,000, I would expect mortgage rates to improve (and vice versa should stocks get better). For now, rates have held firm and not overreacted to the craziness on Wall Street. The only damage to mortgage rates to this point has been the half point rise to start the year.

Out looking to purchase a home in the spring market? Needing to get prequalified? Contact me today! If in the state of Georgia, we can have you ready to purchase a home in no time!

New guidelines for PMI

March 5, 2018

Not that long ago, conventional loan guidelines began allowing borrowers to have a back debt to income ratio as high as 50%. The “back” ratio is the new housing payment + all other debt / monthly income. The limit was 45%, so the increase allowed  borrowers to carry a slightly higher debt threshold. This is closer to what FHA allows (up to 55%).

Private Mortgage Insurance companies observed the change, and then began making changes of their own. As of this post, all but one of the major PMI companies have changed their guidelines to reflect the following requirement. For borrowers with a debt to income ratio at 45-50%, their credit score must be over 700. For all other borrowers with a debt to income ratio under 45 %, credit scores can go as low as 620. While this change won’t impact a majority of home buyers, it is significant. Basically, if a buyer has a higher debt to income ratio and  a credit score under 700, then they must use an FHA loan to buy a home (or VA if they qualify for a VA loan). For now, conventional loans may not be an option.

Guidelines change frequently, and this could be temporary to see how conventional loans with a debt to income ratio of 45-50% perform. Hopefully that will be the case, but for now, it is in place.

Planning on using a conventional loan to purchase a home, but have a high debt to income ratio? If you are buying a home in Georgia, let’s talk sooner rather than later and make sure no changes need to be made to current plans.

HELOC interest potentially tax deductible

February 27, 2018

A clarification has been issued by the Internal Revenue Service about the deductibility of interest that is paid on home-equity lines.

Under the Republican tax law, joint taxpayers can deduct interest on home loans. This includes first mortgages used to secure primary and secondary homes. OK. Sounds right. Nothing unusual so far…

What caused a ruckus was the suspension of the interest deduction for home-equity loans, home-equity lines of credit and second mortgages from 2018 until 2026.

But an exception exists!

WHAT?? Really? Tell me more!

The IRS clarified the new tax law in response to many questions submitted to the IRS by taxpayers and tax professionals. According to IR-2018-32 issued Tuesday by the agency, when HELs & HELOCs are utilized to buy, build or substantially improve the residential properties used as security for the loans, the interest is tax deductible. An example of a deductible expense is when the proceeds from the loan are used to build an addition to an existing home. On the other hand, if the proceeds from lines of credit are utilized to pay off personal expenses, no deduction is allowed.

As was the case under the prior law, the equity line loan must be secured by a primary residence or second home, not exceed the cost of the home, and meet other requirements.

How to proceed? Contact your tax professional. While the IRS provided the clarification, it also said “meet other requirements.” The IRS also did not distinguish how to apply if portions of the equity line was used. For example, what if someone has a $100,000 equity line. They use $80,000 for an addition to the home, but $20,000 to pay off credit card debt.

While this is welcome news, its application can still be tricky. Contact your tax professional today to find out more. If you need a referral to a tax professional, do let me know!

Any hope for mortgage rates?

February 15, 2018

As my colleague recently posted, mortgage rates are off to a rough start this year. As of this post, mortgage rates are a half point higher for the year. I won’t dig into the details of why this is happening. Rodney did a great job of it in his recent post. Today, I’ll focus on what can turn the tide for mortgage rates.

Stocks have suffered a rough start to the new year too. That is normally great news for mortgage rates. Normally as stock prices fall, bond values rise, and mortgage rates improve. The Dow fell over 2,000 points at one moment over the past few weeks, and yet mortgage rates also got worse. If a 2,000 point drop couldn’t help mortgage rates, what can?!?

We must look back at one of the root causes Rodney discussed – inflation. Mortgage rates hate inflation as it eats away at the value of mortgage backed security bonds. As those bond prices fall, mortgage rates rise. The way to help mortgage rates is to combat inflation. The best weapon we have at our disposal is the Federal Funds Rate… the Federal Reserve can continue increasing the Federal Funds Rate. In fact, every time they’ve done that over the past couple of years, mortgage rates have initially improved. Why? The higher the Federal Funds Rate goes, the more it can combat inflation.

Of course, the flip side is raising it too much can cool off the economy (don’t want that). Also, with the new budget deal passed last week by the government, more bonds will be sold to fund the increases to our national budget. More bonds available for sale also lower bond values, pushing mortgage rates higher. As I said in a post late last year, the environment for mortgage rates to get worse is here. That seems to be occurring. While mortgage rates are still low, the time of super low rates could finally be behind us.

The Federal Reserve could increase the Federal Funds Rate to fight inflation and help mortgage rates, but given the other factors at play, the increase to the funds rate may not help improve rates over the long haul for the time being.

If you’ve been sitting on the fence about purchasing a home over the past year because “rates are so low, why hurry,” the time may be now. If you are purchasing in the state of Georgia, contact me. We can get the prequalification process completed in minutes and have you ready to go out and find your new home!

Happy Holidays

December 17, 2017
Happy Holidays!

Happy Holidays!

Republican tax plan and mortgage rates

December 12, 2017

All signs are pointing to the Republican party passing tax reform. The Republicans are using the “budge reconciliation” process to get the bill passed. By going this route, the Republicans avoid the need for 60 votes for approval in the Senate while preventing the Democrats the ability to use  a filibuster. Whether you opposed tax reform OR couldn’t wait until it arrived, tax reform seems likely to be here once the House and Senate finish reconciling their two tax reform bills.

What does this mean for mortgage rates?

Initially, nothing. On the surface, tax reform has no direct impact on mortgage rates. This is just like when the Federal Reserve raises the Federal Funds Rate. The Funds rate impacts second mortgages, car loans, credit card rates, etc., and not mortgage rates. But…. the impact these have on the market can impact mortgage rates.

Stocks have been on a major rally for roughly two years now. The DOW continues to set record highs. Why the surge? Wall Street has bet on tax reform that would benefit business. Trump’s election prompted a big rally back in November 2016, and this rally continued throughout 2017.

Now that tax reform is here, stocks seem poised to continue their good run and maybe continue to push higher. As stock values rise, bond prices normally fall due to the fact that people are putting more money into stocks than bonds. As bond values fall (specifically mortgage backed security bonds), mortgage rates go up. While tax reform doesn’t directly affect mortgages rates, the impact on stocks can influence mortgage rates.

Frequent readers of this blog are aware of how stock prices/mortgage backed security bond prices impact mortgage rates. If you are new to this blog, use this link to read past posts about the subject. 

Currently mortgage rates are definitely off of their yearly lows and moving back toward their yearly highs of 2017. Combine tax reform, continued stock market rally, and the Federal Reserve no longer purchasing bonds from quantitative easing (they are beginning to sell their bonds now), and you have an environment where mortgage rates could go noticeably higher.

Market analysts have said for years now (since 2010) that “this is the year mortgage rates go up,” and rates haven’t gone up. When do I think rates will go up? At this point, I’ll believe it when I see it. That said, the environment for mortgage rates to increase is as real as it has ever been in the past several years.

Considering refinancing or buying a home, but been pushing it off since rates are so low? Maybe now is the time to at least have a conversation about your plans, timing, and how to proceed? If the home loan will be in the state of Georgia, I can help! Contact me today and we’ll get started!