Posts Tagged ‘atlanta housing market’

Study Shows Financial Benefits of Home Ownership – Part 2

April 11, 2018

When considering a home purchase, people generally like to have some data to analyze the pros and cons.  Luckily for you, I found a recent study that discusses some of these details.  Also luckily for you, I read it so you don’t have to read it!  You can find a link to the report below, but let’s hit some of the highlights.

The homeownership study by Laurie S. Goodman and Christopher Mayer (https://www.urban.org/research/publication/homeownership-and-american-dream) first concludes that financial returns for a home purchase in a “normal” market are “strong” and typically outperform the stock market.  Goodman and Mayer analyzed home (not apartment) rental data from Zillow, national home ownership cost data from the American Housing Survey (plus other sources for local market data), along with home sales price data.   Their analysis begins by assuming a home purchase at the end of 2002, prior to significant home price increases in 2003 – 2006 followed by the decline in the 2007 – 2012 years (If you want more details, you can see of yourself using the link above on pages 44-45).

The authors go on to explain how they compare the costs of renting a house versus the costs and equity appreciation vs. tax benefits of home ownership.  I’ll let you chew through the details.  They provide a detailed table analyzing multiple years of home ownership relative to other potential investments.  It is very interesting to look at the details on an annual basis over the study’s time frame.  (You can find this information on pages 45 – 46).

(Perhaps a home is not best for everyone)

Ultimately, the authors conclude (page 47) that owning a house “appears to be generally financially advantageous relative to renting, regardless of whether a home buyer itemizes deductions.”  Another key finding reads, “Including the value of deductions, the homebuyer would have outperformed all the alternative investments in all years.”  Note that they report buyers who did not itemize would show a few years of underperforming a comparative index.

As a mortgage lender, I wish there were additional analysis using returns for down payments of less than 20% (the authors’ assumption), as many of my clients do make smaller down payments.  I also find it interesting to consider the “holding period” of home ownership relative to the changes in property values seen during the period of 2008 through 2016.  Bottom line, it really helps the home owner’s return when property values appreciate – no duh, right?

More details to come in a future post.  For now, do you know someone considering buying a Georgia home in the next 3 months?  Are they thinking about renewing a lease?  If so, forward this post to them and ask them to call me.  We can discuss the financial pros and cons of their decision.  If they elect to buy, we at Dunwoody Mortgage will take great care of them and work hard to make their mortgage experience great.

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Study Shows Financial Benefits of Home Ownership – Part 1

March 28, 2018

People have often asked me if owning a house is better financially than renting.  Owning and renting both have pros and cons, and trying to quantify financial comparisons can be quite challenging.  I have recently reviewed a detailed study on home ownership by Laurie S. Goodman and Christopher Mayer.  Their article is entitled Homeownership and the American Dream.  Here is a link where you can download the report .pdf if you want to review the entire document:  https://www.urban.org/research/publication/homeownership-and-american-dream

I will spend the next few posts highlighting some of their findings.  Here is a quick summary of their conclusions:

  • Financial returns for a home purchase in a “normal” market typically outperform the stock market.
  • Home ownership encourages savings in low-to-moderate income households better than alternative savings strategies (except perhaps for a government-required program like Social Security).
  • Home ownership is prevalent in almost all countries and especially so for people nearing retirement age, indicating that most households consider homeownership an important part of saving for retirement.

The bottom line is that home ownership is still good financially for most homeowners, based on the report’s analysis.

Home ownership may not be the best option in certain circumstances.  For example, if a potential career change may require you to move in 2 years or less, renting may be a better financial choice due to a home purchase’s transaction costs.  And the report highlights that the magnitude of ownership’s financial benefits depends on details like property tax rates, itemization of tax return deductions, etc.

Do you know someone considering buying a Georgia home in the next 3 months?  Are they debating whether to renew their lease?  If so, forward this post to them and ask them to call me.  We can discuss the financial pros and cons of their decision.  If they elect to buy, we at Dunwoody Mortgage will take great care of them and work hard to make their mortgage experience great.

Homebuyers squeezed out of the market

June 13, 2017

Last week there were a series of articles published by the Wall Street Journal, CNN Money, and more describing how Millennials are being squeezed out of buying homes. For the most part, articles focused solely on lending requirements. Honestly, that misses the mark on what is really going on out there right now. Let’s dig into this a little more.

The articles primarily focused on how lending guidelines are stricter. While that is true when compared to 2007, lending requirements have loosened up quite a bit over the past several years. Here are some quick examples:

  • Conventional loans allow borrowers with a credit score of 620 (the same as FHA). Average credit is 660-680 depending on what article/source you read, so home buyers with below average credit can qualify to purchase a home.
  • Smaller down payments are back. VA and USDA loans do not require a down payment, FHA only requires 3.5% down, and Conventional loans can be used to buy a home with as little as 3% down.
  • Self-employed borrowers with an established business of 5+ years can qualify to buy a home with only one year of tax returns.
  • Condos can be purchased with as little as 3% down.
  • Rental income from investment properties can be used even if the property hasn’t been rented out for two years.

Lending guidelines are much more lenient today than they were just a few years ago. That isn’t really the problem.

A Washington Post article from January discussed the elephant in the room, and nailed it when it comes to the issue that all home buyers are facing – inventory.

I attended a Realtor meeting recently where a stat was given stating there is less than a 3-month supply of homes available in in-town Atlanta. A balanced market is a 6-month supply, and nationwide the supply of homes is well under 6 months. That’s not good. Think it is bad in Atlanta? It’s worse in Seattle. The lack of inventory puts Millennials (and any home buyer with a smaller down payment) at a disadvantage. Also, it is pushing home values higher than a normal market due to the impact of supply and demand.

How does one compete in this market? A few things come to mind.

  1. Home buyers must go out and look at homes as soon as they are listed. This can be difficult depending on one’s schedule, but homes are going under contract in a few days in most cases.
  2. Home buyers should be underwritten prior to going out to look at a home. This way the offer letter isn’t a prequalification letter or pre-approval letter, but the letter can read the home buyers are “approved to purchase a home pending a satisfactory appraisal, clear title, and sufficient insurance coverage.” That is much stronger than a simple “prequalification” letter, and I go into more detail this in a previous blog post.

By planning and being ready to move on a home at a moment’s notice, home buyers can increase their odds of getting under contract on a home.

Looking to purchase in Georgia? Wanting to get ahead of the game? Contact me today, and we’ll get started toward achieving the goal of your home ownership!

Interest Rates Jump

November 15, 2016

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One thing that I did not expect from this election was the change in interest rates.  Mortgage interest rates on November 14 were a half a percentage point higher than they were on November 7.  Rates are still close to their historic lows, and still lower than rates back in the second half of 2015, but they definitely have taken a quick upward turn in the last week.  And there’s really no way to predict how far rates may rise.  For a better understanding of what drives mortgage interest rates, take a look at these prior posts:  https://themortgageblog.wordpress.com/2016/07/12/interest-rates-lower-from-brexit/ and https://themortgageblog.wordpress.com/2016/10/18/feds-may-not-raise-rates-at-all-this-year/

While I don’t have a crystal ball to forecast interest rates, I will simply apply a bit of common sense.  Interest rates have been very, very low for multiple years now.  There really isn’t much opportunity for rates to go lower.  So logically, if rates are going to move, they will likely go up.  If you are ready to buy a house, how do you protect yourself from a rate increase?  Answer:  You lock your rate.

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When a home buyer goes under contract, I can lock rates for periods from 30 days up to 90 days.  The longer the rate lock period, the higher the price.  Locking your interest rate is the sure way to protect yourself against rate increases.  I locked a refinance on November 8, just before the close of business.  I hate to think that this client’s rate would now be 0.50% higher if we had delayed.  Because she locked for 45 days, her rate will not increase if we close the loan before the end of business on December 23.  As long as you can close before the lock expires, your rate will not change.  If something delays closing past the lock expiration, that might cost you.  (Moral of the story, quickly respond to any request from your loan officer.  Delays can cost you.)

Borrowers also want to know what happens if market rates decrease after they lock their interest rate.  Dunwoody Mortgage can also offer a free rate float down option on some loans.  If your qualifying rate drops by more than 0.25% and we can relock it (1) less than 30 days and (2) more than 7 days before closing, we may be able to do that at no charge.

So if you want to buy a home and you are worried about interest rate fluctuations, know that Dunwoody Mortgage can protect you regardless of which way the market moves.  Moving forward with a Georgia home purchase soon?  Call me here at Dunwoody Mortgage now, before rates go up any more.  We can answer your questions and offer the counsel to best protect you against interest rate changes.

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Using Retirement Accounts for “Income”

May 23, 2016

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Prior posts have focused on how to use brokerage account assets to qualify for a mortgage.  Now let’s review using retirement account assets for “income” purposes.  The focus here is retirement accounts recognized by the IRS, such as IRA, Roth IRA, 401K, etc. accounts.

If the borrower can obtain distributions from the qualified retirement account without incurring an IRS penalty, then distributions from the retirement account can be considered as stable qualifying income if the income is expected to continue for at least 3 years.  Assuming that the borrower, “Don,” from my last two posts had his $500,000 in a qualified retirement account, here’s how we would calculate his “income” for a mortgage application.

Now if Don’s retirement portfolio includes stocks, bonds, and / or mutual funds, we start by multiplying the account balance times 70% to adjust for market volatility.  That gets us to $350,000 in usable asset value.  Don has been receiving $4,000 monthly distributions and wants to continue that, so we divide his $350,000 balance by his $4,000 distributions.  The result is 87.5.  So Don can continue these distributions for over 87 months.  The required minimum is 36 months (3 years).  Therefore Don can use his monthly distributions as “income” for his mortgage application.  Let’s go find that house he wants!

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Now let’s assume that Don only has $190,000 in his 401K.  The result after adjusting for market volatility is $133,000.  Assuming Don must pay $12,000 in cash at closing (down payment, closing costs, etc.), his available retirement account balance after closing on his home purchase would be $121,000.  That would allow for only 30 months of distributions at $4,000.  So we would have to adjust Don’s income for mortgage purposes down to about $3,360 and then look for a house he could afford with that monthly income.

There are other guidelines that also apply.  It gets complicated, but that’s why experienced mortgage lenders can really help.  If you know a retiree who is thinking about buying a home in Georgia, recommend that they talk to an experienced lender before planning a home purchase price.  Have them call or email me at Dunwoody Mortgage Service.  We will discuss their asset allocations and determine how much of an “income” they can use on their loan application.  I can help them structure the deal right the first time, making their loan experience as smooth as possible.

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VA Jumbo Loans

April 25, 2016

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The VA program for jumbo loans is excellent.  A quick definition here – a jumbo loan in Georgia is defined as a loan with a principal amount of more than $417,000.

The first benefit is that you can get a VA jumbo loan with a lower down payment than a conventional jumbo loan.  The minimum down payment for a conventional jumbo is 10% of the total loan amount.  The minimum down payment for a VA jumbo is 5% of only the amount above the jumbo threshold of $417,000.

So if your veteran friend David wants to buy a house priced at $517,000, his minimum down payment options are (1) $51,700 for a conventional loan or (2) only $5,000 for a VA loan.

(Anybody else remember this catchy recruiting jingle from the early 1980’s?)

And veterans like David can get a VA jumbo loan with a credit score as low as 680.  Our minimum credit score for a conventional jumbo is 720.

Lastly, David can get a much lower interest rate on a VA jumbo – perhaps even ¾% lower than with a conventional loan.  Interest rates on VA jumbo loans are comparable to conventional non-jumbo mortgage rates.  So David will save a lot of money every month by obtaining a VA jumbo loan.

Note that VA jumbo loans still require paying the VA funding fee.  But even with the fee, VA jumbo mortgages are a great product – they make buying a house more affordable than most other jumbo loan alternatives.  If you are a veteran or if you know a veteran friend or family-member who wants to buy a high-priced home in Georgia, call or email me at Dunwoody Mortgage Services.  We can discuss loan options and help you obtain all the great VA loan benefits you have earned with your service.  We love serving military veterans.  Delivering great loans with excellent service is a small way that we can say “thank you” to those who have served.

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Q: How Do You Earn? A: Salary or Hourly

October 22, 2015

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If you saw my last post, you’ll remember that, in the mortgage world, how you earn your income is almost as important as how much income you earn.  See http://bit.ly/1KT9Snx for a quick refresher.

So let’s unpack how we underwrite the different types of income earning methods.  I’ll start with the easy ones first.

Salary Income:  If you earn a salary, we will need to know your gross monthly income.  That is, your monthly salary before taxes and withholdings.  We basically take your annual salary and divide by 12 months.

Underwriting will review your 2 most recent pay stubs and W-2 statements.  Don’t worry if you just started a new job.  So long as you are in a W-2 salaried job and you did not have a job gap of more than 6 months prior to your current job, you can qualify once you have 30 days of pay stubs.

Hourly Income:  If you are paid by the hour, underwriters will base your income on your average earnings over the last 24 months.  We will obtain a “Verification of Employment” (VOE) from your employer to document your income.  This employer-provided VOE is ultimately what underwriting will use when reviewing your application.

I know, it sounds confusing and very detailed.  That’s why it’s my job to know the details, understand the guidelines, and walk you through the process so you know exactly where you stand with underwriting.  I love handling the details and coaching my clients so that they can buy the home of their dreams.  If you are looking to buy in the State of Georgia and you want great mortgage service plus great rates, email or call me today.  We will make buying your dream home as easy as it can be.

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So How Much Money Do You Make?

September 24, 2015

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It pretty much goes without saying that everyone needs an income and most people need a job to qualify for a mortgage.  “No duh, Sherlock, right?”

Some people can qualify for a mortgage if they have an income and no job.  For example, retirees who have income from Social Security and retirement assets can use income from these sources to qualify without a job.

But the majority of us must be employed and earning a regular paycheck to qualify.  So here are some important income questions underwriting will want to consider when you apply for a mortgage.  #1:  What is your income?

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#2:  How do you earn your income?  Your answer to that question dramatically impacts your ability to qualify for a mortgage and the documentation you must provide to verify that income.  It also affects how we calculate the monthly income that we enter on your mortgage application.

Below is a quick summary of different income earning methods we frequently see in the mortgage world.  In future posts, we will review in more detail how underwriting verifies each different method of earning your wages.

  1. Salary income
  2. Commission income
  3. Hourly income
  4. Bonus and overtime income
  5. Part time job, second job, and multiple job income
  6. Self-employment income
  7. Rental income
  8. Child support, alimony, maintenance income
  9. Asset based income
  10. Social security / survivor and dependent benefit income
  11. Tip income

Not sure whether your income will qualify for a mortgage on your Georgia dream home?  No worries, just give a call to Dunwoody Mortgage Services.  We will ask you the right questions to make sure that your eligible income is recorded correctly for underwriting.  Give me a call or send me an email to start the process.  We will make sure that we do this right the first time!

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Should I consider a 15 Year Mortgage?

August 27, 2015

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Someone recently asked me, “Do you recommend a 15 year mortgage now since interest rates are so low?”  To quote a CPA friend of mine when asked if a business expense is deductible, “It depends.”  The question I will ask in response is, “How much can you afford to pay every month?”  The answer to the question depends totally on the borrower’s budget.

While getting a lower interest rate is a very good thing, amortizing a loan over 15 years instead of 30 means that you pay significantly more principal with each payment.

So let’s play with the numbers to put the question in perspective:

Your friend Sally is looking to get a $250,000 mortgage on a single family home.  She has excellent credit and will make a 10% down payment.  Let’s assume that Sally would have received a 4.0% interest rate on a 30 year mortgage and her monthly principal and interest (“P&I”) payment would have been about $1,194.  For a 15 year mortgage, let’s assume that Sally would have received a lower 3.25% interest rate, but her monthly P&I payment would have been much higher at $1,757.

Over the life of the 30 year mortgage, Sally would spend $179,674 in total interest payments.  Over the life of the 15 year mortgage, Sally would spend $66,201 in total interest payments.  Ultimately, Sally would save about $113,500 in total interest payments by selecting the 15 year loan.

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Saving that amount of money over the life of the loan is fantastic.  But, on the flip side, Sally would have to pay an extra $560 per month to “earn” the lower rate.  Only Sally can decide if that fits in her budget.  (And of course, Sally would have to earn an income high enough to support the larger payment based on our debt to income guidelines.)

So if your friend Sally, or anyone else you know, wants to buy a new home and thinks a 15 year mortgage is the way to go, have her contact me and I will run the numbers for her.  I’ll take the time to explain the details, and then let Sally make the decision that is best for her family.  There are other ways to reduce your total interest expense, even if you select the 30 year mortgage.  Curious?  Call my mobile phone or send me an email to start the conversation now.

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You Can Do It!! Part 3

July 27, 2015

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Let’s finalize our mortgage myth busting process right now.  We have previously exploded myths regarding the character and capital criteria in mortgage lending.  Now let’s deal with myths regarding your “capacity” to obtain a mortgage.

When it comes to loans, the term “capacity” is your ability to make your monthly payments.  To determine your capacity to pay your mortgage, underwriters will compare your monthly gross income (before taxes, retirement, and other deductions) to all of your monthly debt payments.  If your debt payments are not too high relative to your income, you are deemed to have sufficient capacity to obtain the loan.

A surprising percentage of people believe that if they simply have a student loan – regardless of the amount – they cannot qualify for a mortgage.  The TRUTH here is that you can still qualify for a mortgage even if you do have a student loan (or an auto loan, or an auto lease, or credit cards, or other types of debt).

The critical question here is not IF you have a student loan, instead it is, “How large are your payments relative to your income?”  Underwriters will scrutinize your “back ratio,” which is the sum of all your monthly debt payments – student loans, auto loans, the new mortgage payment on that house you want, etc. – divided by your monthly gross income.

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As long as your back ratio is not too high, say 45% or less for a conventional loan and 50% or less for a FHA loan, you will likely have your loan approved (assuming no other underwriting “issues,” of course).

So let’s summarize the mortgage myth destroying logic with this:  if your credit score is 620 or higher, and you have (or can get from relatives) enough cash for a 3% or more down payment, and if your current monthly debt payments are not excessive, and you want to buy a house, then remember, “You can do it!”

Actually, I’ll correct this as you will need help from someone licensed to originate loans, so let’s just say, “We Can Do It!”  If you dream of owning your own home in the state of Georgia, give me a call and let’s discuss your situation.  I’ll be honest and tell you what the real situation is.  Don’t believe the myths and then wait to take action.  The TRUTH is we might be able to get you into your dream home sooner than you think.

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