We’ve discussed new construction sales increasing recently on this site. Existing home sales are increasing too! August marked the third consecutive month of gains on existing home sales:
the increase was over 2% from July to August
it is over a 10% increase from last year
median sales price for all home types (single family, townhome, condo) was up over 11% from 2019.
Inventory levels are worse now (about 3 months) than last year around this time (about 4 months of inventory)
It’s a seller’s market, and does not seem to be changing anytime soon.
What does someone who owns a home and needs to sell it in order to make a down payment on their new home do in a time like this? Are there any options to avoid making a contingent offer to purchase a new home?
Why yes, there are options! Most people can qualify to carry two mortgages. Their current home + the new home. Given how fast homes are selling, the odds of having two mortgages payments for many months is low. So looking to qualify to buy the new home without selling one’s current home isn’t as daunting as it would seem.
The issue in this scenario would be the down payment. If the plan was to use the equity in the existing home to purchase the new home, how does one come up with the money for a down payment without selling their home?
Here are some options for the down payment on a new home:
Borrow money from investment accounts: if money is tied up in investment accounts, look to borrow the money from yourself! It’s nice when you are the bank. Do consult with your tax professional to ensure any money you take out isn’t a tax liability OR if it is, you plan accordingly.
Borrow from 401k: Most companies allow their employees to borrow some money from their 401k accounts when purchasing a home for as their primary residence. Borrowing and repaying a 401k loan should not trigger any tax liabilities, and the loan can be paid back pretty quickly once the current home sells. Again, it is nice when you are the bank!
Gift from family: Getting money from an acceptable gift source to use for a down payment is allowed. Remember, you do not need 20% down to purchase the home.
Temporary loan: apply and receive a temporary loan, such as a bridge loan, to use for the down payment. This is an option, but it can be more expensive in terms of closing costs (a 401k loan should have little/no fees and a gift from a relative has no fees). The buyer would also have to qualify on the new home loan with three mortgages… the current mortgage, the temporary home loan to use as a down payment, and the new mortgage on the new home.
Combination of the previous options: perhaps one borrows from their 401k and gets a gift from a family member.
Doing anything above could allow a buyer to make a non-contingent offer on their next home, and give them an advantage over anyone who must sell their home to qualify for the new loan.
One last option is using the seller’s market to one’s advantage. Negotiate renting back one’s current home once it is closed. Then use the rent-back time to find their new home. Going this route has its advantages:
Since the home is sold, qualify on just the new mortgage
the equity in the home is now free and ready to be used as a down payment on the new home
The person purchasing your current home has 60 days to occupy it per the terms of a standard home loan used to purchase a primary residence. Is this something that can be done? Yes, I had a client close using a scenario like this month.
Again, if you own a home, use the seller’s market to your advantage. Talk with your agent and negotiate a rent back of your current home. Something like this is negotiated just like the purchase price, closing date, etc.
It’s a seller’s market, and it is hard out there for people looking to purchase a home. Just because it is a tough market doesn’t mean you can’t find ways to make your offer stand out from the crowd! Buying in the state of Georgia? Contact me today! I can help get you prequalified and we can explore several options to see if you are able to make a non-contingent offer on your new home purchase.
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:
Stocks are a little more nervous about inflation.
Stocks are unsettled from rumors of trade wars coming with countries imposing tariffs on one another.
Stocks seemingly rebound after big drops because the numbers on the economy itself are still sound.
The Republican tax plan may also be encouraging businesses to spend.
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!
Thanks to technology, it is way easier to look for a home today. Not only do most buyers look at homes online prior to getting into a car with a real estate agent, there are now apps that help with the entire home buying process. Here are five of my favorite listed out in no particular order.
Genius Scan – OK, so this one is first because it is my favorite. I use this app all of the time. Let’s say I meet with a client, and they bring original tax returns and W2s to our meeting. Naturally, they do not want to part with the originals. What do we do about a scanner? That is where Genius Scan comes into play. This app will allow the user to turn a document into a PDF file (amount other formats) using the camera on their smart phone. It is like having a scanner with you at all times. This app is free, and there is a paid version too.
Homesnap – Ever been driving around and see the sign for “Free Information” on a home that is listed… only to open the sign and no flyers are in it?!? Frustrating! Not anymore. Using Homesnap, the user can take a photo of the home and get estimated home values, interior photos (if available online), public record information (beds/baths/square footage), etc. You never have to leave empty handed again!
MagicPlan – Let’s say you are inside one of the homes you found using Homesnap, and are wondering about a room’s size? Perhaps a home needs some work, and you want to get an idea of the layout and scope of the project? MagicPlan allows the user to create floor plans and work estimates for projects by using, again, the camera on their smart phone. This app is also free to start with, but also has in-app purchases.
MileIQ – this app is a life saver for real estate professionals (or any professional that needs to keep track of their mileage). When keeping a mileage log for tax deduction purposes, the IRS wants specific details. When working with a tax professional to file income taxes, a simple total of miles driven won’t work… you need individual trips, date of trip, starting mileage and ending mileage. This is hard to keep up with, which is why MileIQ is so handy. MileIQ automatically logs trips and calculates the value of the trip. Classifying a trip (personal, business, etc.) is as easy as a swipe. This app costs $5.99 per month on a subscription OR $59.99 annually. Considering a 12-mile business trip will net $6.48 in deduction, this is an app that pays for itself for sure.
Postagram – you’ve found your new home, and you want to let all of your friends know you’ve moved. Again, you can get this done using your smartphone. Postagram allows the user to turn any of their photos into a postcard that can be mailed for $0.99. So take that selfie of you in front of your new home, and send it out to with your new address and a personalized message.
It’s amazing what you can do on your phone.
You know what else you can do with your phone? You can call me today to get started with the prequalification process. If the home you are looking to buy is in Georgia, we can get you going in just a few minutes over the phone. Just takes one call to get started!
In my previous blog post, I reviewed recent home price increases and how they can lead to jumbo loans. We also covered how jumbo loans typically have higher interest rates and down payment requirements as compared to conventional loans.
So what do you do if you need to borrow more than the $417,000 conventional loan limit and you don’t have enough cash to make the 20% down payment required for a jumbo loan? Under certain circumstances, you can obtain a conventional first mortgage of up to $417,000 and then acquire a second mortgage for the remaining balance. The second mortgage will have a higher interest rate than the first loan, but you may pay less in interest as compared to a jumbo loan.
Dunwoody Mortgage Services will only provide the first mortgage, but we have lending partners who work with us to deliver this type of secondary financing. One key criterion is that the borrower must have an excellent credit score. For example, one of our partner lenders can allow total liens (first plus second mortgage) of up to $750,000 when the borrower has a minimum 740 credit score. This lender can allow total liens of up to about $917,000 when the borrower has a minimum 760 credit score. In each case, the borrower must make a 10% down payment – less than the 20% down payment required for a jumbo loan. But if your credit score is less than 740, you will not qualify.
Clear as muddy water? Here is an example to better explain. Let’s assume (1) you have a 775 credit score, (2) you want to buy a house with a price of $835,000, and (3) you have $85,000 of available cash for a down payment. So you must borrow $750,000 to buy the house. To get a jumbo loan, you would have to have $167,000 in cash for the down payment. And your interest rate (on the day I’m writing this) on your jumbo loan would be about ½ a point higher than a conventional loan rate. But with only $85,000 available to you, the jumbo loan just won’t work.
But with the second loan strategy, you might be able to make an $85,000 down payment, obtain a first mortgage of $417,000 and a second mortgage of $333,000, bringing your total amount borrowed to $750,000. Your interest rate (today) on the first mortgage would be about ½ a point lower than a jumbo rate, and you may be able to get a rate on the second loan that is comparable to the jumbo loan rate.
If you want to buy a more expensive home and you need to explore your financing options, give me a call at 770-634-0992. Comparing different financing scenarios is just a part of the outstanding service we deliver to our customers every day. I look forward to talking with you.
I just read an interesting article by Nick Timiraos in the Wall Street Journal (click here to read the article).The article focuses on a key reason why new home prices have increased in recent years – Americans are buying bigger new homes. There were a few points that caught my attention:
More than half of the new home price increase in recent years is caused by changes in the size and quality of new homes.
Average new home sizes have increased while the size of the average American household has decreased.
Government policies (such as mortgage interest deductibility) may encourage the trend of larger new homes.
While new home prices have increased more than 100% since 1970, if you adjust for the home size, the price increase is only 23% after adjusting for inflation.
As home prices rise, this pushes more buyers into the jumbo loan category. So what is a jumbo loan, you ask? A jumbo loan is defined by Fannie Mae and Freddie Mac as a mortgage amount greater $417,000 in most areas of the country. (The limit is higher in certain high-cost locations like Hawaii and Alaska.) Our lenders will process jumbo loans in amounts up to three million dollars.
So what does it mean to you if you need a jumbo loan? First of all it affects your down payment. With conventional loans, lenders will allow you to put as little as 3% down on your purchase. With jumbo loans, the minimum down payment is significantly larger. Secondly, obtaining a jumbo loan often means that you pay a higher interest rate. On the day I am writing this, with all other lending criteria being equal, the difference between a jumbo and conforming loan is about one half of one percent for one of our lenders.
So as are looking to move up to a larger home, remember the rules for a jumbo loan differ from those you had when obtaining your current conforming or FHA loan. Give me a call to discuss your options and loan pricing. And keep an eye out for my next blog post where I will discuss ways to stay within conforming loan limits to avoid the higher cost jumbo mortgages.
I get that question a lot these days. “Should I buy a home?” It is a valid question to ask. Some may be concerned about the stability of their jobs. Others may be concerned about whether or not we’ve hit “the bottom” in regards to housing prices. I do understand the reasoning behind those concerns, but let’s look at it from another angle.
The chart above shows the correlation between purchasing power and home values. Currently, we are siting in one of the best periods for buying a home – low interest rates (purchasing power) with lower home values. This combination is very tempting, but still some are holding back. Why? It seems people feel rates are going to stay low forever. That isn’t the case. Interest rates are like stocks… sometimes they go up/down in price for unexpected reasons. For instance…
This time last year, interest rates were at the same point they are now. In the high 3’s. Then around the start of November, interest rates began to climb. Before the end of December (about a 6 week period), interest rates went from the high 3’s to the mid 5’s. It was an unexpected jump and put some people’s home buying/refinancing plans on hold.
What kind of a difference does that jump in rates make? If you qualified for a principal and interest payment of $1,000 each month, then you’d be able to purchase a home up to $250,000 with a 20% down payment while rates remain at their current levels. With rates in the mid 5’s, that same monthly payment of up to $1,000 would cause the purchase price to decrease to $220,000. That is a loss of $30,000 of purchasing power.
In short, the question you should be asking yourself is not “should I buy?,” but “what am I waiting on?” If you plan to remain in the area you are currently residing for the next few years, this is one of the best times ever to buy a home due to the combination of low rates and lower home values. If you are looking to purchase a home in the state of Georgia, I’d be glad to help you get started!
About a year ago, Fannie Mae created this loan program to help sell properties they own. Most of these properties are foreclosures. When the program was initially rolled out, I threw up a blog post about the details. It has been a year, and some of the guidelines have loosened up… so it seemed like a good time to revisit this loan program.
The HomePath Mortgage program has some major selling points.
available for primary residence, second home, and investment purchases
borrowers only need a 3% down payment to get started
non-occupant co-borrowers are allowed with a 5% or greater down payment
allows for sellers to contribute up to 6% of the purchase price toward a buyer’s closing costs and prepaids (typical amount with less than a 10% down is only 3% toward contributions)
no appraisal is required
no private mortgage insurance will be on the loan regardless of the size of the down payment
Some of the changes that have occurred over the past twelve months include the qualifying credit score being lowered to 660 and investors now only need a 15% down payment to qualify. On all other conventional loan programs, investors need at least a 20%-25% down payment to get started. A requirement of only 15% down is a big deal in the investment purchase market.
Again, Fannie Mae designed this loan program to facilitate the sale of homes they own. There are numerous properties available, and you can search for them here. That being said, do proceed wisely. I’m not saying anything is wrong with the homes, but one should:
as with any home purchase, hire someone to do a thorough inspection of the home
since there is no appraisal required for the loan, I would ask your real estate agent to conduct research on the home against recent sales in the area to ensure the purchase price is a good deal for you
some of these homes will probably be classified as being purchased “as is,” so don’t expect the seller to do many (if any) repairs to the home prior to purchase
Anyone interested in making an offer on a home to take advantage of a loan program that doesn’t require an appraisal or private mortgage insurance will need a prequalification letter, and that is something I can assist in providing! If you are looking to get prequalified, learn more about interest rates for this program, total monthly payments, etc., feel free to call or email me. It would be my pleasure to help you through the mortgage process!
When someone contacts me to get prequalified for a loan, one of the first questions involves locking in their interest rate. Traditionally, lenders do not allow borrowers to lock in an interest rate until they have a contract on a home. The rate lock is “attached” to a property and not a borrower.
Well, not everyone sees it that way!
We have a program known as “Lock and Shop.” Buyers can lock in their interest rate today without a purchase contract, and then go out looking for a home. The program typically works like this:
I prequalify a buyer to purchase a home.
Once prequalified, we can lock the borrower into a 60 day rate lock.
60 days is a good time frame. This provides roughly 30 days to look for a home AND then 30 days to get a loan approved once there is a purchase contract. Plenty of time for both!
While I can lock in an interest rate prior to having a contract, underwriting will not commence until an executed purchase contract is provided.
This is a great program for buyers. They can go ahead and lock in a rate now, and not feel so pressured to find a home before rates could possibly get worse. With a 60 day lock, there really isn’t a rush on either side of the equation (finding a house and then getting loan approval). 60 days is more than enough time for both!
If you’d like to learn more about the lock and shop program for a property in Georgia, you know where to find me!
For those of you who followed my posts in a previous life (in other words, my previous blog), you know I spent numerous posts detailing differences between conventional and FHA loans. For example, you can read here, here, here, here, here and here to get you started.
Like the typical never-ending-sequel-horror-movie that comes out every October, here we are again to address the differences between these two!
seriously, we need a 7th Saw film?!?
With the recent changes to FHA mortgage insurance going into effect on October 4, 2010, I know the questions on whether or not to use an FHA versus a conventional loan will pick up again. Consumers will want to know how the new guidelines impact the total monthly payments on conventional and/or FHA loans.
Whether or not to get an FHA or conventional loan should be up to a borrower’s unique situation. In order to accomplish this, borrowers should always speak to a mortgage consultant who take the time to ask probing questions about their situation and goals instead of quoting rates for the same loan program to everyone that comes their way.
That being said, let me try to shed some light on the latest change by using the example of a borrower looking to buy a home for $200,000 with a credit score of 720+ using a 30 year fixed loan.
We will look at principal and interest payments and mortgage insurance payments only. Property taxes and home owners insurance will be ignored as they will be the same regardless of the loan program used under this scenario:
FHA: a 3.5% minimum down payment is required and the 1% up front mortgage insurance fee is rolled into the loan. This gives us a total loan amount of $194,930. At a rate of 4.500%, the monthly principal and interest payment is $988 and the monthly mortgage insurance payment is $146. That totals up to $1,134 per month.
Conventional: a 5% minimum down payment is required and there is no up front mortgage insurance fee. The loan amount is $190,000. At a rate of 4.500%, the monthly principal and interest payment is $963. This payment is lower than FHA option because the loan amount is almost $5,000 less for the conventional loan. The monthly mortgage insurance is $149 (higher than FHA per month), and the total is $1,112.
Under this scenario, an FHA loan is $1134 per month versus $1,112 per month for the conventional loan. A difference of $22, or 2% higher for the FHA loan.
I guess that settles it… it is always better to use a conventional loan… right? Well, maybe or maybe not. This scenario assumes the borrower has at least a 5% down payment and a credit score of 720+. It also assumes the borrower has the credit trade lines necessary to qualify for an FHA loan. That leads us to some great questions:
What options are there for a borrower with only 3.5% to put down?
What if one borrower has four lines of credit on their credit report, but the co-borrower only has one?
What if a family member wishes to gift the entire down payment?
What if the borrower needs a non-occupant-co-borrower to qualify?
What happens if one’s credit score falls below 720? What about 680?
Those are excellent questions and further proof as to why one should always speak to a mortgage consultant who asks lots of questions and gets all the details pertaining to each individual’s situation. We can talk about pros/cons for FHA and conventional loans, but answers to all of these questions (and more) need to be known before one truly knows which is the better loan program for them to use – FHA or conventional.
It has been about six months or so since FHA came out with updated guidelines, so they were long over due for one. The new rates on mortgage insurance haven’t been determined yet (either .85 or .90% of the loan amount per year), but that change is coming in October 2010.
In case you’ve missed some of the changes over the past year, you can catch up on those here (credit score requirements and seller contributions) and here (credit account requirement). If you read those posts, you will also remember that one of them dealt with the up front and monthly mortgage insurance premiums for FHA loans.
Well, rip up that section of the post because it is changing this October:
The up front mortgage insurance premium that is rolled into the loan will be reduced from 2.25% to 1.00% of the loan amount.
The monthly mortgage insurance premium will increase from 0.55% of the loan amount per year to either 0.85% or 0.90%.
If you are looking at those numbers, one looks good and the other doesn’t. One appears it was cut by more than half of its current amount while the other is almost doubled. That leads us to the important question – how does this affect someone looking to buy a home?
Fantastic question. The short answer – it will increase the total monthly payment for the borrower. Let’s look at some numbers to explain it.
Buying a home for $125,000 with an FHA loan before October 2010:
after your 3.5% down payment, the base loan amount is $120,625
the up front fee of 2.25% ($2,714) is put into the loan for a total loan amount of $123,339
the monthly mortgage insurance is $57, and at a rate of 4.500%, the total payment for principal, interest, and mortgage insurance is $682
Buying a home for $125,000 with an FHA loan in October 2010:
base loan amount is same as before, and the up front fee ($1,026) added in makes the total loan amount $121,831
the monthly mortgage insurance payment increases to $91, and at a rate of 4.500%, the total principal, interest, and mortgage insurance payment will be $708
that is about $25 more a month ($300 a year) for the borrower
How does that affect larger loan amounts? Under the same rate scenario for a purchase price of $300,000, the current total principal, interest, and mortgage insurance payment would be $1635 now and $1701 once October 2010 arrives. That is an increase of $66 per month or almost $800 a year.
In short, if you are looking to buy a home with an FHA mortgage and you’ve been sitting on the fence, now is a great time to hop off. Not only can you buy a home with a historically low interest rate, but you can also save a little more money if you act before the new FHA guidelines on mortgage insurance go into effect this fall. Looking to get started and the property is in the state of Georgia, you know how to find me!
Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services and a writer for “the Mortgage Blog.” If you would like to be a guest writer for "the Mortgage Blog" please contact Clay for details.
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