What could cause rates to rise?

Mortgage rates are near their all time lows. I have clients ask me when will rates be “high” again. After many years of expecting rates to dramatically rise, my answer now is “I’ll believe it when I see it.”

While I am not expecting mortgage rates to go from their near historic low levels to 6.5% (where rates were when I started the mortgage industry), there is one thing (one word in fact) that could cause mortgage rates to jump off of these low levels – Tapering.

What is tapering? Before we get into that, what does the Fed have to taper from?

Since the start of the pandemic, the Fed continues supporting the financial markets by purchasing massive amounts of US Treasuries and mortgages.  The Fed controls short-term interest rates directly.  But they have also influenced long-term rates – especially mortgage rates – through these asset purchases.

While the Feds do not plan on raising rates this year (or next year), one thing they can do is reduce the amount of mortgage backed security bonds they purchase. The Feds used this technique to lower interest rates during the financial crisis over a decade ago, and they employed this technique again to stabilize the markets during covid.

It is unlikely that rates on home loans would have hit and stayed at these historic lows without the Fed purchasing mortgage bonds. Now that the economy is recovering, one wonders when the Fed will cut back on this program. Tapering means the Fed will start to slow down these purchases over a period of time. Even the mention of this word could affect the interest rate markets. It happened as the economy recovered out of the Great Recession, and rates will get worse when tapering starts again coming out of the pandemic.

If you’ve been thinking about refinancing, now is a great time to do it. Contact me today. We’ll run through the numbers on a new loan, compare this to your current loan, and see if a refinance is something that makes sense for your situation.

RefiNow is here

Great news if you have a loan backed by Fannie Mae… RefiNow is here!

This is the refinance program I mentioned last month. Fannie Mae is up and running with Freddie Mac looking to start their version in late August. While there are some slight differences between the two, the main tenets are the same.

The programs are designed to encourage eligible low-income borrowers to refinance and lower their interest rates and monthly mortgage payments.

• The loan must be held by Fannie Mae (use Fannie Mae’s lookup tool) or Freddie Mac (here is Freddie’s lookup tool)
• This is a rate/term refinance (no cash out)
• The property must be a single-unit home with no late mortgage payments in the past 6 months (no more than 1 in the past 12 months)
• The loan must be seasoned for 12 months prior to loan application for the refinance
• The Borrower’s qualifying annual income cannot exceed 80 percent of the local area median income (AMI). As of this post, there is not an official lookup tool for RefiNow regarding AMI. That said, Fannie Mae does have an AMI lookup tool for another loan program they offer. Go here for an AMI lookup tool.
• Debt to income ratio can be as high as 65% (this is way higher than normal)
• The new loan to value cannot exceed 97 percent

In the metro Atlanta area, most areas have AMI at/around $65,000. Depending on other debt held by a home owner, a potential loan amount that would qualify for this could be in the $400s.

Thinking about refinancing but still haven’t? Why wait? Contact me today. Whether one qualifies for RefiNow or just a normal refinance, rates are still very low. In just a few minutes, we can do an analysis of your current loan versus a new one and see what makes sense for your situation.

Home improvement surges

Stop me if you’ve heard his before… inventory levels are low. Like super low. I am routinely hearing from agents they are receiving 20+ offers on their listings within 24-48 hours of the home being listed. I’ve been in the mortgage industry for 15 years now, and I’ve never seen it like this.

I’ve covered many reasons for the shortage of housing (and also famously said in 2019 that 2021 would be the year the market would begin to balance out. Wow, was that wrong). Covid has a lot to do with is. The uncertain economy/recovery has some people concerned.

Hearing the news of limited housing supply, some home owners fear putting their home on the market. They know they can sell. The concern is finding the new home. Instead, home owners are renovating their current homes. Recent stats from BuildFax supports this sentiment.

• Money spent on home repairs soared in November; up 31.85% year-over-year.
• Remodel volume and spend, which is a subset of home repairs that includes renovations, additions, and alterations, also increased by 6.38% and 7.60% compared to November 2019, respectively.
• These trends (along with new construction) are causing building material costs to soar.

Given the uncertainty with the recovery, along with rising home prices due to the tight supply, some homeowners are simply reinvesting in their current home.

If this is you and you need money for those renovations, consider a cash out refinance. I have completed many, many cash out refinance loans over the past year. I can help you too!

What about those out there who have to buy a home… the family has grown… need a home office… no room for an addition on the home…. how does one set themselves apart in this market?

• Work with a loan officer (like me) who can get you pre-underwritten. This way your offer can say the loan is approved pending the appraisal and clear title. This sets the offer apart from almost all offers out there.
• Work with a loan officer (again, like me!) who will talk with the listing agent to let them know how smooth of a closing to expect.
• Do everything in your power to make a non-contingent offer.

Need money for a renovation on your home?… Want to know more about some of those items mentioned above for your home purchase?… If the home is in the state of Georgia, contact me today. Whether it is a refinance or a purchase, I can have you pre-approved for a home loan same day. I can get a pre-underwritten approval in just a couple of days. It can be that quick!

Covid-19 creating more changes in mortgage industry

Covid-19’s reach extends everywhere in the world. The scope of the impact is staggering. It seems like every day there is something new. Lets try and cover some of the impacts to the mortgage industry.

If you are tired of Covid coverage, then how about something completely unrelated. Who can resist watching hamsters eat burritos!

 Previous posts touched on how Covid impacts mortgage rates and changes for appraisals and foreclosures. Today, let’s touch on more changes.

• Verification of Employment: there is no standard policy across the board right now. Just know with all of the furloughs and layoffs across the country, documenting continued paid employment is emphasized. This can range from providing additional pay stubs (even if the loan is already approved) to multiple verbal verifications of employment up to the closing date. One good thing is employers are allowed to be called on their mobile phones for these verbal verifications. This is a great change as many offices are closed and everyone is telecommuting.
• Government loans experienced a change to qualifying credit scores. Most banks increased the minimum credit score for government loans (FHA, VA, USDA) from 580 to 660.
• Some banks have put caps on the amount of equity that can be taken out during a cash out refinance. Not everyone has made this change. Those who implemented the cap set a limit of $50,000 maximum cash out.
• Many banks stopped offering Jumbo loans (a Jumbo loan is a loan amount over $510,400).
• Almost all banks offering non-Qualified Mortgages (non-QM) have stopped funding closings altogether. A non-QM loan is any loan not backed by Fannie Mae, Freddie Mac, or Ginnie Mae (FHA/VA/USDA loans).
• The CARES Act contained language and the option for home owners impacted by Covid to request loan forbearance on their mortgage payments from their loan servicers.

A forbearance is pretty much like deferring a student loan payment. Payments do not need to be made, but interest accrues. For example, let’s say the monthly interest on a mortgage payment is $750, and six mortgage payments are deferred. This means the principal balance of the home loan is increased by $4,500.

Who qualifies? It is designed for home owners who have been directly impacted by Covid. The forbearance provision isn’t really designed for people in this category. Given the increase to one’s principal balance, forbearance also isn’t something one should use unless desperately needed.

Do you qualify? There is so much misinformation out there, be careful when investigating. I cannot stress this enough. To see if you qualify, contact your loan servicer (who you make your mortgage payment to each month). They will let you know more about applying/qualifying.

So… that is a lot!… and that is only this week. Stay tuned as The Mortgage Blog will put up more information as things unfold.

Still looking to buy a home? People are still buying and selling real estate. Looking to take advantage of historically low interest rates? If the property is in Georgia, contact me today. In a few minutes, I can get you qualified and ready for your new home loan.

Made it this far? Need a laugh? Enjoy…

Home equity reaches all time high

The amount of equity in US homes now exceeds the levels seen before the housing crash. Available equity in the US is just over $6 trillion, which is 25% higher than the peaks seen during the housing boom.

Black Knight Inc uses data and analytics to provide forecasts for the mortgage and real estate industries. Their surveys indicate just over half of home owners have rates at 0.750% or higher than current rates. The average home owner has $140,000 in equity in their homes.

Meaning… homeowners have enough equity to avoid PMI (or get rid of PMI if currently on their loan) and lower their monthly payment by moving to a better interest rate.

With rates at yearly lows, and lots of equity in homes, it is the right environment for a refinance. So… should you refinance?

The main question I ask clients is “how much longer do you plan to remain in the home?”

• If the homeowner is looking to move in the near future, then it rarely makes sense to refinance.
• If the monthly savings begins to exceed $100 per month and a break-even point is around 2-3 years, then a refinances begins to make more sense.

Another question I get is “when should I consider refinancing?” It is a great question, and my answer is simple… if the current interest rate is 0.500% or higher than your rate, then at least have a conversation.

Own a home in Georgia and your interest rate is at or over 4.500%? Wondering if now is a good time to refinance? Contact me today. In just a few minutes, we’ll put together some numbers to see if a refinance could make sense. A credit pull isn’t required for this conversation.

Mortgage rates are as low as they’ve been in a couple of years. There is more equity than ever in US homes. If you are planning on remaining in your home for 2+ years, now may be a great time for a refinance.

Interest rates move lower

Interest rates/Mortgage rates (same thing) moved to a two year low earlier in the month. While rates have since rose a bit, they are much lower than the start of the year.

Rates are well over a half point better since the start of the year. This decrease is beneficial for two reasons. First, it is helpful for those out looking to buy a home right now. Let’s say someone was looking to get a loan for $250,000. With the improvement in rates, a buyer can now get a loan for $265,000 and have the same payment. More buying power!

The other is for existing home owners. The Chief Economist at Freddie Mac said with rates dipping below 4%, “there are over $2 trillion of outstanding residential loans eligible to be refinanced – meaning the majority of what was originated in 2018 is now eligible”

So… should I refinance? A couple of questions you can ask yourself:

1. Did I purchase a home in 2018? If yes, then rates are definitely lower than when you bought. It would be worth looking into what a new payment could be with a lower rate.
2. Are current 30 year fixed rates of at/below 4% better than a half a point or more than your current rate? If yes, then it is worth looking at the numbers.
3. Considering taking some equity out for a home project? I am working with several clients doing a cash out refinance. With the drop in rates, these clients are getting a lower rate, cash out for home maintenance, and keeping a similar payment to what they are making now.

Do you fit into any of those questions? If yes, it might be time to review the numbers for a potential refinance. If you are a homeowner in the state of Georgia, contact me today! In a short phone call, we can decide if the time is right for a refinance. If rates aren’t low enough for it to make sense, we can set a target rate and I’ll contact you when rates move lower. It is that easy. If nothing else, it is worth inquiring to make sure you don’t miss out on this drop in mortgage rates!

Interest Rates lower from Brexit

Interest rates have moved lower since the Brexit vote at the end of June sent stocks crashing, the Pound Sterling down to lows versus the Dollar it hasn’t seen in decades, and all of the politician who led the Brexit campaign quit. But how much have interest rates actually moved since the Brexit vote?

I’ve kept up with interest rates daily since 2009. Since the Brexit vote toward the end of June, interest rates have only improved by 0.125-0.250%. Based on the number of “low interest rate” stories out there, you’d think interest rates would have dropped by at least a half point and have set new all time historic lows since the vote. Why all of the stories? I think it has to do with several factors:

• yields on treasury bonds have experienced some major change, but treasury bonds don’t impact interest rates. As discussed countless times on this blog (do a search for “MBS” or “mortgage backed security” in the search box at the top right of the main page of this blog), interest rates are impacted by the movement of mortgage backed security bonds. Those prices haven’t changed near as much as the treasury yields.
• the big move on interest rates was back in January of this year when interest rates dropped by over a half point from the start of the month until the end of the month. Interest rates have been about at this level for most of the year.
• why the “low rate” stories now? Well, in January, stories were focusing more on the Spring market, home sales increasing, new construction startups increasing, etc. By the time we approach July, the Spring Market is over, there is a natural lull in home sales (everyone goes on vacation in July), and something is needed to fill the 24-hour news cycle. The Brexit vote along with rates improving some since that vote provided the needed stories.
• since this is a normal “lull” period in the housing market, marketing efforts can now be turned to potential refinances.

Are interest rates low? Yes, absolutely.

Should one consider refinancing? Of course!

But don’t get swept away by it. You want to talk with an experienced mortgage loan officer who can give you the pros and cons of refinancing. For example, this morning I spoke with someone who wanted to refinance using a 15 year mortgage and pay discount points to get the rate into the 2’s. After running the numbers, his “break even” point on the monthly savings versus the closing costs for the new loan increased when he paid discount points to lower the rate! That wasn’t a typo… by paying discount points to get a lower rate, the amount of time needed to break even increased.

In the frenzy to secure a low rate, be sure to ask questions. Work with a mortgage loan officer who watches for trends and doesn’t hop onto the bandwagon of recent events. Someone who will discuss loan options with you instead of just quoting a rate and asking you if you are ready to get started. If the home you are looking to refinance is in the state of Georgia, contact me today. I can help you get going!

Besides… interest rates aren’t at their historic lows yet. That means there is still room for interest rates to improve.

 

How to pay for home renovations

It’s the spring, which means it is time for a home remodeling project. Here’s the big question… how am I going to pay for that new kitchen?… swimming pool?… addition to the home?… etc.

If you don’t have the money on hand, and there is equity in your home, there are two ways to go about getting money to pay for a remodeling project.

Cash Out Refinance – with interest rates as low as they are, a refinance in general could be in order. While doing the refinance, look into a cash out refinance. Depending on the amount of money being taken out, the interest rate is only slightly higher. The max loan to value right now on a cash out refinance is 80% of the value of the home. For example, let’s say the home appraises for $400,000, and the balance on the current mortgage is $220,000. Taking 80% of the $400,000 value is $320,000. When you pay off the balance of $220,000, then there is $100,000 left over to go towards the project.

You are not required to take the full 80%. Maybe the kitchen remodel is only $60,000, so only borrow $280,000 in our example. There’s no reason to do the full amount if it isn’t needed. The rate is fixed for the life of the loan if choosing a fixed rate mortgage option.

If your current rate is over 4.500%, then this could make a LOT of sense as you could take cash out AND get a lower interest rate. A complete win-win.

Home Equity Line of Credit – this is a second mortgage and a bit of a different option. Let’s say you have some money on hand and are unsure of the total cost of the project. Instead of needing a majority of the money, you may only need a little more than what is in your investment accounts. In a situation like that, then a home equity line of credit (called HELOC) may be the way to go.

Using a HELOC, interest is paid only on the amount being borrowed. You can simply open the line and have the money available, like a credit card, and use the line when needed. The total loan to value of both mortgages combined can usually go up to at least 85% of the value of the home.

A potential draw back here is the interest rate. The rate floats with Prime Rate (determined by the Federal Funding rate). Depending on the amount of the equity line, credit scores, etc., the rate is normally “Prime + 1.” With Prime Rate being 3.25% + the 1%, the HELOC rate would be roughly 4.250%. The rate can go up/down depending on what the Feds to with the Federal Funding Rate. If using a no closing cost HELOC, the rate may be more than “Prime + 1.” One other drawback is the fact most HELOCs come with a prepayment penalty.

How to choose between the two? Here are some things to consider:

• Choose a cash out refinance if you have a firm idea of the project cost, knowing you will need all of the money (no reason to pay interest on money you take out from the refinance if it won’t be used), and if the interest rate will be about the same or better.
• Choose a HELOC if you are unsure of the cost of the project, already have some funds available, and have a really low rate on the first mortgage and don’t want to lose that rate by doing a cash out refinance.

Trying to decide what is right for you? Ready to apply and get going? If the home is in the state of Georgia, contact me today. We can discuss the pros and cons of a cash out refinance versus a HELOC and choose the one that is best for your situation. Once this is done, hello new kitchen/bathroom/addition to the home!!

Financing a cash purchase

We are currently in a seller’s market, and you are looking to buy a home. You want to be competitive, but you don’t want to tie up cash for 6+ months. After buying a home, the must be on title for at least 6 months in order to do a cash out refinance OR open home equity line of credit.

If there was only a way to pay for the home in cash now, and then get a loan to recoup the cash immediately. There is now!

Buyers who purchase a home within the past six months in cash are eligible to finance the property today. That way a more competitive cash offer can be presented to the seller, and the home buyer can still get financing after they close on the home.

To qualify for Delayed Financing:

• The new loan amount can be no more than the actual documented amount of the borrower’s initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points.
• The loan is subject to the maximum allowed loan to value ratios for the cash out refinance.
• The purchase transaction was an arms-length transaction.
• The transaction is documented by the HUD-1, which confirms that no mortgage financing was used to obtain the subject property. A recorded trustee’s deed (or similar alternative) confirming the amount paid by the grantee to trustee may be substituted for a HUD-1 if a HUD-1 was not provided to the purchaser at time of sale.
• The sources of funds for the purchase transaction are documented (such as, bank statements, personal loan documents, HELOC on another property).
• All other cash-out refinance eligibility requirements are met.

Wanting to make a cash offer on a home, but not tie up the cash for the next 6+ months? Buying that home in the state of Georgia? If you’ve answered yes to both, contact me today to get started. I can help guide you through the loan process to get you approved for a cash out refinance without the 6 months seasoning requirement.

 

Delayed Financing

Let’s say you found a great deal on a home, but there is a problem. The home isn’t inhabitable… the plumbing was stolen out of the home, so there is no running water… there is major roof damage that needs to be repaired, and the current owner can’t/won’t do anything about it… the home was a foreclosure that now has broken windows, smashed doors, missing light fixtures, etc. In any of these scenarios, a bank would not lend money on the home until the home was repaired and could pass an appraisal inspection.

You are fortunate enough to be able to buy the home in cash, but don’t want to part with the money when the home could be financed at historically low interest rates. Sure, you could buy the home in cash. Then do a cash out refinance after owning the home for six months, but the money is gone for six months. Until now…

With a Delayed Financing loan, a buyer can purchase a home today “as is”, and apply for a loan as soon as the next day. In this scenario, a buyer can make a cash offer, get a quick close, and turn around and get their money right back instead of waiting six months. Here is how you do it:

1. The purchase must have been an arms-length transaction.
2. The cash used for the purchase must be appropriately documented.
3. The new loan amount cannot exceed the cost of buying the home.
4. To prevent fraud, a copy of the HUD-1 from the purchase of the home will be required.
5. A title search must show there is not liens on the property.

If the home meets these criteria, in addition to the normal loan approval process, the buyer can get their money back in weeks instead of months.

Have you purchased a home recently that needed work done before the home would pass an appraisal inspection? Do you want to buy a home like this? If you are able to purchase the home in cash, you can get that money back sooner rater than later. If the home is in Georgia, contact me today, and we can get started!