A recent National Association of Realtors (NAR) economist blog noted that 24% of first-time home buyers obtained FHA financing in January, while 59% obtained conventional mortgage financing. This is very interesting as it contrasts the picture painted in my blog post from September 2019. That post noted that 75% of Millennial home buyers obtained FHA financing. While not all first-time home buyers are Millennials, the recent data still appears to be a significant change from only about 18 months ago.
FHA mortgages once attracted many first time home buyers with a 3.5% minimum down payment. But beginning in 2014, home buyers could obtain conventional loans with only a 3% down payment. FHA loans also appeal to home buyers with lower qualifying credit scores. Conventional interest rate pricing charges higher interest rates for lower credit scores. Because FHA pricing places less emphasis on the borrower’s credit score than conventional loans, FHA pricing was often more attractive to buyers with credit scores less than 700, especially when those buyers could only make a small down payment.
Note that “standard” conventional loans with a 3% down payment require the borrower to pay a higher interest rate and mortgage insurance premium as compared to 5% (or more) down conventional loans. But conventional mortgage giants Fannie Mae and Freddie Mac began offering special loan programs (called Home Ready and Home Possible, respectively) to home buyers whose annual income falls below a threshold (currently about $65,000 in the Atlanta area) and with credit scores of 680+. With these programs, 3% down conventional loans become very competitive with FHA loans for buyers who qualify.
When a buyer qualifies for the Home Ready / Home Possible program discounts, they can save money in two ways as compared to FHA financing. First of all, conventional loans do not require up-front mortgage insurance. FHA loans require a 1.75% up front mortgage insurance premium that is typically rolled into the loan amount. Secondly, when the borrower’s equity reaches 20%, the conventional loan mortgage insurance can be cancelled, even when the borrower initially made only a 3% down payment. Borrowers who use FHA mortgages with less than a 10% down payment must pay monthly mortgage insurance premiums for as long as they own the mortgage. The monthly FHA insurance premium is 0.85 for all loans with less than 10% down payments. That is about $177 per month on at $250,000 mortgage. The fact that such a large insurance premium is permanent makes many buyers consider conventional loans more favorably.
Are you considering your first home purchase? Be sure to explore all the loan programs available to you, including conventional and FHA mortgages. Give me a call and I’ll help you compare your options to determine which will give you the lowest total payment, considering both the interest rate and the mortgage insurance components.
Covid continues to cause interesting (and some perhaps fun) trends in housing.
A January 26 Wall Street Journalarticle covers a new covid-induced housing trend…Millennials seeking to escape covid risk in urban environments are feeling isolated and lonely, so they are moving to remote co-living spaces. In these residences, the tenants rent furnished rooms in big shared homes. Former vacation homes, country manors, farms, or converted hotels are now serving as these communal living spaces.
The trend began in Europe. One example is in a village outside of Berlin and is described as a “5-acre property, based in a converted manor, includes shared offices, a sauna, a swimming pond, a yoga studio and 20 rooms for guests who get three meals a day and pay less rent than for a Berlin apartment.” The article states that every room is leased.
This trend’s popularity is also growing in the US, as more large companies announce delayed returns to office work. A company called Outsite operates multiple US facilities in places like LA, Lake Tahoe, Santa Cruz, and Oahu. Outsite’s international locations include France, Portugal, and Barbados. The site in the Canary Islands really got my attention. Right now, weekly rentals there are listed at $300! I’m ready to go. Here’s a photo of the Canary Island location.
As vaccines continue to roll out and the world returns to a more “normal” situation, these trends may fade away. People will likely transition back to more traditional single family living situations.
If you work in Georgia and decide to follow this trend, you might eventually return. When you do, please contact me if you want to buy a house. Mortgage interest rates will likely stay near historically low levels for a while. (They may move up from the current rock-bottom levels, but I suspect they will still be low, from a historical perspective.) The Dunwoody Mortgage team makes home buying efficient and we help you every step of the way. We even have tools to help you win a contract in this most competitive buying environment. Let me know if you want to learn more. For now, just join me in dreaming of living and working in the Canary Islands for a month!
After a crazy 2020 with the pandemic plus related economic impacts, a Presidential election, followed by a year-end pandemic surge, it’s time to ponder what will 2021 bring us. To recap 2020, the housing market started strong, until Covid cases appeared in the US and control measures were implemented. At that point, mortgage application volume showed year over year declines for four consecutive weeks. The following five weeks showed year over year negative growth, but the numbers stabilized. After this two-month period, purchase mortgage applications went positive. And now we have experienced almost 30 straight weeks of purchase mortgage application growth on a year over year basis. The average year over year improvement has been over 20%.
Due to the laws of supply and demand, home prices have risen in this time period. But mortgage interest rates have consistently decreased, enabling more home buyers to qualify to purchase higher priced homes, thus continuing to fuel the higher demand. Ultimately 2020 mortgage origination volume has been at a level not seen since 2003.
The Mortgage Bankers Association (MBA) now predicts that 2021 purchase originations will hit $1.59 trillion. That would be a new record – the previous record was $1.51 trillion in 2005.
The chief economist for the National Association of Realtors (NAR) recently stated, “This year may be one of the best winters for sales activity.” NAR predicts that a continuing housing shortage will keep home prices elevated. The NAR predicts a continued strong economic recovery, assuming an effective rollout of the new vaccine.
Are you still renting? With historically low interest rates, now is a great time to buy. You can buy more house now for the same mortgage payment you would have made on a lower priced home a year ago. The biggest challenge is that this market is very competitive. To win the contract, you need every advantage you can get.
Choosing the right mortgage professional can help you win the contract. (Learn more here.) Do you want to take advantage of the current low rates and perhaps buy a nice yard for some fun social distancing? Or do you want to upgrade your home office? Then contact me. I will do everything a lender can do to help you win the contract so you can move into your new home soon.
For the fifth consecutive year, the conforming loan limit is rising! I know what you may be thinking… wasn’t there a post similar to this in 2019, and the year before that… and the year… You get the idea, and you would be correct.
Historically, conforming loan limits rise every year, but it isn’t always true. From 2007 to 2016, the conventional loan limit remained steady at $417,000. With the housing crash and slow recovery, FHFA held the maximum amount steady for a decade. We experienced a modest increase in 2017 followed by more substantial increases for the next few years.
2017 max limit was $424,100 (up from $417,000 for only about a 2% increase)
2018 max limit was $453,100 (about a 7% increase)
2019 max limit was $484,350 (another increase of about 7%)
2020 max limit was $510,400 (just over a 5% increase)
the new 2021 maximum conventional loan limit will be $548,250, which is just shy of a 8% increase from 2020. As tough as this year has been, we’ll take all the good news we can get!
With 2021 just around the corner, we can begin using the new limits today.
This is great news for home buyers. Home prices increased substantially in 2020. Having a larger conventional loan limit helps when navigating the housing market.
As always, with the conforming loan limit increase, we can also expect the maximum FHA loan limit to increase as well. Once FHA makes their formal announcement, The Mortgage Blog will update you on it too!
Ready to get a jump on the spring market for 2021? The spring market is already starting! If you are looking to purchase in the state of Georgia, contact me today. I can get you prequalified and ready to make an offer on your new home in minutes!
At least one thing happened as expected in 2020… the CFPB extends the patch on qualified mortgages. The extension lasts until the mandatory compliance date of a final rule amending the General Qualified Mortgage.
The announcement comes only a few months before the expiration date of January 10, 2021. The CFPB is releasing the final rule to “ensure a smooth and orderly transition away from the GSE Patch and to maintain access to responsible, affordable mortgage credit upon its expiration.”
So no major disruption to the housing market, which is ideal considering the current economic situation.
Once the CFPB releases details of the new rule, I’ll be sure to post the details.
Historically low mortgage interest rates have created a refinance “boom” in 2020. Millions of homeowners have realized significant monthly savings by lowering their interest rates. Current rates are still very low by historic standards, but refinancing is now getting more expensive.
Several weeks ago, mortgage giants Fannie Mae and Freddie Mac announced a new 0.5% “Adverse Market Refinance Fee,” applied to all mortgage refinances (not purchase mortgages). They announced this fee as a risk management step to address “loss forecasting precipitated by continued economic and market uncertainty.” In layman’s terms, Fannie and Freddie are collecting this new revenue to offset losses from expected foreclosures due to the pandemic and related economic stress.
Fannie and Freddie announced that the new fee would be effective for all loans they purchase starting on September 1, 2020. There was an immediate outcry from the mortgage industry. One mortgage association executive called this new fee an “ill-timed, misguided directive,” and urged its repeal. The same executive noted that the fee will raise interest rates on “families trying to make ends meet in these challenging times.” Fannie and Freddie relented, a bit, and delayed the implementation of the new fee until December 1.
What does that mean now if you want to refinance? It may be too late to avoid the fee. Many lenders are now pricing this fee into their published interest rates. Why so early? It can take a lender 30 – 60 days to package closed loans and sell them to Fannie and Freddie. Since lenders will pay this fee beginning December 1, loans locked for 30 to 45 days in late September may not be sold to the mortgage giants until after the December 1 fee date. The lenders don’t want to pay the fee themselves, so many are now passing the fee along to their customers.
What does this mean for new mortgage customers? Well first, if you want to buy a home, the fee does not apply and you can still take advantage of the lowest interest rates in history. Call me to get prequalified and then you can start your home search. Secondly, if you bought a home in 2017, 2018, and early 2019, it might still make good financial sense to refinance now, even if you have to pay the fee. Call me and we can evaluate your current mortgage versus a new mortgage. I can calculate your monthly savings, your loan costs, and determine a “return on investment” period for you. I often hear investment advisors recommend, “Don’t try to time the market.” I think that applies to a refinance. If the numbers make good financial sense now, don’t wait for rates to fall further, because they could go up instead. Let’s talk and evaluate what’s the best move for you now.
An August 5 study released by Ellie Mae shows that Millennial purchase activity is increasing. The study showed that, in the Second Quarter 2020, Millennials closed more purchase loans than any other generation cohort. Ellie Mae’s COO, Joe Tyrrell stated, “Millennials are emerging as a dominant force relative to driving the purchase market forward in the next few years.” Tyrrell continued by saying that the Millennial home purchase boom is just beginning, and that as more Millennials reach home buying age, this age group will drive purchase volume in 2021, 22, and 23.
US Census data shows that over 4 million Millennials will reach the 29 – 30 age level every year for the next several years. That 29 – 30 age range is the average age when Millennials enter the home purchase market.
The report continued by stressing that online loan applications, automatic updates and eClosing capabilities give Millennials the seamless digital experience they want while “freeing up time for the human interaction necessary to answer questions or concerns they may have as they navigate the home buying process for the first time.” That point is key, and it emphasizes the importance of obtaining wise counsel from a mortgage professional.
Other recent studies have noted that while young people show enthusiasm for home ownership, they recognize the challenges they face such as increasing home prices, saving for a down payment, and unstable jobs or job changes. They also note student loan debt as another challenge.
A large percentage of young people report that they are not confident in their mortgage knowledge. Of these, almost three fourths said they would consult a parent to learn more about mortgages, while less than half said they would consult a mortgage professional. I literally just spoke with a fifty-something parent of three adult children. He’s buying a house and he does not understand mortgages at all. Mortgage guidelines and pricing are changing rapidly, especially in our pandemic-crazed world. Only we mortgage professionals understand all the details and can give complete and up to date mortgage advice.
So parents of adult children, don’t “guess” at your kids’ mortgage questions or tell them about how things worked when you got your loan 10 years ago. Have them call me. I can counsel them now on the best interest rates and the critical COVID employment verification requirements. And I know all the right questions to ask them – to avoid surprises coming up after they have a house under contract. I will make sure they are truly prepared to buy and I will coach them all the way through to closing, helping them avoid potential unpleasant surprises along the way.
I am very excited about this news. A bipartisan group of Washington legislators has introduced the American Dream Down Payment Act of 2020. If enacted, this bill would create special tax-advantaged savings accounts for eligible housing costs. The goal is to create down payment savings accounts similar to the 529 college education savings accounts. As a parent of college-aged children, I can say from experience that the 529 accounts have been a real blessing for my family. I think the tax savings are a great incentive to get potential home buyers saving for a purchase.
Alabama Senator Doug Jones stated, “Down payments are the biggest barrier to homeownership for first-time homebuyers, especially among low-income and minority Americans, and make it harder to build generational wealth that is often tied to home-ownership. Our legislation would provide a new path to help make the dream of buying a home a reality by making it easier to save money for down payments and other housing-related costs.”
Colorado Senator Cory Gardner said, “A down payment on a home can be a significant barrier to becoming a homeowner. Inspired by the popular 529 education savings accounts, this bipartisan bill will make it easier for people to save for a down payment.”
The bill’s sponsors cite a survey of renters that shows two-thirds view a down payment as a significant barrier to home ownership. Saving for a down payment can be harder with rising rents and student loan debts. Under the American Dream Act, states would establish the accounts and manage them like they manage 529 accounts today. The bill would allow potential home buyers to save up to 20% of today’s housing cost to use for eligible down payments and other housing costs. The bill would also allow family and friends to contribute to the accounts, the earnings from which could be used tax-free when withdrawn for eligible housing expenses.
The National Association of Realtors, Habitat for Humanity and the National Association of Real Estate Brokers all support this legislation.
I will now reiterate a statement I made in a recent blog post, a 20% down payment is not required to buy a home. Many home buyers obtain conventional loans with only a 5% down payment – even 3% down if they are willing to pay a higher interest rate. And there are income-based conventional loan programs that offer discounted interest rates and mortgage insurance for a 3% down payment – for those buyers who qualify. Home buyers can obtain 3.5% down FHA loans. And military veterans can buy a home with a zero down VA loan. Many potential home buyers might be able to purchase a lot sooner than they think.
Do you know someone (a friend or family member) who wants to buy a Georgia home, but who is afraid she won’t qualify? Connect your friend or relative with me. I’ll help her understand where she stands regarding qualifying for a home purchase. And, if necessary, I will help her plan for a future home purchase when she is ready, perhaps using a new American Dream account.
As a loan officer, I really like the Home Possible and Home Ready conventional loan programs. For eligible borrowers, these programs offer discounted interest rate pricing and discounted mortgage insurance premiums. To qualify, home buyers must make a down payment between 3% and 20% and complete an online homeownership class. Borrowers must also earn an income of 80% or less than the area median income for the census tract where they will buy a home.
I think these programs are such good deals that I have recommended (1) borrowers who planned to make a 20%+ down payment actually make less than a 20% down payment to qualify for the lower rate and (2) spouses or domestic partners put only one person on the loan application to keep income lower to qualify for the discounts (that’s perfectly legal and within guidelines, by the way!!) The discounts are especially powerful for people wanting to buy condominiums, as these programs allow the buyer to avoid the expensive “condominium price adjustment” in the interest rate calculation. The Mortgage Blog has covered these programs in the past.
So, what’s the good news? On July 12, Freddie Mac updated its Home Possible Eligibility Tool to reflect the new 2020 area median income limits issued by the Federal Housing Finance Agency (FIFA). Approximately 87% of counties will experience AMI increases in 2020. That means that more home buyers can now qualify for these great loan programs.
I checked the tool for some addresses in the Atlanta Metro Area. Before July 12, the Home Possible annual income limit in these areas was $63,360. Now the annual income limit is higher at $65,760. I also checked Fannie Mae’s Home Ready website and found the same adjustment. While the income increases are not huge, every little bit helps, right? Home buyers earning $64,000 to $65,000 now can take advantage of these great programs, whereas they could not before July 12.
I recently talked with a first-time home buyer. She said another lender suggested she get an FHA mortgage. I recommended that with her 740 credit score and qualifying income, the Home Ready / Home Possible programs would be much better for her. She could get a similar interest rate with a 3% down payment, and she could avoid the FHA up-front mortgage insurance, which would cost her over $4,500. She agreed with me.
Do you know someone who wants to buy their first home in Georgia? They need to find a mortgage lender who will explore all loan options to find the loan that best fits their own unique situation. Tell your friend or coworker to call me. I’ll make sure we structure the loan and their application to take advantage of the best loan program available.
In late April, the Mortgage Blog reported on mortgage forbearance impacts to home owners. But policies change quickly in our 2020 pandemic world, so it is now time for a forbearance policy update.
The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, recently announced that borrowers who have opted for forbearance can now refinance or buy a new home much sooner than previously thought. On May 19, FHFA stated that borrowers can obtain a new conventional mortgage after making three straight months of payments following the end of their forbearance period. Before this announcement, the policy was unclear and many experts thought that homeowners would not be able to obtain a new conventional loan for 12 months after exiting forbearance.
Fannie Mae clarified two other policy details:
Borrowers who missed payments due to a COVID-19 financial hardship but have repaid the full amount of the missed payments will have no waiting period to obtain a new mortgage.
Borrowers who requested forbearance but did not actually miss a payment will also have no waiting period.
FHFA Director Mark Calabria said, “Today’s action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible.”
Ultimately, these announcements are positive for the industry, but they do not make me change my recommendations from the prior forbearance post. Those are: (1) If a borrower cannot make a mortgage payment, forbearance is a better option than a late payment or default, and (2) Forbearance is not a wise move for someone who still earns enough to make timely mortgage payments. Using forbearance to skip payments to save for something else such as a down payment on an investment property will still cause the borrower to wait before obtaining a new mortgage. Only now, the wait will not be as long as previously thought.
Do you have a friend who keeps talking about the current historically low interest rates but hasn’t taken action yet? Connect your friend with me and I’ll help them navigate our pandemic-minded guidelines to close a new mortgage and realize potentially great monthly savings with a low rate.
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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