Posts Tagged ‘how much home can I afford’

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!

PMI vs MIP vs MPI… What is the difference?

May 17, 2017

Lots of acronyms there. What do they all mean?

Many people are familiar with the term “PMI” or Private Mortgage Insurance. This is insurance the borrower pays on behalf of the lender in case of a mortgage default. The insurance protects the lender and becomes a requirement when purchasing a home with less than a 20% down payment (or refinancing with less than 20% equity in the home).

MIP stands for Mortgage Insurance Premium and is completely the same thing as PMI, but that is what mortgage insurance is called on FHA loans.

So what is MPI? That stands for Mortgage Protection Insurance. When buying or refinancing a home, the home owner will get plenty of these offers in the mail in the weeks/months after buying a home. Why? Companies pay people to search through newly recorded deeds at the county. This is legal since the deed is a matter of public record. With the deed information, a company knows your name, your new home address, and who did your loan. The offers for Mortgage Protection Insurance will come regularly in the mail, and these companies make it look like the letter is from your mortgage company. They can be sneaky with these letters.

What does MPI do? If you choose this option, MPI will pay the loan balance off for a borrower in the event of their death. Sounds good, but let’s dig a little deeper. The premiums for this insurance are typically significantly higher thank those for life insurance as they require minimal to no medical examination or health screening. Anyone in any health condition can get this insurance by paying the monthly premiums. The other downside is that as mortgage payments are made, the principal balance of their loan reduces. This means the payout in the event of the borrower’s death reduces… in other words, the premiums stay the same, but the death benefit decreases every month.

MPI is a fantastic option for someone who cannot, for whatever reason, qualify for term life insurance. If you can get term life insurance, it is the better way to go. Typically, people can get more coverage that doesn’t diminish each month for a lower monthly premium.

Just bought your first home and don’t have life insurance? Or maybe you’ve owned your home for a few years, but your family has grown since you last looked at your life insurance coverage. Regardless of your need, my friends at the Sheldon Baker Group can assist you in getting free quotes from the top carriers in the life insurance industry. You can check out the Sheldon Baker Group life insurance page here. You can also call 678-793-2322 or email to sheldon@sheldonbakergroup.com.

Whether you use my friends at the Sheldon Baker Group or someone else, life insurance is important as you own a home and/or have a growing family. Use the MPI offers in the mail as a reminder to evaluate your coverage.

 

Federal Reserve’s impact on rates

March 21, 2017

I feel like I spend a lot of time devoted to the topic of the Federal Funds Rate. The main reason is the misconception out there when it comes to the Federal Funds Rates. Last Wednesday, the Feds raised the Federal Funds Rate again. Every time this happens, I get calls and emails with people worrying about mortgage rates going up. That isn’t necessarily the case.

Mortgage rates are not determined by the Federal Funds Rate… car loans, credit card rates, second mortgages… those are impacted by the Federal Funds Rate.

Mortgage rates are determined by the value of Mortgage Backed Security Bonds (MBS bonds). As these bond values go up, mortgage rates go down. When these bond values fall, mortgage rates go up. Typically, when the Federal Funds Rate increases, it should help mortgage rates improve. Why?

MBS bonds hate inflation… I mean they can’t stand inflation. As inflation rises, MBS bond values plummet and make interest rates worse. As the Feds increase the Federal Funds Rate, it helps fight inflation. This, in turn, helps MBS bond values to rise, and mortgage rates to improve:

  • the Federal Funds Rate increased in December 2015. Over the next few months, mortgage rates improved by 0.500%. Rates stayed around these levels for all of 2016. Rates got worse at the end of 2016 after the election fueled a major stock market rally. That triggered another typical trend with rates… when stock values go up, bonds go down, and mortgage rates go up.
  • The Funds Rate was increased again in December 2016, and mortgage rates improved by 0.125% in the 6 weeks between Fed meetings.
  • We are about a week past the most recent rate increase by the Fed (third time since December 2015). So far, mortgage rates have improved by another 0.125%

What does this mean? When you hear a story about mortgage rates rising because of the Federal Funds Rate going up, don’t panic. The Funds Rate may go up, but mortgage rates could improve.

If you are looking to buy a home in Georgia, contact me today to get started. We have two tools to help you in an ever-changing rate market.

  • Float Down: Should rates improve after we’ve locked your rate, we can float it down at no cost to you one time during the loan process. If rates improve by 0.250% or more, we are within 30 days of closing, but 8 days prior to closing, we can float the rate down to current market value. That’s it. Easy! We have a three-week window to take advantage of this.
  • Lock-and-Shop: Worried that rates might go up? Don’t be. We can lock a rate for 60 days without being under contract to purchase a home. The rate is locked, find a home, and we start the loan process. The Float Down option as described above also applies to the Lock-and-Shop. So, you can get the protection of locking the rate, but also the opportunity to lower the rate should mortgage rates improve. The rate will not get worse so long as it is locked.

It is as simple as that!

Down Payments Basics for Home Buyers

February 23, 2017

Blog HeaderA recent home ownership survey showed that 3 times more first time home buyers than repeat buyers say they lack enough money for a down payment.  Perhaps this is due to folks not truly understanding down payment requirements.  Many people believe you must make a 20% down payment to buy a home.  That is a myth!! 

Home buyers can purchase a home with as little as 3.5% down for a FHA loan.  Depending on your credit score and available cash, you may be better off going with a 5% down conventional mortgage.  In certain cases, you may be able to qualify (depending on your income and geographic area) for the low interest rate, low cost mortgage insurance “HomeReady” program, for as little as 3% down.  (Certain geographic areas have no income requirements.)

So what if you don’t even have 3% – 5% available for a down payment?  Are there options?  The first question for you is, “Do you have a relative who can give you the down payment?”  If you do have a loving person who will give you the down payment, we can use that with the proper documentation.  Note that the giver must be a blood relative or a spouse.  Generous ex-spouses are not considered family members so they cannot provide a gift.

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If you lack the available cash and you don’t have a giving relative, do you have a 401K or similar retirement account?  Depending on your plan’s rules, you may be able to borrow against your account to help fund your down payment.  Talk with your plan administrator for the details.

If these options are not available to you, you may need to wait and save.  But the time needed to save 3% to 5% is much better than saving for the 20% many people think is required.  Note that you must have 20% to avoid mortgage insurance, but if you can handle the mortgage insurance included in your monthly payment, you can buy a home with much less than 20% down.

Do you need coaching on the best loan / down payment option for you?  That’s what I do!  Call me at Dunwoody Mortgage.  Together we will evaluate your situation, review your options, thus allowing you to make the best decision for you and your family.

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Planning Your Home Purchase While Renting

February 16, 2017

A recent survey reported that 2.9 times more first time home buyers than repeat buyers expect a home purchase delay due to their current lease terms.  My first reaction to this statement is “No duh!”  I would expect most repeat buyers do not have a lease but own their home.  Lease terms definitely can affect a first time buyers’ purchase timeframe.  A lease is a written legal contract between the landlord and the lessee.  Note that I am not an attorney, but here are some common sense thoughts about leases and home purchases.

Firstly, plan ahead.  If you know your lease terminates in 6 months and you want to buy a house, go ahead and start planning now.  Submit a mortgage application and get prequalified.  Build a relationship with a Realtor.  Set aside more money for a down payment and closing.  Planning ahead may help you win loan approval and buy your dream home.  Waiting until the last minute will likely cause you stress and frustration.

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Secondly, know your lease terms.  What is the penalty for terminating your lease early?  Do you forfeit your security deposit?  Is there a different penalty?  Then evaluate the contractual penalty versus the home you want.  If you find and can buy your dream home, and the lease termination penalty is not too steep, you may want to go ahead and buy now.  The key here is to know the penalty so you can evaluate your opportunities.  Is missing the opportunity to buy the perfect home worth saving the security deposit you paid a few years ago?  Only you can make that choice.

Thirdly, talk with your landlord.  If your lease expires in 30 days and you still haven’t found the perfect house, perhaps you can negotiate a month to month lease or a 90 day lease continuation instead of signing a longer term lease.  Perhaps you could offer a slightly higher monthly rent to compensate the landlord for the shorter term lease, thus “buying more time” to search for and find the right home for you.

In short, planning ahead, knowing your lease details, and making an effort to negotiate with your landlord may give you the flexibility you need to find the perfect first home, without the stress of having a “deadline” hanging over you.  When you are ready to do your home purchase planning, call me.  I will give you as much time as you need to coach and counsel you, making sure you are truly ready to buy your first home.

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Volatility Reigns

January 31, 2017

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Market volatility is going to be the theme for 2017… or at least the theme for the foreseeable future. Basically, I am picking up where I left off a couple of weeks ago. As discussed last time, Wall Street seemed to embrace the idea of a Trump administration as stock values soared after the election… well, so did interest rates. Rates rose over a point in the roughly 2 months after the election. Rates did begin to improve some until…

Stocks hit 20,000 for the first time ever. Rates went back to their higher levels since the election. Then something unexpected happened… Trump signed the executive order for the immigration ban. The Dow is off about 200 points from its all time high, and interest rates improved by 0.250% in the last few days. It is going to be a bumpy ride. If this is too much, then take a deep breath, keep calm, and…

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In addition to keeping calm and loving our pets, is there anything else that can help when buying a home in this volatile market? Yes, there is!

As briefly mentioned in my last post, there is a one time FREE rate float down on locked interest rates with Dunwoody Mortgage Services. After we lock the rate, should rates improve by 0.250% or more, then we can float the rate down to the current market for the home purchase. The rate will NOT increase while locked; it can only improve while it is locked.

Looking to buy a home in Georgia? Like the idea of locking to protect your rate, but having the option to lower should rates improve? If so, contact me today? I can get you prequalified to make an offer, and explain all the details of the float down process.

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Economic Uncertainty and Mortgage Rates

January 17, 2017

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How does economic uncertainty impact mortgage rates? I’m glad you asked!

In general, when the economic outlook is good, investment dollars go into stocks. As money goes into stocks, there is less money available to go into bonds. This flow of money causes stock values to rise, and bond prices to fall. As mortgage backed security bonds (or MBS Bonds) values fall, interest rates rise.

Some recent recent examples:

  • Brexit Vote: when the UK voted to leave the EU, that sent shockwaves through the world financial markets. Stock markets around the world pulled back, and bond prices went up. Mortgage rates improved until…
  • US Presidential Vote: Mortgage rates soared as stocks soared after Trump was elected president of the United States. Seems stocks felt Trump’s election would be a boon for business in the US. Stocks flirted with all-time highs day after day once Trump won the election. With this much money going into stocks, bond prices dropped, and mortgage rates increased by over a full point (from low 3’s to mid 4’s) in the weeks following the election.
  • US Presidential Inauguration: as the nation gets ready for the 45th President of the United States, there are signs the honeymoon period is over. A recent article said Trump would have the lowest approval rating of any President at inauguration. The gains in stocks have slowed, and there is growing concern about the “trade war” rhetoric. Maybe a trade war works out in the long run, but the short run in hurts business, hurts investments, and can cause a recession. With these thoughts in mind, we’ve seen stocks pull back over the past couple of weeks, and mortgage rate have improved.

What does the future hold? For those wanting to see lower rates, economic uncertainty is a main contributor to rates improving. It is no coincidence that all-time lows in mortgage rates occurred during the Great Recession. It is also no coincidence that mortgage rates haven’t dramatically improved since the economic recovery from the Great Recession has been slow and painful for many. And there in-lies a great dilemma… the quickest way for mortgage rates to improve (outside of Governmental influence such as Quantitative Easing) is from economic hardship. While low rates are great, in the long run, a sluggish economy isn’t great either.

Looking to buy or refinance a home? If refinancing, sitting and waiting isn’t a bad idea. I am currently watching rate for several clients in hopes they continue to drop. Once we hit our target rate, we get started. If buying, this is trickier as you can’t sit and wait for a long time on rates when there is a closing date involved! This is where our FREE one time rate float down comes in handy. Ask me about it! If the home is in the state of Georgia, contact me. We can get started today on your loan.

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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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Continuing Ed for MLOs

September 22, 2016

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The fall is here, and I know what that means… time to complete annual Continuing Education so I can keep my Mortgage Loan Originator (also called MLO) License.

I am happy to say, I’ve completed the steps for another renewal. Yeah! But what exactly goes into a renewal if you do not work for a bank? It is a good question that I’ll happily address.

For Mortgage Loan Officers working for non-depository institutions (such as mortgage brokers or licensed mortgage lenders like I am at Dunwoody Mortgage Services), there are several hoops to jump through each year:

  1. Need to complete an approved 8 hours continuing education course.
  2. Must authorize a background check every other year. If a felony is on an employee’s record, then their license is revoked. Georgia will not allow felons to have a license to work as a MLO. The background is done on a regular basis since an arrest could occur after the initial background check.
  3. Must authorize a credit report check that looks at more than just a credit score:
    • Any unpaid judgements will result in a license suspension and possible revocation.
    • If a MLO is behind on child support or alimony, it will cause the license to be suspended and possible revoked.
    • Must be current on mortgage payments and student loans.
    • Foreclosures are also a big no-no.
    • Bankruptcies and other debt delinquencies can cause problems on a license renewal

In short – to be licensed to work in the mortgage industry, the MLO must not be a felon, pay their bills, and not be behind on any child support/alimony/court ordered payments.

What about MLOs that work for banks? What do they need to do to keep their license? That is up to the bank really as the only requirement for their MLO license renewal is to be employed by a bank. It is the bank’s responsibility to address the continuing education and vetting of their employees. Technically, that means MLOs that have a felony on their record (The Georgia felony requirement doesn’t apply to nationwide banks, but does apply to local Georgia banks such as Resurgens Bank), or are behind on the child support, have their own home foreclosed upon, etc. can still work with clients to purchase a home if a large bank is willing to hire them.

It turns out that the most educated and vetted individuals working in the mortgage industry actually don’t work for banks.

Want to buy a home in the state of Georgia? Want to work with a professional that is educated, vetted, and has a decade of experience originating mortgages? Contact me today. I am more than happy to help you get going!

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VA Loans: Bonus Entitlement

August 23, 2016

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Bonus entitlement is extra entitlement that a VA loan applicant can use to buy a home under some specific scenarios. For example, let’s say someone plans to buy a new home as a primary residence prior to selling their current home secured by a VA loan. Another example would be the entitlement the borrower can use after they may have cost the VA money from a short sale or foreclosure on a previous VA loan.

So how does it work? Well, I can’t give you complete details. There is a down payment requirement for sure, but the amount of the down payment is actually determined by the loan amount and how much of their previous entitlement was used either through a loss on a short sale or foreclosure OR how much of the entitlement was used on the purchase of the previous home.

The VA provides a worksheet to use when qualifying buyers, and it varies. For example, earlier this year I worked with someone who had to use bonus entitlement due to a short sale. They also needed 100% financing. Their max purchase price wasn’t the allowable $417,000 using the normal entitlement, but was around $230,000 using their bonus entitlement. Anything above that price point would require money to be contributed as a down payment.

Another client I had this year purchase a home using a VA loan at $170,000. Based on the amount he lost the VA on a previous short sale, 100% financing wasn’t even an option at any loan amount. After using the worksheet, he needed to make about a 6% down payment on that purchase price of $170,000. Even with the short sale from several years ago, he could still buy a new home with a VA loan. While the down payment was higher (about 6%) versus an FHA loan (only 3.5%), the VA loan was a better deal for this buyer. He qualified for the VA loan without needing the funding fee, and there is never mortgage insurance on a VA loan. He would have to make mortgage insurance payments on the FHA loan.

Assuming our VA loan applicant has a qualifying credit score and meets the income requirements, bonus entitlement can be used so long as they have enough to meet the down payment requirements.

While this post doesn’t give complete specifics about how to proceed, the purpose was to let veterans and VA loan applicants know it exists and can be used.

Wanting to buy a home but denied because of entitlement? Is the home in the state of Georgia? If so, contact me today. I’ve closed clients with VA loans that were denied at other lenders by using their bonus entitlement. Make sure all of your options are exhausted before giving up.

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