Posts Tagged ‘interest rates’

Mortgage Rates and the Second Part of the Fed’s Announcement

June 23, 2017

The Federal Reserve’s announcement last week that it was increasing the Federal Funds rate included a second statement regarding the Fed’s bond holdings.  The Fed began buying Treasury and mortgage bonds after the Great Recession to lower long-term loan rates.  In the process, the Fed increased its debt holdings by over five times the previous balance – to over $4.5 trillion.

As part of last week’s announcement, the Fed said it will allow a small amount of bonds to mature without being replaced.  The Fed also said this amount will gradually rise as markets adjusted to the process.  Experts stated, “This process could put upward pressure on long-term borrowing rates.”

With the Fed out of the bond-buying business, the overall demand for Treasury bonds and mortgage backed securities will decrease.  A reduction in the demand for these investments should cause their prices to fall.  Remember that when values of mortgage backed securities fall, mortgage rates rise.

 

That is how the second component of last week’s Fed announcement can push mortgage rates higher.  Not by increasing the Federal Funds Rate, but by no longer buying bonds (and also possibly selling the bonds they already own). We could be entering an environment of lowering bond values and rising mortgage rates.

We can assume that Fed will be careful not to shock the markets too dramatically, so we don’t expect rates to dramatically increase. The goal of the Fed would be to complete the second part of their statement without pushing mortgages rates up.

That being said, mortgage rates are currently at their lowest levels of 2017.  Now is a great time to buy a home – from a mortgage perspective.  If you are looking to buy in Georgia and you want focused service with a keen attention to detail, call me at Dunwoody Mortgage Services.  We will do as much of the “heavy-lifting” as possible so your mortgage experience is as pleasant as possible.

 

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How Fed Decisions Could Affect Mortgage Interest Rates

June 19, 2017

Yesterday, the United States Federal Reserve increased its short-term interest rate by 0.25%.  From a historical perspective, the “Federal Funds Rate” is still very low.   Many people assume that this increase in the Federal Funds Rate means that mortgage interest rates will rise too.  Not so fast…it’s possible that the opposite could happen.  When the Fed raised this rate in December 2015, mortgage interest rates declined in the weeks following the announcement.  Mortgage interest rates remained very low throughout 2016 until immediately following the Presidential election in November.  The Fed raised rates again in December 2016 and March 2017.  Current mortgage interest rates are about 0.5% lower than their level when the December 2016 Fed rate increase occurred. 

Why do mortgage rates sometime move in opposition to the Federal Funds Rate?  It’s complicated, but at a high level, mortgage interest rates tie more closely to the investment markets than to the Federal Funds Rate.  The majority of American home mortgages are purchased by Fannie Mae and Freddie Mac.  Fannie and Freddie then “package” these mortgages into mortgage-backed securities (MBS).  They then sell these MBS as investments. 

So insurance companies, mutual fund companies, and other large investors then buy and sell MBS as a component of their larger investment portfolios.  That means that the MBS must compete with other investments for investors’ attention. 

Many times, if the market for equities increases (as reflected by indices like the Dow Jones or NASDAQ), mortgage interest rates will also increase to keep MBS competitive with the equities.  Similarly, if interest rates on certain Treasury Notes and other bond-type investments increase, mortgage interest rates will follow suit.

Ultimately, it means that in many cases, an increase in the Federal Funds rate does not automatically mean that mortgage interest rates will increase too.  If the stock market reacts negatively to the Fed’s decision or other economic news, mortgage rates can decrease even though the Federal Funds rate has increased. 

Yesterday’s Federal Reserve statement also included another announcement that could affect future mortgage interest rates.  The Fed stated that it will begin reducing its huge holdings of Treasury and mortgage bonds.  Let’s talk about the mortgage impacts of that announcement in another blog post next week.

For now, if you, a friend or family member wants to buy a house and fears that home price appreciation and interest rate increases will hurt your ability to buy, give me a call at Dunwoody Mortgage to discuss your options.  We offer VA, FHA, conventional, jumbo, and Home Ready loans – we offer a mix of mortgage products that can help different buyers’ differing situations.   I would love to explore your options with you.

Geographic Income Limits for Home Ready Program

May 1, 2017


One potentially limiting aspect of the Home Ready program is that income limits are specified by census tract.  (Notice I said “potentially.”  We will get back to that point very soon.)  To qualify for the program, the borrower’s income must be less than or equal to the income limit set for the geographic area of the subject property.  Fannie Mae specifies and publishes the geographic income limits as part of the program.  Many areas in Metro Atlanta have an annual income cap of $67,200, but there are many other areas that do not have an income limit.  Now back to the word “potentially.”  If the home you want to buy lies in a no-income-limit area, you could make a million dollars per year or even per month and still qualify for a Home Ready loan for that house.

Two key points to remember here:  First of all, the income limits are based the subject property’s location, so you can have varying income limits in different parts of the same county.  In fact, the eligibility maps go down to the street level, which means that houses on one side of a street could carry a $67,200 income limit and houses on the other side of the same street could have no income limit.  Secondly, the income limits apply only to borrowers on the loan.  If two employed people plan to live in the home, but only one of you is on the loan, then the other occupant’s income does not count toward the income limit.  Of course that means that the sole borrower must qualify for the loan using his or her income only.   

So how can you determine whether you qualify for the Home Ready program’s low down payment / low-interest rate / low mortgage insurance benefits?  You can call me at Dunwoody Mortgage!!  We will first discuss your income and the geographic area where you want to buy.  I can look up the area online and determine whether your income qualifies for Home Ready in that area.  If you meet the geographic income limits, we will complete your loan application, pull your credit report, and run your application through our Automated Underwriting System (“AUS”).  The AUS findings will then determine if you do qualify for Home Ready’s great benefits. 

Buying a house in Georgia and curious whether you can obtain a Home Ready loan?  Give me a call and we will review Home Ready and your other loan options.  Don’t think you will qualify?  We at Dunwoody Mortgage have secured loans for many customers who initially thought they would not qualify.  Don’t assume you cannot win loan approval!  Call me and let’s discuss your situation.  We might just surprise you!! 

 

 

 

How Could Fed Rate Increase Affect Mortgage Rates?

December 20, 2016

For the first time in a year, the United States Federal Reserve raised the federal funds rate by 0.25%.  How will that impact mortgage interest rates?

Here’s a history lesson:  The last time the FED raised the federal funds rate was in December 2015.  By the end of January 2016, mortgage interest rates actually improved by about a half point.  Mortgage rates then stayed flat (for the most part) until June and July, when they continued to improve.  Mortgage rates stayed at this very low level until election day.  From election day through December 15, 2016,  mortgage interest rates increased about 0.75%.

When trying to analyze mortgage interest rates, it makes sense to look at a mortgage loan as an investment.  Here’s why…Fannie Mae and Freddie Mac purchase most of the conforming mortgages originated in the USA.  They “pool” these mortgages into mortgage-backed securities (“MBS”) which are bought and sold on Wall Street just like other investments.  MBS provide investors with regular, predictable income (from the interest payments on the mortgages), so they are considered less “risky” than stocks and mutual funds.

But ultimately, MBS must compete with all other investments for investors’ dollars.  In the recent, post-election period, stock values have increased making equity investments more attractive.  To compete, lenders had to raise mortgage interest rates to provide a greater return and compete with the high-flying equities.

 

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In addition, China has been selling large amounts of its US government debt holdings.  As China sells, that creates pressure to raise interest rates on US government debt.  Again, government debt competes with MBS for investor dollars.  As interest rates on government debt increase, mortgage rates may have to rise to remain attractive to investors.

So what is a home buyer to do?  If you plan to buy soon, you can relax knowing that, once you get a home under contract, your lender can lock your interest rate through your closing date.  This means that if market interest rates rise between the time you lock your rate until closing, you still pay the lower rate specified in your lock.  You are protected against rate increases.

In addition, Dunwoody Mortgage offers a free interest rate float down on some mortgage products.  This means that, if market mortgage rates drop after you lock your rate, we might be able to lower your rate before closing.  With the free float down, after you lock your rate, you are protected should interest rates increase, and you may still be allowed to benefit if market rates decrease.

Ultimately, we at Dunwoody Mortgage are working in the best interest of our borrowers.  If you are looking to buy a house anywhere in Georgia, and mortgage interest rate changes make you nervous, contact me.  We can set you up with a loan program that can help protect you against the ups and downs of mortgage interest rate changes.

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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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Credit Reports and Qualifying for a Mortgage #3

October 19, 2016

In prior posts we reviewed the credit score and public record components of a credit report.  But even with a qualifying score and a clean public record history, that doesn’t mean you are in the clear.  There are other credit report factors that can create underwriting hurdles which we must overcome.  Here are some other details we consider…

The credit report shows a history of open and closed credit accounts.  Data shown for each account includes:

  • Current account balance.
  • Account credit limit.
  • Account type – credit card, mortgage, student loan, auto loan, etc.
  • Account status – open, closed, collections, etc.
  • Minimum payment – these are important because they are included in the client’s (let’s call her Mindy) debt to income ratio.  If the total of all monthly payments is too high, Mindy might not qualify for the loan desired.
  • Late payment history – late payments are categorized as follows — 30 day lates are not good; 60 day lates are bad, and 90 day lates are really bad.  The report shows the dates of the most recent late payments.

If Mindy’s late payments were made more than 2 or 3 years ago and she has been consistently making on-time payments since then, it likely will not cause loan denial.  However, if Mindy’s late payments occurred after a bankruptcy, then underwriting may deny the loan.  I’ve had this happen where the underwriter said no to a client with a bankruptcy in 2010 followed by two 30-day late payments in 2012.

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  • Account disputes – if Mindy has officially disputed an account, it will show on her report.  Underwriters do not like account disputes.  This is especially true for FHA mortgages when a disputed account balance exceeds $1,000.  In some cases, the dispute can lead to loan denial.  I’ve had clients who had to go through a multi-week process to get a dispute removed from their credit before we could win loan approval.  I search for the word “dispute” on all credit reports.
  • Collections accounts – when an account has a collections status, this can cause loan denial.  This is especially true for FHA mortgages.  If the total outstanding amount of all collections accounts exceeds $1,000, underwriters will not approve an FHA loan until the balances are paid in full.  I had a client with 3 collections accounts earlier this year.  The client had plenty of cash, so we simply included the payoff of all collections accounts at the closing of her home purchase.

Once again, there is much more to a credit report than the score.  If you know someone who wants to buy a home in Georgia, don’t let them get mislead by a lender in a hurry.  Refer them to Dunwoody Mortgage, we will invest enough time up front to give everyone great confidence that the mortgage will actually close.

 

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The Simplest Loan Around – Part 3

September 8, 2016

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Continuing the FHA streamline refinance theme… Here’s an example.  I’m currently talking with Confidential.  Confidential is self-employed.  Confidential’s spouse, Anonymous, recently took a new all-commission sales job. 

With a standard mortgage, the income and employment verification for Confidential and Anonymous would be very tedious at best, and they likely may not qualify.  Underwriters want to see a 24 month history of income for self-employed persons.  And they will average the 24 month income to determine the borrower’s current monthly income.  That hurts self-employed borrowers whose incomes are growing.  But those normal underwriting concerns do not apply to the FHA Streamline Refinance!

The interest rate on Confidential and Anonymous’ current mortgage is 4.75%.  That is high by today’s standards.  The good news is that they bought their home with a FHA loan several years ago.  I quoted Confidential and Anonymous a new FHA interest rate at less than 3.5%, and we expect to lower their monthly payment by over $220!  Given the closing costs for the loan, this refinance will pay for itself in less than a year.  After that, they are saving over $2,500 per year!

Streamline Definition

I’m not worried about this loan being approved in spite of the fact that Confidential and Anonymous are self-employed and they cannot provide the standard 24 month income history.  And we don’t have to fret about an appraisal value.  They have made all FHA mortgage payments on time, and this refinance will reduce their payment by over 15%.  They qualify for what might be the easiest loan around – the FHA Streamline Refinance.

So how do you determine if a refinance is right for you?  There are many considerations, but we have a couple of rules of thumb:  (1) If you can lower your payment by $100 per month or more, and (2) if the refinance will “pay for itself”* in 36 months or less, then you may want to investigate refinancing options.  (*Divide the loan closing costs by the estimated monthly savings to calculate how many months will pass before the savings cover the entire cost of the refinance.  If this time period is 3 years or less, then refinancing may be a good option for you.)

If you want to lower your current monthly payment by taking advantage of current low, low mortgage interest rates, contact me here at Dunwoody Mortgage.  I will take the time to help you understand all of the options available to you, and I will coach you to make the best financial decision possible for you and your family.

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The Simplest Loan Around – Part 1

August 4, 2016

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It’s a fun time to be a mortgage lender.  Interest rates are hovering near their historic lows.  They’ve been close to rock bottom for a while, but this Brexit situation has pushed them back to almost the lowest level in history.

Right now, for borrowers with a credit score of 680 or higher, I can quote an interest rate in a range right around 3.25% for a 30 year fixed rate FHA mortgage.  To me that is amazing.

That rate applies to both purchases and refinances.  But it gets even better for refinances….if you have an existing FHA loan that you want to refinance, we can do a “streamline” refinance that is much easier than a standard loan.

So what is this awesome FHA streamline refi program?  Here are the details:

  1. It is only for people with an FHA mortgage.  If you have a conventional mortgage, this does not apply.
  2. It is only for people who are current on their FHA mortgage.  If you are behind on your payments, you don’t qualify.
  3. It is only for people who have no more than one late payment in the last 12 months.  If you have multiple late payments recently, you don’t qualify.
  4. It can only be used if it lowers your monthly payment by 5% or more.  And by monthly payment, we are talking about principal plus interest plus mortgage insurance.  Escrow is not considered.
  5. If you have previously refinanced an FHA mortgage on your home, 210 days must have passed from the date you closed your last refinance before you are eligible.

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So that’s what it takes to qualify, what’s the big deal?  What makes this streamline program so special?

In short, these loans are the fastest, simplest way for FHA mortgage holders to refinance to today’s low, low rates.

The streamline program simplifies home refinancing by waiving the documentation typically required for a mortgage, including income and employment verification, credit score verification, and an appraisal of the home. Homeowners can also possibly use the program to reduce their FHA mortgage insurance premiums (MIP).

I’ll provide more details in my next post, but keep this in mind for now, if you or a friend / family member bought a house before January 2012 or in the second half of 2013 / early 2014, ask yourself or the other person (1) do you have an FHA mortgage and (2) have you refinanced that mortgage?

If their answers are “Yes” and “No,” tell them you know a mortgage lender who might be able to save them thousands of dollars on their home loan, and can make the process really easy.

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When You Can’t Use Assets as “Income”

May 9, 2016

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I’ve been talking this week with Don (not his real name), a retiree from the Northeast who wants to move to Atlanta to be closer to family.  Don has over $500,000 in an investment account and takes out $4,000 every month for living expenses.

And I cannot count these previous monthly distributions as “income” for mortgage purposes.  Don holds his money in a standard brokerage account.  Lending guidelines will not allow use of historical withdrawals from that type of account as a basis for “income.”

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If Don held these funds in a retirement account – an IRA or 401K account – then we might be able to use his historical distributions as a basis for income.  (More about that in a future post.)

Don has found a house that he really likes, but his allowable income will not support the mortgage payments.  I may have to recommend that he buy the house with cash.

If you know a retiree who is thinking about buying a home in Georgia, tell them to carefully consider how their assets are allocated and how they receive their income.  Not all assets and income are treated equally.  Have them call or email me at Dunwoody Mortgage Service.  We will discuss their options and we can even help them coordinate with their financial planner.  I can help them structure the deal right the first time – without wasting their time on homes that they cannot buy with using current asset accounts.

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VA Loans Offer Low Interest Rates

April 18, 2016

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If you have friends or family who are military veterans, it’s a great time to buy a house – from a mortgage perspective.  We have already reviewed how veterans can obtain loans with a low, or even no, down payment.

To make things better, interest rates are near their historic lows and VA rates are some of the best around.  Let’s do a quick comparison of a VA loan vs. a conventional loan.

A hypothetical situation here – Phil Soldier is an Army veteran.  He has an average credit score of 690 and plans to make a 10% down payment.  He can apply for a VA loan and obtain an interest rate of about ½% to ¾% lower than his rate for a similar conventional loan.  In addition to his lower interest rate, Phil does not have to pay a monthly mortgage insurance premium.  On a loan of around $250,000, Phil could easily save $150 more on his monthly payments.

Military Salute

Making a low down payment and having lower monthly payments sounds great to me!  What do you think?

We will take a look at VA jumbo loans in the next blog post.

VA mortgages are a great product – they make buying a house more affordable than any other program out there.  If you are a veteran or if you know a veteran friend or family member who wants to buy a home in Georgia, call or email me at Dunwoody Mortgage Service.  We will discuss loan options and help you obtain all the great VA loan benefits you have earned with your service.  We love serving military veterans.  Delivering great loans with excellent service is a small way that we can say “thank you” to those who have served.

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