Posts Tagged ‘mortgage rates’

COVID Could Negatively Impact the Rental Market

June 18, 2020

It’s fascinating to see studies about how the pandemic could impact the future residential real estate market.  The latest Mortgage Blog post noted that many city dwellers are now considering a move to the suburbs.  Here’s another impact:  A recent renters survey showed that 35.9% of all renters say they likely will not renew their lease, while another 38% are not sure or are somewhat likely to renew their lease.  Most striking is that 41.6% of renters who pay $1,750 or more per month say they will likely not renew their lease.  The article states that apartment fitness centers, pools, and clubhouses closed due to the pandemic contributed to this renter sentiment.

As someone who likes growing my net worth, I must say this survey makes sense to me.  At today’s historically low interest rates, it is possible for someone in the Atlanta area to buy a $300,000 home with a 5% down payment, and have a mortgage payment of only about $1,750 per month.  (This assumes a 3.5% interest rate.)  With a monthly rent payment, the entire amount is an expense.  Renters do not build wealth from their residence.  But a home buyer begins building her net worth with her first mortgage payment.  For the scenario mentioned here, the very first mortgage payment includes $448.53 of principal, or equity in the home.  So only $1,302 is an expense.  That seems like a better use of money to me.

And, given recent home price appreciation, it is reasonable to assume that an owner’s home will appreciate over time, building additional wealth.  So home owners build wealth with appreciation over time and with each payment.  My question is, “Why would someone pay $1,750 in monthly rent when they could own a $300,000 home instead?”  I suppose I can understand if people love their apartment’s amenities or if they don’t want to deal with home maintenance issues.

But many people believe myths that make them think they cannot buy, when they actually can.  One myth is that a buyer must make a 20% down payment.  I have closed many mortgages where the home buyer made only a 3% down payment.  And I’ve closed VA loans where the borrower paid $0 down.  To fund 3% down payment a buyer can get a gift from a relative or perhaps borrow from a 401K account.  Another myth people believe is that they must have “great” credit.  Even in the pandemic world, we can close mortgages for people with a 620 credit score.  And there are ways to improve a credit score over time.

Would you like to grow your wealth every month with homeownership in Georgia instead of making an expense-only rent payment?  If yes, contact me today.  We can start planning now to help you buy a home as soon as possible.

 

 

Updated News Regarding Mortgage Forbearance….

June 3, 2020

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.

How Relatives Can Assist Home Buyers…

April 16, 2020

A recent survey of 1,045 adults found that 77% of the Gen Z and Millennial cohorts expect their parents’ financial assistance when purchasing their first home.  Of the young people surveyed, 38% expected help funding a down payment, 31% expected parents to co-sign on their mortgage, and 24% percent expected help covering closing costs.  From the lender’s perspective, this is all very doable as long as the needed documentation is delivered and all other lending criteria (e.g., credit scores and debt to income ratios) are carefully met.  Documenting financial assistance from relatives can be challenging if the borrower does not plan in advance, so here are some suggested “best practices” for home buyers who expect this help.

The “gifts of cash” concept covers help covering both down payments and closing costs, as mentioned in the survey.  Parents and other relatives can give cash to cover all aspects of the buyer’s cash to close – down payment, closing costs, and prepaid escrow.  To be approved, such gifts need to come from documented relatives, which includes parents, grandparents, siblings, and even aunts and uncles, along with spouses, domestic partners, and fiancés.  From experience, I can report that underwriters will likely not approve gifts from nieces or nephews and not from ex-spouses, as the relationship has been legally terminated.

Underwriters expect gifts to be carefully documented.  This includes a gift letter signed by both giver and buyer.  The letter states that the money given is a gift, and not a loan.  Loans to help buyers are prohibited.  If the giver makes the gift using a check, the underwriter will want to see a copy of the check.  And if the gift occurs before closing, the underwriter will want to see bank statements from the giver and the buyer showing the funds coming out of the giver’s account and into the buyer’s account.  For some loan types, the giver may have to show proof of funds and document the source of any “large deposits” into the giving account.  My preference for conventional loans is to have the giver wire the funds directly to the closing attorney’s escrow account.  When this is done for a conventional loan, the only documentation typically required for the buyer and giver is the gift letter itself.  It’s much simpler and less time consuming, so I recommend this approach when possible.

Relatives and even friends can co-sign mortgages along with the home buyer.  (Yes, friends can co-sign…I recently verified this for a potential client.)  To do this, we combine loan files for the buyer and the co-signer.  As long as the combined file meets all underwriting criteria (credit scores, available cash to close, and combined debt to income ratio), underwriting will approve mortgages including the “non-occupant co-borrower.”

Do you know a young person who wants to end her expense-only monthly rental cost?  Ask her if she is expecting an income tax refund this year.  Then connect her with me.  I’ll help her explore how best to fund a home purchase with that refund and assistance from family, if necessary.

Mortgage Interest Rates Continue Falling

February 18, 2020

Mortgage rates – already at near historic lows – continue to improve.  Current interest rates are basically a full percentage point lower than this time last year.  I’ve recently locked clients into rates lower than I’ve ever had the privilege of doing in my entire career as a loan officer.    

What factors allow rates to continue improving?  One key component is the continuing spread of Coronavirus and the fears related to this public health concern.  In times of fear and uncertainty, investors typically move money to less-risky investments.  Given the fear and uncertainty related to coronavirus, investors have recently been doing this very thing.  Investors have been putting more money into US government bonds.  This drives bond prices up and interest rates down.  The US 10 Year bond trended upward from August 2019 until December.  Since then, the interest rate on this bond has moved consistently downward.

Investors consider mortgage backed securities to have a risk profile similar to US government bonds, so mortgage interest rates have declined along with rates on government bonds.  So mortgage rates now sit very close to historic lows.

How long will these low rates last?  That requires a crystal ball and I don’t have one.  If health officials can control the coronavirus spread and ease public concerns, perhaps rates will start moving higher again.  But looming over the entire situation is the 2020 Presidential and Congressional elections, which could bring more uncertainty to offset any positive news on the coronavirus front.

The bottom line is this:  Home owners who purchased or refinanced in 2017, 2018, or the first half of 2019 may have a great opportunity now to lower their interest rate by refinancing.  And home owners with FHA loans a couple of years old may be able to refi to a conventional loan now and lower or eliminate their mortgage insurance premiums.  Some of my clients have lowered their monthly payments by over $200 a month.  One even lowered her payment by over $300 a month.  Did I just describe you or a friend you know?  If yes, call me (or tell your friend to call me) to discuss refinancing now, before rates start increasing.  Don’t miss out on potentially large savings.

Owning Makes More Financial Sense than Renting

December 3, 2019

A recent Census Bureau report showed that construction began for 11,000 single-family built-for-rent houses in the second quarter of 2019.  Mind you, these are not apartments, but single-family homes built specifically to rent.  A recent National Association of Home Builders blog post stated that renting by choice is gaining popularity among millennials.   

The CEO of a build-for-rent developer stated, “What we were shocked to find out was it was people that had great credit, they had money for down payments, they had great incomes but they just didn’t want to own a home.”  So their renter clientelle does not consist of people experiencing job loss, credit challenges, etc.  They could buy a home, but they choose to rent instead.  It’s a lifestyle decision.

Here’s a negative consequence of this choice.  William Wheaton, a MIT housing economist, recently made said to NPR, “Owning still makes much more sense.  If prices continue to rise, buying will be a money tree.”  Even home price appreciation occurs at low levels, that growth serves to build personal wealth for the home owner.  So home price appreciation builds homeowner equity.  In addition, the principal component of every mortgage payment also builds homeowner equity.  A tenant’s monthly rent checks are expense only – there’s no wealth building when it comes to paying rent.

From a long-term wealth perspective, owning builds wealth better than renting (especially with today’s low interest rates and strong home affordability).  If you are renting in Georgia now and wonder if owning would benefit you financially, give me a call.  We’ll run some numbers and see if home ownership is better for you financially.

Home Affordability at its Highest Point in Years

November 1, 2019

According to a recent report by Black Knight, Inc., home affordability reached its best level in years in August 2019.  This follows a consistent decline in home affordability from late 2016 through late 2018.  Home affordability hit a nine-year low in November 2018, as mortgage rates rose to the 5% range.  At that time, the national home payment to income ratio rose to 23.7%.  According to Black Rock, this led to an extended slow down in home price growth.

Since November 2018, mortgage rate declines plus this slower home appreciation has greatly improved home affordability.  The national payment to income ratio has dropped to 20.7%.  This ratio means that the monthly principal and interest (P&I) payment on an average-priced home now requires only 20.7% of the national median income.

Put another way, interest rate declines between November 2018 and August 2019 has increased home buying power by about $46,000. In August 2019, a home buyer would pay the same P&I amount on a $246,000 home mortgage as she would have paid on a $200,000 home mortgage in November 2018.

On the other hand, I found websites and recent articles showing that Atlanta-area rents have risen around 4% in the preceding 12 months.  In short, owning a home in Atlanta has gotten more affordable while renting has gotten more expensive.

Do you rent your home in Georgia?  Has your rent increased making money tight?  Give me a call and let’s talk about mortgage affordability.  You don’t need perfect credit to buy a home, and you will need only a minimum 3% to 3.5% for your down payment.  (Military veterans can obtain VA loans with a 0% down payment.)  With the current low mortgage rates, you might be able to buy more home than you thought you could, for a lower monthly payment than you thought you would have to make.  And with buying a home, you will get the equity / wealth benefits from potential home appreciation.  It’s a GREAT time to buy a home in Georgia!!

Is It Time to Refinance An FHA Mortgage?

October 11, 2019

As discussed previously, using an FHA loan to buy a home makes sense for home buyers with relatively low credit scores and limited down payment funds. FHA loans offer very attractive pricing for these home buyers.

Interest rates have now fallen to their lowest level in three years, so it may be time for current FHA mortgage holders to consider a conventional mortgage refinance. The interest rate savings may not be huge, but changing from FHA mortgage insurance to private mortgage insurance could bring significant financial benefits.

I’m working with a couple now (we’ll call them Jack and Diane) who bought their home in 2017.  At that time, their qualifying credit score was in the mid-600’s and they had just enough cash for the FHA minimum down payment.  This was an ideal scenario for an FHA mortgage.

Fast forward to 2019 – their credit scores have increased and home appreciation in their neighborhood has given them more equity.  A conventional loan now makes sense for their updated situation.  They can refinance to a new interest rate that is just 0.25% less than their current rate.  Normally such a small monthly savings, by itself, does not justify the cost of refinancing.

In addition to the interest rate savings, they will also save money every month with lower mortgage insurance payments.  Switching from their FHA loan to a conventional loan will lower the mortgage insurance monthly premiums by about $120.  Their total monthly savings equal $160, and their refinance has a break-even point of just over two years.  Considering the interest rate savings plus the mortgage insurance savings makes their refinance worthwhile.

An added benefit is that their new private mortgage insurance will cancel in a few years (unlike the FHA insurance which is permanent), increasing their monthly savings to about $200. So, Jack and Diane will realize this bonus savings in just a few years.

Ultimately, home buyers who used an FHA loan two or three years ago may reap big rewards from a conventional refinance now, assuming their property value has increased.

Ron moved into your neighborhood in the last three years or so. At the neighborhood Halloween party, ask Ron if he has heard of an FHA mortgage. If he replies, “Yes, that’s the type of loan I have,” ask him if he would like to lower his monthly payment.  Then connect Ron with me.  We will quickly determine whether moving to a conventional mortgage can help Ron financially.

American Homebuying Power Grows

September 26, 2019

Overall economic circumstances keep improving for potential homebuyers.  First American’s Real House Price Index (RHPI) shows that Americans’ homebuying power increased consistently from January through July 2019.  The index tracks single-family home price changes adjusted for mortgage interest rate changes and personal income changes.

Mortgage interest rates trended downward during the first half of 2019, and they are even lower now compared to mid-year.  First American reported mortgage rates in January were 4.5%, and rates moved into the 3’s over the summer.  Average household income increased over the same time period.

Decreasing mortgage rates combined with increasing household incomes provide a double boost to Americans’ home buying power.  The Index’s “house-buying power” for consumers increased roughly 10% from January through July.  According to First American’s Chief Economist, Mark Fleming, “House-buying power is at the highest it’s been since we began tracking it in 1991.”

That means now is a great time to buy a home!  Even though home prices have been increasing, the decrease in mortgage rates coupled with household income growth make right now the best time to buy a home in almost 30 years, based on the RHPI measures.

Do you have a Georgia friend who complains about a landlord who won’t fix problems?  Let them know that their homebuying power is stronger than it has been in decades, and connect them with me.  I’ll help them obtain the best home mortgage for their unique situation as quickly as possible.  I’ll help your friend take advantage of today’s really low mortgage rates before they increase to 2018 levels or even higher.  Together, we will fire their unresponsive landlord!

Which Type of Mortgage To Use – Scenario 1

August 13, 2019

Now that everyone understands the basics of FHA and conventional loans, let’s do a buyer comparison. Both Jack and Diane want to purchase a $300,000 home. They both have $11,000 (3.7%) for the down payment and qualifying credit scores of 680 for Jack and 795 for Diane.

With Jack’s 680 credit score, his monthly payment for a conventional loan (principal, interest, and mortgage insurance “MI”) would be $1,820.82.  For a FHA loan, his payment would be $1,563.19. There’s no comparison. For Jack, the better deal is the FHA mortgage, even though it has the draw backs of the up-front mortgage insurance and the permanent monthly mortgage insurance payment.

With Diane’s 795 credit score, her monthly payment for a conventional loan would only be $1,582.61. Her FHA loan payment would be $1,542.47.  In this case, Diane is also better off, at least initially, with the FHA loan. One thing to keep in mind is the MI premium. If Diane chooses the FHA loan, that premium is permanent (assuming Congress does not change the law). If she chooses the conventional loan, the insurance will eventually be cancelled, dropping her payment to $1,442. The key question for Diane is, “How long will you stay in the home?” If less than 5 years, Diane’s best bet is the FHA loan. If longer than 5 years, Diane may want to consider the conventional loan.

Notice the FHA payments for these examples. They differ by only about $21 even though the credit scores are drastically different (680 versus 795). This shows why FHA is better for those making a purchase with lower credit scores. The buyer doesn’t see as steep of an increase in their payment.

In the next blog post, we will make the same comparison with a 10% down payment.

Does your friend Scott talk about buying a house?  Does he understand which loan program is best for him?  If not, have Scott contact me. We Dunwoody Mortgage professionals understand the details of these mortgage programs, and we coach our buyers to make the best decision given their circumstances.  Often, with a slight change to their home purchase situation (change of down payment, paying down a credit card balance, etc.), we can help our clients save money with a better interest rate or a lower mortgage insurance cost.  Home buyers should consider all options before buying, and Dunwoody Mortgage offers the service and knowledge to help home buyers make the best decision possible.

Types of Mortgages – Conventional

July 30, 2019

Now let’s take a look at conventional mortgage details.  (Click here to review FHA loan details.  And here is a link to the Home Ready program changes.)

In general, conventional loans are less forgiving of credit issues than are FHA loans.  Conventional loans require longer wait times after derogatory credit events like foreclosure or bankruptcy.  And the borrower’s credit score has a much greater impact on conventional loan pricing versus FHA loans.  The lower one’s credit score, the higher the interest rate.  In some cases, a credit score 100 points lower could cause the borrower’s interest rate to increase by almost one percentage point.

Ultimately, this makes conventional mortgages less attractive to borrowers with lower credit scores and more attractive to those with higher credit scores.

Conventional loans do not require up-front mortgage insurance, but private mortgage insurance (“PMI”) is required for down payments less than 20%.  PMI rates vary based on the borrower’s credit score and down payment.  For the same loan amount, the monthly PMI will be dramatically different for a 690 credit score borrower making a 5% down payment vs. a 780 credit score borrower making a 15% down payment.  PMI is not permanent.  It automatically terminates when the borrower’s loan balance reaches 78% of the original contract price or appraised value (whichever is lower).  And, in certain circumstances, the borrower can request PMI cancellation prior to reaching the 78% threshold.

Borrowers can obtain a conventional loan with a minimum 3% down payment.  This often only makes sense when the borrower’s credit score is 720 or higher.  With a lower score, the PMI cost for a 3% down loan can get pretty expensive.  We often recommend that conventional buyers make a 5% or more down payment to keep PMI costs lower.

Another advantage of conventional loans is the maximum loan amount.  While FHA caps out at a purchase price of around $390,000 using the minimum down payment, conventional loans can go higher.  How much higher?  How about a $500,000 purchase price with a 3% down payment.  That is about 25% higher than the FHA maximum.

In the next posts, we will compare some hypothetical home buyer scenarios to determine which loan is best – conventional or FHA.  Do you know someone who wants to buy a Georgia home?  Please refer them to me.   We Dunwoody Mortgage professionals ask important questions to determine if we can help our clients make slight changes (down payment amount, paying down a credit card balance, etc.) that help them save money with a better interest rate and / or lower PMI premium.  We work hard to deliver excellent service and pricing to our customers, and our consistently positive reviews show our clients are pleased with our work.