Posts Tagged ‘should I buy a home’

Rents on the rise

December 11, 2018

Rents are still going up and just hit an all-time high, again. The U.S. Census Bureau reported that during the third quarter, the nationwide median asking rent topped $1,000 for the first time ever. According to the Census data, the median asking rent during the third quarter was $1,003, an increase of $52 over the second quarter and an increase of $91 over the same time period last year. That’s an increase of nearly 10% in just one year, when rents checked in at $912.

The increase has been dramatic over the last few years. Just three years ago, the asking rent was a full $200 less per month than it is right now.

Since we are a Georgia based company, I try and bring these topics back to the local area.

  • The Bad News: Rents are going up in Georgia.
  • The Not as Great News: So are home prices for buying.
  • The Good News: Metro Atlanta is a city where it is cheaper to own that rent.

A recent study by Trulia has Atlanta around the 60th cheapest metro area to rent (out of the top 100), and in the top 40 for cheapest metro area to own. While rents are going up, by living in the metro Atlanta area, you have the opportunity to own a home, build equity, and have your monthly housing payment go toward your financial goals (instead of your landlord’s).

Now here is the question – should I buy a home? To answer that question, ask yourself how long you plan to be in the home? Atlanta is a transient town, so maybe your time here is only for a year or two. In that case, renting could be the better option. If you plan to stay in a home for 3 years or more, that same Trulia article mentioned earlier says it is cheaper to buy than rent. Three years seems to be a good number for judging whether or not to consider buying a home or continuing to rent.

So… how long do you plan to stay in the home?

If you are looking to buy in the state of Georgia, contact me today! I can help get you prequalified for the home purchase. More importantly, we can discuss how much home you should buy versus how much home you qualify to buy. Often the amount one can qualify isn’t the amount one wants to pay each month as a mortgage payment. We’ll tackle those topics and more!

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Republican tax plan and mortgage rates

December 12, 2017

All signs are pointing to the Republican party passing tax reform. The Republicans are using the “budge reconciliation” process to get the bill passed. By going this route, the Republicans avoid the need for 60 votes for approval in the Senate while preventing the Democrats the ability to use  a filibuster. Whether you opposed tax reform OR couldn’t wait until it arrived, tax reform seems likely to be here once the House and Senate finish reconciling their two tax reform bills.

What does this mean for mortgage rates?

Initially, nothing. On the surface, tax reform has no direct impact on mortgage rates. This is just like when the Federal Reserve raises the Federal Funds Rate. The Funds rate impacts second mortgages, car loans, credit card rates, etc., and not mortgage rates. But…. the impact these have on the market can impact mortgage rates.

Stocks have been on a major rally for roughly two years now. The DOW continues to set record highs. Why the surge? Wall Street has bet on tax reform that would benefit business. Trump’s election prompted a big rally back in November 2016, and this rally continued throughout 2017.

Now that tax reform is here, stocks seem poised to continue their good run and maybe continue to push higher. As stock values rise, bond prices normally fall due to the fact that people are putting more money into stocks than bonds. As bond values fall (specifically mortgage backed security bonds), mortgage rates go up. While tax reform doesn’t directly affect mortgages rates, the impact on stocks can influence mortgage rates.

Frequent readers of this blog are aware of how stock prices/mortgage backed security bond prices impact mortgage rates. If you are new to this blog, use this link to read past posts about the subject. 

Currently mortgage rates are definitely off of their yearly lows and moving back toward their yearly highs of 2017. Combine tax reform, continued stock market rally, and the Federal Reserve no longer purchasing bonds from quantitative easing (they are beginning to sell their bonds now), and you have an environment where mortgage rates could go noticeably higher.

Market analysts have said for years now (since 2010) that “this is the year mortgage rates go up,” and rates haven’t gone up. When do I think rates will go up? At this point, I’ll believe it when I see it. That said, the environment for mortgage rates to increase is as real as it has ever been in the past several years.

Considering refinancing or buying a home, but been pushing it off since rates are so low? Maybe now is the time to at least have a conversation about your plans, timing, and how to proceed? If the home loan will be in the state of Georgia, I can help! Contact me today and we’ll get started!

Is there a better day to lock a rate?

November 10, 2015

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Last time, we discussed how mortgage rates change. It isn’t from the Federal Reserve raising rates. Mortgage rates move up and down along with the value of mortgage-backed securities. As these bond values go up, rates go down – and vice-versa.

Is there a better day to lock a rate? I think a better question is this… how much volatility can you handle?

The two days of the week that see the biggest swing in mortgage rates are Wednesdays and Fridays. That isn’t a surprise since the Federal Reserve release their meeting minutes on Wednesdays. Those meeting minutes are definitely market changers. Fridays is typically the day when economic news is released – such as the jobs report. Again, this can have a big impact on interest rates.

Mondays are the quietest day of the week as the Fed doesn’t release any information on Mondays, and very few economic news releases come out on Monday.

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Do you like to hit at 17 when playing Blackjack? If so, then waiting to lock a rate until Wednesday afternoon or Monday morning (from Friday’s market changes) might be the way to go. Depending on the market that day, you may see rates get better (or worse) by 0.125%.

Don’t have the stomach for gambling? Want to think about a rate prior to locking? Then a Monday rate quote/lock is probably best for you.

Want to know more about rates, how they change, and why you should lock. Contact me today for more information. If you live in the state of Georgia, I can also prequalify you for your new home loan.

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Why the MI increase on FHA loans?

October 2, 2012

Since my last post, I’ve received a few emails inquiring why FHA continues to increase the mortgage insurance on their loans. Does FHA even want to lend money anymore?!? I’ve blogged about some of the reasons for the changes in a few posts over the past year. Here is a consolidated version of those posts for easy reading.

  • First and foremost, FHA is running out of money. They are at the lowest point ever in their history, and it isn’t getting better. Since FHA fully guarantees the loans they issue, with all of the foreclosures, the “bank” is running out of money. FHA has always been self funded. Given the current state of the federal budget in D.C., now isn’t the time to look for a handout. So they will raise money the only way they know how – by increasing the monthly mortgage insurance premiums.
  • FHA wants to go back to being the niche program they were AND designed to be in the mortgage industry. Prior to the housing burst, FHA made up less than 10% of the originated mortgages. During the past few years, they have climbed to as much as 50% of the loans being originated. FHA never intended their loans to be used in this way. By increasing the monthly mortgage insurance, it makes conventional loans with 3% or 5% down look much more appealing.
  • Eventually, the government wants private lenders to begin working their way into the mortgage industry. If the monthly mortgage insurance is raised to 2.05% (up from its current 1.25%), at some point other companies will come in and say “we’ll do that deal, but only charge 1.50% annually on mortgage insurance…” or something along those lines. Ideally, this would happen to FHA and conventional loans so the government doesn’t have to keep backing Fannie and Freddie either. At this point, we are a long way from this taking place. That said, could this be the start of moving the mortgage industry in that direction?

While there are a few reasons for the increase, the most pressing reason is the lack of money to fund FHA. If they run out of money, then FHA loans go away entirely. While the government would like to see the number of newly originated FHA loans decrease, having FHA eliminated all together isn’t their goal. By increasing the monthly mortgage insurance, it should increase the money coming into FHA’s coffers while probably reducing the number of buyers using FHA loans to purchase their home.

Hopefully this post has shed some light on why FHA has annually increased their monthly mortgage insurance.

Re-pull of Credit Report – Reviewing the Updated Report

September 18, 2012

Today is the third and final part in a series on the re-pulling of one’s credit report when applying for a loan. The first post discussed why this is required, and gave a helpful list of things not to do in order to avoid problems with the re-pull. The second post discussed the “new-look” loan approval process and how the re-pull can impact loan approval. Today, we’ll focus on what an underwriter looks for on the re-pulled credit report.

When reviewing the re-pulled report, an underwriter is mainly looking for three things:

  • Credit Scores: this is the quickest and easiest thing an underwriter will check on the re-pull of the credit report. If one hasn’t opened a new credit card account, charged up existing credit cards, bought a car, etc., the credit scores should be the same. Just follow the steps outlined from the first post, and all should be fine.
  • Review Minimum Payment Due Figures: each credit card, student loan, car payment, etc. has a minimum payment due listed on the credit report. On the re-pull of the report, the minimum amount due is compared to the original. If there are no new credit accounts OR one hasn’t charged up existing accounts, then the underwriter will move on to the last item they’ll be reviewing on the re-pulled report.
  • Recent Inquiries: I know what some of you reading this may be thinking… “I can finance new furniture or a new car before closing because there won’t be time for the newly financed account to show up on my credit report.”… That is true, there won’t be time. BUT… an inquiry is instantly added to your report. If an underwriter sees a recent inquiry made by someone other than the lender underwriting the loan, the borrower will have to explain why the inquiry was made.

#1. It is a quick and easy explanation if an inquiry was made while shopping for a mortgage. The borrower would write a letter saying “I applied for a mortgage with ABC Bank, but decided not to use them for my mortgage.” Done and done and on to closing.

#2. However, if it is something else, it could delay closing until it can be established how much the new minimum payment will be AND an underwriter re-review your file with the new debt obligation – not fun!

Again, this can all be avoided by not applying for ANY new credit (cards, furniture, car) or charging up existing credit cards. It all comes down to this… what would you rather do? Move in on time to that new home OR have a possible delay in closing, interest rate changed, or possibly have the loan denied by financing a car for the new garage OR financing furniture for the new living room. You’ll have plenty of time to finance a car and/or furniture after closing.

Fannie Mae’s Loan Quality Initiative is one of many hoops borrowers have to jump through when applying for a mortgage. Fortunately, this is actually one of the easier ones to avoid. If you are buying a home in the state of Georgia and would like to work with a professional who is aware of the changes in the industry, call me today to get started. I would be happy to go discuss all of the stages and potential hurdles of the loan process.

“Should I buy?”

October 11, 2011

I get that question a lot these days. “Should I buy a home?” It is a valid question to ask. Some may be concerned about the stability of their jobs. Others may be concerned about whether or not we’ve hit “the bottom” in regards to housing prices. I do understand the reasoning behind those concerns, but let’s look at it from another angle.

The chart above shows the correlation between purchasing power and home values. Currently, we are siting in one of the best periods for buying a home – low interest rates (purchasing power) with lower home values. This combination is very tempting, but still some are holding back. Why? It seems people feel rates are going to stay low forever. That isn’t the case. Interest rates are like stocks… sometimes they go up/down in price for unexpected reasons. For instance…

This time last year, interest rates were at the same point they are now. In the high 3’s. Then around the start of November, interest rates began to climb. Before the end of December (about a 6 week period), interest rates went from the high 3’s to the mid 5’s. It was an unexpected jump and put some people’s home buying/refinancing plans on hold.

What kind of a difference does that jump in rates make? If you qualified for a principal and interest payment of $1,000 each month, then you’d be able to purchase a home up to $250,000 with a 20% down payment while rates remain at their current levels. With rates in the mid 5’s, that same monthly payment of up to $1,000 would cause the purchase price to decrease to $220,000. That is a loss of $30,000 of purchasing power.

In short, the question you should be asking yourself is not “should I buy?,” but “what am I waiting on?” If you plan to remain in the area you are currently residing for the next few years, this is one of the best times ever to buy a home due to the combination of low rates and lower home values. If you are looking to purchase a home in the state of Georgia, I’d be glad to help you get started!

FHA mortgage insurance changes

September 27, 2010

Several weeks ago, President Obama signed a law giving the Department of Housing and Urban Development (HUD) the ability to make changes to the mortgage insurance on all FHA loans. While the law allows HUD to increase the mortgage insurance almost three times higher than its current level, it wasn’t until recently that the exact changes were known for the different FHA loan programs.

In the next few paragraphs, I aim to address those differences, provide some examples and insight into how this impacts individuals looking to buy or refinance a home using an FHA loan for all new case numbers assigned on October 4, 2010.

For all FHA loans, the up front mortgage insurance premium is being reduced from 2.25% to 1.00%, and the up front premium can still be rolled into the loan amount. Now, instead of an additional $4,500 being added into the loan on a $200,000 loan, that up front premium is now only $2,000. That is great news for everyone!

For FHA loans equal to or less than 15 years, the only real change starting on October 4, 2010 is the previously discussed reduction in the up front mortgage insurance premium. The monthly mortgage insurance premium for 15 year FHA loans with less than a 10% down payment (less than 10% equity for a refinance) remains at 0.25% with no monthly mortgage insurance for individuals putting more than 10% down (10%+ equity for a refinance).

The noticeable change takes place for all FHA loans greater than 15 years. In other words, the 30 year loan. The reduced up front premium obviously applies, but the monthly mortgage insurance premium will increase from 0.55% to 0.90% for loans with less than a 5% down payment (0.85% for loans with more than 5% down). Since most individuals using an FHA loan choose to go with the minimum down payment, let’s focus on the new monthly premium at 0.90%.

Let’s say you are buying a home using a 30 year fixed FHA loan. The purchase price is $250,000, and you are putting down the minimum down payment of 3.5%.

  • under the old scenario (2.25% up front & 0.55% monthly), the total loan amount would be $246,678 and the monthly principal, interest, and mortgage insurance payment at 4.500% would be $1360 ($1250 and $110 for mortgage insurance).
  • under the new scenario (1.00% up front & 0.90% monthly), the total loan amount would be $243,662 and the monthly principal, interest, and mortgage insurance payment at 4.500% would be $1415 ($1235 and $180 for mortgage insurance).

What are some of the noticeable differences:

  • the loan amount along with the principal and interest payment is lower under the new mortgage insurance guidelines
  • the monthly mortgage insurance is now significantly higher
  • the total monthly payment is higher, not significantly, but higher nonetheless

We’ve read the changes and looked at an example. Now let’s evaluate the potential impact of the changes:

  • regardless of using an FHA loan for a purchase or refinance, individuals with a lower debt to income ratio will hardly notice a difference at all. There is an increase on the total monthly payment, but roughly only 4% higher than the current set up.
  • the change will likely impact impact individuals yet to be prequalified or previously prequalified under the old mortgage insurance guidelines who have a higher debt to income ratio. Examples could include:
    • first time home buyers just entering the work force
    • someone who just changed to a new job
    • someone who recently had their rate of pay/type of pay changed (for example moving from salary to base + commission)
    • families with one income
    • higher consumer debt
    • not much credit card debt, but has student loans, car loans, etc.

As always, the key to making sure all is well is planning ahead. If you fit into one of those examples OR if it has been a while since you spoke with a mortgage consultant about getting prequalified, give me a call. I’d enjoy the chance to sit down and learn more about you, your situation, and ensure the FHA mortgage insurance changes do not hamper your ability to buy or refinance a home.

FHA changes mortgage insurance rates

August 17, 2010

It has been about six months or so since FHA came out with updated guidelines, so they were long over due for one. The new rates on mortgage insurance haven’t been determined yet (either .85 or .90% of the loan amount per year), but that change is coming in October 2010.

In case you’ve missed some of the changes over the past year, you can catch up on those here (credit score requirements and seller contributions) and here (credit account requirement). If you read those posts, you will also remember that one of them dealt with the up front and monthly mortgage insurance premiums for FHA loans.

Well, rip up that section of the post because it is changing this October:

  • The up front mortgage insurance premium that is rolled into the loan will be reduced from 2.25% to 1.00% of the loan amount.
  • The monthly mortgage insurance premium will increase from 0.55% of the loan amount per year to either 0.85% or 0.90%.

If you are looking at those numbers, one looks good and the other doesn’t. One appears it was cut by more than half of its current amount while the other is almost doubled. That leads us to the important question – how does this affect someone looking to buy a home?

Fantastic question. The short answer – it will increase the total monthly payment for the borrower. Let’s look at some numbers to explain it.

Buying a home for $125,000 with an FHA loan before October 2010:

  • after your 3.5% down payment, the base loan amount is $120,625
  • the up front fee of 2.25% ($2,714) is put into the loan for a total loan amount of $123,339
  • the monthly mortgage insurance is $57, and at a rate of 4.500%, the total payment for principal, interest, and mortgage insurance is $682

Buying a home for $125,000 with an FHA loan in October 2010:

  • base loan amount is same as before, and the up front fee ($1,026) added in makes the total loan amount $121,831
  • the monthly mortgage insurance payment increases to $91, and at a rate of 4.500%, the total principal, interest, and mortgage insurance payment will be $708
  • that is about $25 more a month ($300 a year) for the borrower

How does that affect larger loan amounts? Under the same rate scenario for a purchase price of $300,000, the current total principal, interest, and mortgage insurance payment would be $1635 now and $1701 once October 2010 arrives. That is an increase of $66 per month or almost $800 a year.

In short, if you are looking to buy a home with an FHA mortgage and you’ve been sitting on the fence, now is a great time to hop off. Not only can you buy a home with a historically low interest rate, but you can also save a little more money if you act before the new FHA guidelines on mortgage insurance go into effect this fall. Looking to get started and the property is in the state of Georgia, you know how to find me!