The Lending Coach

Coaching and teaching - many through the mortgage process and others on the field

Category: Mortgage (page 1 of 13)

New Investor Product – Fix and Flip

Researchers have found that house flippers renovated more than 200,000 homes in 2017, with an average profit of nearly $70,000 per property. That’s a lot of houses—and a lot of money.

Despite the popularity of house flipping, the biggest barrier to entry and success in this space is cash. Without enough money, you can’t purchase the home, pay for renovations, or find a buyer for the property when the time comes to sell.

Fix and flip loans are used by short-term real estate investors to purchase and renovate a property before flipping it for a profit or refinancing it after rehab. This type of financing for flipping houses offers investors fast closings for properties in any condition.

Finance of America has a fantastic set of offerings in this category…..

Not sure whether you need the Fix & Flip Single Loan or the Fix & Flip Exposure Limit?

  • The Fix & Flip Single Loan is designed for investors who need funding to flip a single investment property.
  • The Fix & Flip Exposure Limit is a line of credit offered to experienced investors who plan to acquire and/or renovate multiple properties.
  • All Fix & Flip Exposure Limits allow investors to close quickly.
  • Both Fix & Flip Single Loan and Fix & Flip Exposure Limit offer the option of rehab funding, if needed.

Our commercial offerings are quite unique. These products are in-house from origination to funding. Controlling the financing from origination to funding allows our investors to reliably plan the timing for their projects. Timing is always important in the real estate market, especially in construction and rehab.

For experienced investors we establish an exposure limit and for new investors we start our first project together with a single mortgage. Contact me for more details.


2019 Interest Rate and Housing Forecast – Sales and Appreciation

Now that 2019 is here, let’s take a look at what we can expect regarding interest rates and the housing market. 

Experts are predicting some interesting shifts moving into 2019, including continued home appreciation (although at a slower rate) and slight interest rate increases.

Let’s take a look at the key components that drive the real estate market….

2019 Geopolitical/Finance Dynamics

One important way to understand what lies ahead has to do with taking a look at world events and the other issues that drive the economy.  Here are a few things that will impact the market in 2019:

  • Trade issues with China
  • Possible economic slowdown, although early 2019 results have been positive
  • Late 2018 Stock Market pullback – Early 2019 Rally
  • The Federal Reserve – 2 planned hikes in 2019
  • Rates set to rise in year ahead – How much and what will the impact be?
  • Keeping an eye on inflation…watch oil prices and wage pressures
  • Continued stock market volatility?

The Federal Reserve

The Federal Reserve raised borrowing costs four times in 2018, ignoring a stock-market selloff and defying pressure from President Trump, while dialing back projections for interest rates and economic growth in 2019.

By trimming the number of rate hikes they foresee in 2019, to two from three, policymakers signaled they may soon pause their monetary tightening campaign. Officials had a median projection of one move in 2020.

The Federal Open Market Committee “will continue to monitor global economic and financial developments and assess their implications for the economic outlook,” the statement said.

Here are some things to watch in 2019:

  • Every meeting will have a press conference, making every meeting a live meeting, increasing speculation and volatility.
  • Federal Reserve “Dot Plot” shows 2 hikes in 2019
  • Inflation could rise with higher oil prices and wage pressures
  • Fed scheduled to reduce their balance sheet of mortgage-backed securities and treasury bonds by $50B per month

Prediction: Fed will hike 1 time to get the Fed Funds Rate (FFR) to 2.75%, although they would love to get the federal funds rate to 3% – and they will stay course on balance sheet reduction.

The pause in Fed rate hikes acts as important catalyst to turn the tide in favor of Stocks. 

Interest Rates

It’s not very often that major players across an industry agree, but on this point, almost everyone does.  Nearly all industry experts predict the 30-year mortgage will average above 5% for 2019.

Five percent used to be considered an ultra-low rate. But after years of rates in the 3s and 4s, it seems pretty steep.  Still, affordable home payments won’t be hard to find, even as we adjust to the new normal.

The National Association of Realtors (NAR) predicts 30-year fixed interest mortgage rates to average around 5.3 percent in 2019.

“The potential buyer who’s thinking if now is the right time to buy needs to do the math and determine what the impact of potential rising rates would be on their payment,” said Paul Bishop, the NAR’s VP of Research.

Here are some of the key factors for 2019:

  • Inflation is main driver of rates, and inflation should tick higher with oil prices rebounding and wages increasing.  Many states increasing minimum wages.
  • Fed will continue to allow $50B to roll off balance sheet and is no longer buying
  • US Government borrowing more in 2019, which will add supply to the market that will need to be absorbed
  • More supply and less demand = higher rates
  • Stock market increases will most likely hurt rates

Prediction: The 10-year Treasury Note will trade between 2.75% and 3.25% for most of the year.  High point for 10-year is estimated at 3.5%. Mortgage rates will fluctuate in the low-mid 5% range

30-year Fixed Mortgage Rates in the 5% to 5.5% range for most of the year

Housing

Most experts predict the fevered bidding wars and snap home-buying decisions won’t be as big of a factor in most markets. Slower and steadier will characterize next year’s housing market.

That follows a 2018 that started off hot but softened into the fall as buyers – put off by high prices and few choices – sat out rather than paid up.

Affordability issues will remain a top concern going into 2019, exacerbated by rising mortgage rates. But some of 2018’s more intractable issues will begin to loosen up. The volume of for-sale homes is expected to rise and diversify, while the number of buyers is forecast to shrink.

Below are a few of the factors to watch in 2019:

  • Negative media
  • Rocky beginning of the year
  • Stocks begin to stabilize positively
  • Spring market rebound
  • Demographics still favorable – More demand than supply

Prediction: 3.5% – 4% year-over year. Appreciation still creates significant wealth – and the media will get this wrong.

Sales and appreciation moderate slightly, but housing remains healthy, especially after Q1 for much of the US

Finally, more homes to choose from

One of the biggest complaints among buyers in the last several years is that there weren’t enough homes for sale. In fact, the supply of houses hit historic lows in the winter of 2017 and has yet to rebound substantially. That fueled bidding wars, price increases and frustration.

The supply crunch is expected to ease some in 2019 with inventory rising 10 percent to 15 percent, according to many experts. But the increase will be skewed toward the mid-to-high end of the market – houses priced $250,000 and higher – especially when it comes to newly built houses, said Danielle Hale, chief economist of realtor.com.

That’s good news for move-up buyers, but not so much for the first-time millennial buyer. “There’s still a mismatch on the entry-level side,” she said.

If you have more questions about 2019 – and are thinking of purchasing, don’t hesitate to reach out to me, as it would be my pleasure to help!

Consumers Underestimate How Quickly Home Values Rise

You might find this hard to believe, but home prices are rising twice as fast as consumers think they are.  Lack of awareness could be costing home buyers thousands each year they delay their purchase.

Source: Consumers Underestimate How Quickly Home Values Rise

According to Fannie Mae’s monthly National Housing Survey, 41% of surveyed consumers think it would be “difficult” to get a mortgage approved today with some believing that their credit is too poor.  Others think they lack sufficient home equity.  Interestingly, that data shows that these concerns are really unfounded!

Per The Mortgage Reports Newsletter, “today’s market gives the opportunity to buy homes — first-time home buyers, move-up buyers, and real estate investors, too.”

As an example, one year ago, consumers told Fannie Mae that home prices would rise 2.6% over the next twelve months.  Values gained more than twice that, as it happened.

Rising home values are positive returns on investments

In a modest inflationary environment, increases in home prices can be a good thing.  If the price of the home is rising, the homeowner is also increasing their purchasing power, as well as their return on investment.

Historically, if investments are rising and inflation is tempered, the economy is thought to be moving along at a productive and profitable pace.  Everybody has heard the phrase “a rising tide lifts all boats” – and that data shows that’s  where we are most likely headed.   So while the existing homeowners are increasing their purchasing power, the buyers who want to enter the market are also gaining financial strength.  It really is a double whammy for buyers and sellers!

Buyer Education of the Current Situation is Key

There is real opportunity for potential home buyers out there – and Realtors and lenders need to help folks understand the implications of underestimating the rise of housing prices.  Effectively communicating the value of the market is crucial to supporting the needs of potential buyers and sellers.

If done well, there should be plenty of support for the owners looking to upgrade and the new buyers wanting to enter the market for the first time.  Hence, a rising market like this can create opportunities for the entire real estate community, including the new owners.

Product Knowledge is Crucial

Since the election, rates have increased – but have started to moderate over the last few months.  Make sure you have a solid relationship with a lender that has command of all the products to help figure out the best option for you!

Why Home Ownership Matters – A 2019 Resolution

Is a home purchase on your 2019 “to do” list?

If so, now is a great time to do it, as market conditions are quite good!

Homeownership has traditionally been an important way to build wealth and the financial returns on homeownership have been more far more beneficial than renting for most homeowners.

Your home is likely the biggest investment you will make in your life, which brings with it some fear and anxiety.  Don’t let it!  While home ownership may seem a bit scary, buying your home should be an exciting time.

Enjoy the process and engage the right people.

“Twenty years from now, you will be more disappointed by the things you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.”

Mark Twain

Why Home Ownership is Important

According to a Trulia report, “buying is cheaper than renting in 100 of the largest metro areas by an average of 37.7%.” 

That may have some thinking about buying a home instead of signing another lease extension, but does that make sense from a financial perspective?

In the report, Ralph McLaughlin, Trulia’s Chief Economist explains:

“Owning a home is one of the most common ways households build long-term wealth, as it acts like a forced savings account. Instead of paying your landlord, you can pay yourself in the long run through paying down a mortgage on a house.”

The report listed five reasons why owning a home makes financial sense:

  1. Mortgage payments can be fixed while rents go up.
  2. Equity in your home can be a financial resource later.
  3. You can build wealth without paying capital gains.
  4. A mortgage can act as a forced savings account.
  5. Overall, homeowners can enjoy greater wealth growth than renters.

More Statistics

  • 87% of people said owning a home is part of their American dream
  • A typical homeowner’s net worth was $195,400 while a renter’s was $5,400
  • Academic studies have shown that homeowners are healthier. This result arises from a better sense of self-control and self-worth among homeowners versus renters
  • Owning a home is good for the economy. With each home sale there are expenditures related to lawn care, home remodeling, new furniture, mortgage origination, moving, and an inducement to build new homes

Infographic courtesy of Trinity Homes

Other Benefits

Homeownership benefits the homeowner’s family and their surrounding community. This includes improved health and school performance for children, increased civic engagement and volunteering, reduced crime, and higher lifetime wealth.

When taking a look at the lessons learned from the last housing crisis, the Bipartisan Policy Center’s Housing Commission noted that homeownership can “produce powerful economic, social, and civic benefits that serve the individual homeowner, the larger community, and the nation.”

The reason is fairly simple: economics. When someone owns an asset, they are more likely to engage in behavior that ensures its future value. You can find out more here from US News and World Reports….

Unlike stocks and bonds, a home’s value is determined by both the physical quality of the structure as well as the general character of its neighborhood.

That means homeowners are more likely to spend their limited time and resources engaged in improving their neighborhood, if for no other reason than to protect the value of their investment.

Bottom Line

Before you sign another lease, perhaps you should sit with a mortgage professional and real estate agent in your area to better understand all your options.

Let 2019 be the year you make the move into your own home!

Refinance 101 – Now Is The Time To Estimate Your Monthly Savings

Tapping into home equity with a mortgage refinance is becoming very popular for many borrowers.

Many borrowers can now save hundreds, possibly thousands on their overall monthly payments by consolidating debt inside of a new mortgage.

As housing values across the country have appreciated nearly 35% over the last 5 years, homeowners now have access to a much larger source of equity.

With current mortgage rates still historically low and home equity on the rise, it’s a perfect time to refinance your mortgage to save not only on your overall monthly payments, but your overall interest costs as well – and take best advantage of today’s tax implications.

Improve Your Debt Profile

Using a refinance to reduce or consolidate other debt like credit cards, student loans, home-equity lines, and car payments is a great reason for a cash-out refinance.

We can look at the weighted average interest rate on a borrower’s credit cards and other liabilities to determine whether moving the debt to a mortgage will get them a lower rate.  Some borrowers are saving thousands per month by consolidating their debt through their mortgage.

An Example

Let’s assume that you purchased your home 6 years ago (or longer) for $270,000 and you currently have a little less than $200,000 remaining on your existing mortgage.

Well, that home today may well be worth in excess of $350,000!

Even if you’ve refinanced since and have an interest rate in the 4% range, if you have any other sources of debt, a refinance will most likely result in a large monthly savings.

Debt List

Let’s assume you have a debt list that looks something like this – or a combination of similar liabilities:

A few credit cards, a car payment, and a student loan (or even a home-equity line of credit) can easily total nearly $50,000 overall and over $1,000 per month.  Many of the customers that work with me are in situations very similar to the one listed above.

New Payment and Monthly Savings

So, when you combine all of your liabilities into the mortgage, here’s what your new overall payment looks like:

Note that the monthly savings is nearly $900 per month!!

New Loan

Here’s what a new refinanced loan might look like:

Your loan amount has increased by about $50,000 – and your mortgage interest rate has also increase by over 1.25%. However, your OVERALL interest rate of all debt will most likely be similar to where you are today (assuming credit card debt is more like 15% or more). Also, you will only have one payment to manage – versus balancing multiple payments.

Better Options

Now, let’s do a little more math…

Let’s say you take that $900 in savings every month and apply it to the new mortgage:

That’s right – you would save $55,000 over the life of the loan and reduce your number of payments by 213! You would be turning your 30-year mortgage into a 12.25 year version.

The numbers are staggering.  One other thing to do would be to check with your CPA or financial advisor, as the interest on the new loan would most likely be tax deductible, whereas any home equity lines and credit card interest are generally not tax deductible.

Please do reach out to me right away and we can take a look at your current scenario to see if a refinance might be a good option for you, as it would be my privilege to help!

 

Home Pricing Data Explained: Continued Appreciation Expected

Many buyers ask me about home prices, interest rates, and if now is a good time to buy.

Some are disappointed that they didn’t make a move 18 months ago and have decided to “wait and see” in hopes that prices and interest rates will actually go down.

The Forecast Data

The graphic shown above is very, very important for current and would-be homeowners, as well as those in the real-estate profession in general.

Home prices are continuing their solid rates of appreciation – and most experts believe they will keep climbing into 2019, although not as rapidly.

The graph above shows that home prices escalated 5.6% year-over-year – and that the CoreLogic forecast for 2019 is that housing will continue to appreciate at a 4.7% clip.

It’s really important to understand that home prices are in no way projected to go down.  They are just increasing at a slower rate than over the last 2 years.

Many potential buyers are sitting on the fence, waiting to see if the market has “topped-out”, but as you can see, this is not the case.

You can find out more about why there is no bubble and why 2018 looks nothing like 2007 here…

The CoreLogic/Case-Shiller indexes help securities investors, mortgage banks, servicing operations, and government agencies make property valuations, assess and manage risk, mitigate losses, and control appraisal quality.

In essence, these guys are the best in the business in real-estate pricing data and forecasting.  Interestingly, their forecasts have actually been quite conservative – they’ve been on the low side when predicting appreciation over the last few years.

Yes, forecasted growth will most likely slow some, but not by much…and remember, this shows that appreciation is increasing at a slower rate, not a loss in value.

Interest Rates

Secondly, based on the latest economic data and comments from the Federal Reserve, there’s very good reason to believe that interest rates will continue their ascent.  You can find out more about that here….

Now is not the time to sit on the sidelines if you are looking to purchase residential real estate.  If you wait another 18 months, I’m sure you will be looking back wondering why you didn’t act in 2018.

If you would like to discuss this more in detail, please do reach out to me, as it would be my pleasure to help!

2018 Is Not 2007 All Over Again (and it’s not even close)

I hear a lot of sentiment from buyers and agents that the current housing market is the same as 2007.

In essence, are we on the verge of another financial crash?

Is 2018 just 2007 all over again? Are we looking at a new real estate bubble?

Well, I can’t tell you if we are going to have another housing correction, but I can tell you that if we do, it will not be because of the same market dynamics as 2007.

As a matter of fact, many believe now is a very good time to purchase residential real estate because of today’s economic environment.

The mortgage market and collateralization of homes is simply different today then it was back then.

I’d invite you to check out a few resources to find out more – Mike Nelson at Efficient Lending and The Motley Fool

A Real Estate Bubble?

A bubble is simply a sudden escalation in the price of an asset class, such as housing, due to increased demand or speculation.

Per The Motley Fool…“In real estate, bubbles take place in the housing market, commercial property, or, simply, land, and all have been a popular target for speculators over U.S. history since there’s a constant need for real estate and housing, banks are generally†willing to lend money for real estate and housing purchases, and its high value can allow for large profits.”

Though housing prices are on the rise today and are outpacing wage growth and inflation, it’s nothing like the housing bubble of the 2000’s as the economy is continuing to expand and stocks are growing at an even faster pace.

In reality, the last six years have not seen the kind of explosive rise in home prices that impacted cities like Las Vegas and Miami a decade ago.

In Las Vegas, for example, home prices jumped 130% from 2000 to 2006, surging a whopping 46% in 2004 alone. Meanwhile, in Miami, home prices skyrocketed 165% from 2000 to 2006, but especially heated up the last two years of that time frame rising 62%.

Even in the hottest real estate markets today like San Francisco and Seattle, prices have not accelerated like this. That’s a sign that the market is not falling victim to the type of euphoria and speculation that causes asset prices to skyrocket.

Mortgage Rates and Their Impact

There may be no more impact factor in influencing home prices than interest rates, as low interest rates encourage homebuying as the majority of homebuyers use a mortgage to a buy a new home. The lower the mortgage rate, the less the actual cost of their monthly payment would be, effectively making the home cheaper to buy for them.

According to most analysts, mortgage rates will likely cool off the housing market and slow the increase in housing prices down.

During the housing bubble of a decade ago, mortgage rates were lower than average, hovering around 6%, but still above today’s lows. In other words, low mortgage rates can encourage a bubble-like atmosphere, but it is just one of many factors that come into play.

Some experts believe that rising mortgage rates have encouraged home buying, as homebuyers want to lock in low rates while they still can. If that proves to be the case, higher mortgage rates will eventually cool off the housing market.

Therefore, real estate prices are more likely to go up when rates are low or falling, while rising rates are likely to tighten the market or cool off home purchasing, assuming all other things remain equal.

To Buy or Not To Buy

It’s almost impossible to say when the real estate market will peak, and homebuyers and investors are best off monitoring the local economic climate in their areas.

Some speculation is a normal part of the real estate market, but the rampant home-flipping we saw during the housing bubble of the 2000’s was a clear sign of something not right as was the expansion in subprime lending.

Home prices will pull back at some point just as the economy will eventually slow.

However, many of the factors that led to the last bubble such as lax lending standards, excess supply, and rampant home flipping, seem to be mostly absent from today’s real estate market.

Sources: Mike Nelson at Efficient Lending and The Motley Fool

FHA and Conventional Mortgage Options – Which is Better?

I’m often asked about the different types of loans available for those with a limited down payment.  The main options are Fannie Mae and Freddie Mac conventional mortgages or FHA loans.  But which one is best?

The FHA versus conventional analysis involves taking a look at your credit score, your available down payment, and your long-term financial goals.

Let’s take a look at all 3 issues:

1. Credit score – buyers with low-to-average credit scores may be better off with an FHA loan. FHA mortgage rates are generally slightly lower than conventional ones for applicants with lower credit, and FHA loans allow credit scores down to 580.

2. Down payment – borrowers can come in with a lower down payment with conventional products, at just 3% down. FHA requires 3.5% percent down.

3. Long-term goals – conventional mortgage insurance can be cancelled when the home achieves 20% equity. FHA mortgage insurance is payable for the life of the loan and can only be canceled with a refinance. Buyers who plan to stay in the home five to ten years may opt for conventional, as the FHA mortgage insurance can add up over time.

For a more, I’d invite you to visit the source at The Mortgage Reports and Dan Green’s post.

FHA Or Conventional – Which is Superior?

There are a multitude of low-down payment options for today’s home buyers but most will choose between the FHA 3.5% down payment program and conventional options such as HomeReady, Home Possible, and Conventional 97.

So, which loan is better? That will depend on your circumstance.

For example, in deciding between an FHA loan and a conventional option, the borrower’s individual credit score matters greatly. This is because the credit score determines whether the borrower is program-eligible; and, it affects the monthly mortgage payment, too.

FHA loans are available with credit scores of 580 or better. The conventional options, by contrast, require a minimum credit score of 620.

Therefore, if your credit score is between 580 and 620, the FHA loan is essentially the only available option.

As your credit score increases, though, the conventional options become more attractive. Your mortgage rate drops due to the lower score and your mortgage insurance costs do, too. This is different from how FHA loans work.

You can find out much more about mortgage insurance here….

With an FHA loan, your mortgage rate and MIP cost the same no matter what your FICO score.

Therefore, over the long-term, borrowers with above-average credit score will typically find conventional loans more economical relative to FHA ones.

In the short-term, though, FHA loans generally win out.

A Second Thought

One main consideration has to be the length of time you would expect to “keep” this mortgage. 

Borrowers should take into consideration that FHA MIP is forever but conventional mortgage insurance goes away at 80% loan-to-value. This means that, over time, your conventional option can become a better value — especially for borrowers with high credit scores.

It’s hard to know for how long you’ll hold a loan, though. Sometimes, we expect to live in a home for the rest of our lives and then our circumstances change. Or, sometimes mortgage rates drop and we’ve given the opportunity to refinance.

As a general rule, though, in rising-value housing market, if you plan to stay in the same home with the same mortgage for longer than six years, the conventional 97 may be your better long-term fit.

One other thing to consider is upfront charges.

The FHA charges a separate mortgage insurance premium at the time of closing known as Upfront MIP. Upfront MIP costs 1.75% of your loan size, is generally added to your balance, and is non-recoverable except via the FHA Streamline Refinance.

Upfront MIP is a cost. The conventional versions do not charge a fee.

FHA vs Conventional Infographic

 

Image Courtesy of  The Mortgage Reports

You can find out much, much more about low-down payment options, as well as the specifics of these loans here.

For today’s low down payment home buyers, there are scenarios in which the FHA loan is what’s best for financing and there are others in which the conventional option is the clear winner. Rates for both products should be reviewed and evaluated.

It would be my pleasure to help you find the version that’s most optimal for your situation, so please do contact me for more details!

3% Down Payment Options with Fannie Mae and Freddie Mac

Home purchasing has just become a lot easier for a large number of potential buyers. Fannie Mae and Freddie Mac, the country’s two main mortgage giants, now have programs for home purchases with just a 3% down payment.

 

If you’re shopping for a low down payment mortgage, there are options as low as 3% down!

By the way, that’s even lower than FHA requires.

A 20% down payment is considered ideal when buying a home, but saving up that much can be a challenge.  The good news is there are a number of low down payment mortgages available today.

Many homebuyers assume they need impeccable credit scores to qualify for a loan that requires just 3% down. That’s not the case, either.

Here are some of the programs available:

Fannie Mae’s HomeReady

With its new HomeReady mortgage, the giant mortgage backer looks to help first time homebuyers and repeat buyers alike.

Here are few of the highlights of the HomeReady mortgage program:

  • As little as 3% down payment
  • Lower private mortgage insurance costs
  • Down payment sources include gifts, cash-on-hand, and down payment assistance programs.
  • Use income from non-occupant co-borrowers to qualify
  • Income from non-borrowing household members helps your approval.
  • “Boarder income” (income from a roommate) helps you qualify.

Fannie Mae’s HomeReady low down payment home loan allows for buyers to obtain loans up to $453,100 with as little as 3% down.

The borrower(s) must live in the home, so you can’t buy second homes or investment properties. You can buy two- to four-unit properties as long as you’re living in one of the units, but your down payment requirements will increase if you buy a two to four-unit property.

Income Limits for the HomeReady Mortgage

Income limits are set by geographical areas for this particular loan program. In underserved areas, there are no income limits. In more economically developed areas, Fannie Mae has limited the amount of money HomeReady applicants can make.

Essentially, this policy ensures the program is reserved for the ones who need it most. The following is a breakdown of income limits.

  • Properties in low-income census tracts: no income limit
  • Homes in high-minority areas and designated disaster areas: 100% of the area’s median income
  • Properties in any other area: 100% of the area’s median income

For instance, a home buyer in Los Angeles County finds a home within an area that limits income to 100% of the median income. The median income for Los Angeles is $67,200 so that is the most the buyer can make and still buy the home.

If the borrower makes more than this, he or she could find a home in an underserved area with no income limit. Upon a successful home search, he or she could use HomeReady.

Fannie Mae has published HomeReady eligibility maps for each state that detail each geographical area. It can be difficult to see the exact boundaries. Be sure to check the property address of the home you want to buy and your income by contacting me here….and there is a mandatory home counseling class that must be done online for a small fee.

Home Ready mortgages do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here….

For more, see Tim Lucas’ post at My Mortgage Insider

Freddie Mac’s Home Possible (and Home Possible Advantage)

Home Possible and Home Possible Advantage are two conventional loan programs created by Freddie Mac. They are affordable given their smaller 3% to 5% down payment requirement. The one that’s right for you will depend upon your income, the type property you wish to finance, and property location.

Both the Home Possible and Home Possible Advantage programs help primarily first-time home buyers. With that said, neither program restricts “move-up” buyers.

However, to use either program you cannot have an ownership interest in any other residential property.

For example, if you are a move-up buyer, you must sell your current home before taking on a Home Possible loan.

Both programs are used for purchases or refinances. In the case of refinances, no cash-outs are allowed. Refinances can only be used to change the interest rate or term, as would be the case when switching from a 30-year mortgage to a 15-year mortgage.

Home Possible Down Payments

Many mortgage programs require that some of the down payment funds come from the borrower. Home Possible mortgages allow funds from a variety of sources to help you reach the 3% to 5% down requirement. Money used for your down payment can come from:

  • Family and friends
  • Affordable seconds programs (federal, state or municipal programs that provide down payment assistance)
  • Employee assistance programs

If family and friends help you with gift funds, you and your donors will need to sign a mortgage gift letter – a legal document that states all funds are truly a gift, not a temporary loan you’d pay back.

Home Possible Income Limits

Because the Home Possible loan programs are designed for low to moderate-income borrowers, income limits apply. To be eligible for either mortgage program, your income cannot exceed the Area Median Income (AMI) where the property is located.

There are a few exceptions to the income limit guidelines. The first exception is in high-cost areas, as you’d find near big cities. In more expensive areas, higher incomes are allowed. For example, 140% of AMI will still qualify in some parts of California.

Second, there’s no borrower income limit in rural or underserved areas. The easiest way to determine your local income limits and property eligibility (e.g. underserved area) are to search using Freddie Mac’s income and property eligibility tool.

Home Possible mortgages do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here…. and there is a mandatory home counseling class that must be done online.

Conventional 97

This low down payment home loan allows for first-time buyers to obtain a loan up to $453,100 with 3% down. It must be used for a primary residence, so this loan isn’t available for a 2nd home.

The difference between this program and Fannie’s Home Ready version, is that there are NO income limits or geographic restrictions.

You can use your own funds or gift funds from a family member for the down payment, and the home must be an owner-occupied single unit home (including condos).

Conventional 97 Loan Limits

Loan limits are the maximum loan amount available to borrowers who wish to take out a mortgage. Loan limits are set by county (and sometimes at a more granular level). A price adjustment is made so that the maximum loan amount reflects average home prices surrounding the property.

Borrowers get a little more headroom to the upside when buying in a big city than rural areas. So there are two core limits outlined below: the first one applies to most counties across the United States and second one applies to big metro areas. Fannie Mae provides a search tool to find conventional loan limits by property address. Conventional 97 loan limits are as follows:

  • $453,100 in most counties
  • $679,650 in high-cost areas

Conventional 97 mortgages are 30-year fixed loans, and do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here….

As you can see, there are plenty of low down-payment options available to borrowers today please do reach out to me for more information, as it would be my pleasure to help!

Rising Interest Rates and Increasing Property Values – Updated Forecast 2018-2019

The question asked to me most often over the last few months is “is now a good time to buy?”

Many potential buyers are concerned about rising rates and property values. And yes – both are going up.

My answer to their question might surprise you – as I truly believe now is a great time to purchase real estate.

Purchasing Today – Why Now?

It was clearly more advantageous to purchase real estate last year, when looking through the rear view mirror.  But I’m convinced that purchasing today will be MUCH better than this time next year.

Why?  Well, for one, property values are increasing at over 5% per year, so that home you are looking at today will most likely be 4-5% more expensive next year.

Secondly, the Federal Reserve has signaled 3 to 4 more interest rate hikes over the next 15 months, the next most likely coming in December of this year.

So, let’s be clear about the fact that most experts agree that both prices and rates will most likely be higher next year versus today.

Why the shift?  Read on for more….

First: The Good News – and There’s Lots of It

Unemployment is at it’s lowest level since 1969.

“This is the best job market in a generation or more,” said Andrew Chamberlain, chief economist at recruiting site Glassdoor.

Unemployment rates below 4% are extremely rare in 70 years of modern record-keeping. The two longest sustained periods came during the Korean and Vietnam Wars, when the combination of strong growth and the enlistment of young men from the civilian labor force helped to largely wring unemployment out of the economy.

Real wages were up nearly 3% in August of this year.

Per the Wall St. Journal, the Atlanta Fed’s “wage tracker” showed a 3.2% increase year-over-year for June. Most encouraging is the report of a bounce in labor productivity growth in the second quarter to 2.9%. That’s the best jump since the first quarter of 2015,

Home prices are rising steadily at over 5% year-over-year.

Home price gains are starting to decelerate (they are growing, but at a slower rate than last year)— but they’re still strong and are running well ahead of wage gains and inflation.

Inflation, the arch enemy of bonds and interest rates – is holding at the federal reserve target of 2%.

In a speech last week, Fed Chairman Jerome Powell suggested he sees little urgency to accelerate the central bank’s pace of interest-rate increases or to signal a more restrictive policy path ahead, in part because inflation is so low and stable.

Rates Today – and What We Can Expect

The stronger than expected economic data released over the last weeks and months are actually bad news for mortgage rates, and rates reached their highest levels in many years.

Last Wednesday’s bond rout sent the yield on the 10-year U.S. Treasury note, a closely watched barometer of investors’ sentiment toward growth and inflation, to its highest level since July 2011. Risky assets rallied, pushing the Dow Jones Industrial Average to a record and crude-oil prices to multiyear highs.

Together, the moves suggested investors are once again growing more and more about future growth, a shift from the more cautious outlook that many held for much of the year.

Interestingly, mortgage interest rates don’t necessarily move in step with the federal funds rate, as they are more closely tied to the 10-year Treasury Bond. So, borrowers today looking to get a mortgage aren’t directly affected by the latest Fed hike.

However, the federal funds rate does contribute to the longer-term trends of the 10-year Treasury, and long-term fixed mortgages as a result.

Here’s a little perspective on average mortgage rates since 2000:

Graph Courtesy MarketWatch

With the Fed likely lifting rates multiple times over the next year plus, the trend for long-term mortgage rates is up. It would not surprise me to see 6% interest rates in 2019.

Here’s a piece I wrote earlier this year that outlines more regarding rates and what we can expect in 2019…

The Bond Market and Interest Rates

The U.S. unemployment rate fell to 3.7%, its lowest level since 1969, the Labor Department reported Friday. Average hourly earnings, meanwhile, rose a seasonally adjusted 0.3% from August—the third straight month of solid, inflation-beating gains.

Fed officials raised their benchmark short-term rate last week and penciled in four more quarter-percentage-point increases through the end of 2019. That would lift the rate to a range between 3% and 3.25%. Until recently, many investors doubted the Fed would go that far.

The Fed is raising rates to keep the economy from overheating. If the economy becomes “too strong”, that could send inflation higher, and the Fed doesn’t want that to happen. They combat inflation by raising interest rates.

In essence, the bond market is starting to believe the Federal Reserve.

Finally, I’d invite you to read this article on how rising interest rates are not deterring buyers in today’s market…

What About Another Bubble?

Many clients are talking about a potential bubble, and they don’t want to be on the wrong side of it, if it were to burst.

However, most economists are not the slightest bit concerned about this.

Why? It’s about supply and demand. And the supply is tight. It isn’t forecasted to meet demand until sometime in 2021 or beyond.

Actually, it’s the lack of supply and the accompanying home prices quickly rising are the sources of market headaches.   Remember your Economics 101 class on supply and demand? When supply is down and demand increases, prices move up.

In reality, the supply shortage is a much better problem to have, compared to a demand shortage. The current problem also portends no meaningful price decline nor an impending foreclosure crisis. Rather, there is a good possibility for solid home sales growth once the supply issue is steadily addressed.

As to new home building activity, housing starts did fall by a double-digit percentage in June, as mentioned above, but are up 7.8% year-to-date to June.

More will need to be built, as there is still a shortage. As more homes are built, an additional boost will be provided to the local economy along with more local job creations.

In Conclusion

So, it is safe to say that we will continue to see pressures in the bond market and mortgage interest rates overall. These increases do look to be gradual for the time being, but consistent and into 2019, for sure.

With that said, home prices are increasing nationally at over 5%, so the increase in interest rate will be more than offset by the increasing value of one’s home!

Secondly, home buying power is still extraordinarily high, despite rising home prices and rate hikes.

Find out more about that here.

In reality, now is a fantastic time to purchase. Contact me for more information, as it would by my privilege to help you.

References:

https://www.wsj.com/articles/bond-investors-catch-up-with-feds-plans-1538767826

https://www.forbes.com/sites/lawrenceyun/2018/08/02/no-housing-recession-over-horizon/#3d8212a5f79c

https://www.wsj.com/articles/real-wages-are-rising-1536359667

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