The Lending Coach

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

Category: Housing Market (page 1 of 8)

Home Pricing Data Explained: Continued Appreciation Expected

November 11, 2018 / / 0 Comments

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)

November 5, 2018 / / 0 Comments

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?

October 21, 2018 / / 0 Comments

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!

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

October 7, 2018 / / 0 Comments

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

Rising Interest Rates Aren’t Deterring Buyers

September 10, 2018 / / 0 Comments

Mortgage interest rates have risen consistently over the last year-and-a-half. At that time, rates for the 30-year fixed were just under 4%. Lately, the average is closing in on 5% percent for a 30-year fixed-rate mortgage.

Let’s take a look at the facts and crunch the numbers. You’ll likely find that minor rate fluctuations won’t affect a buyer’s ability to purchase a home

Despite these rising mortgage rates, there’s good news:

  • Rising mortgage rates don’t have to stifle the buyer’s dream of owning
  • In fact, a new study by Redfin shows that rising rates aren’t scaring off many shoppers
  • Rates remain historically very affordable, even if they are a bit higher today

Source: You can find out more here – by reading Erik Martin’s entire piece at The Mortgage Reports

What the research found on interest rates and purchasing patterns

A recent survey of potential buyers by Redfin reveals some interesting findings:

  • Only one in 20 would call off their search if rates rose above 5 percent
  • One in four said such an increase would have no impact on their search
  • Nineteen percent would increase their urgency to find a home before further rate increases
  • Twenty-one percent would look in other areas or search for a more affordable home
  • One-third would slow down their search to see if rates came back down

This means that many buyers understand the environment today – and realize the long-term benefits of home ownership.

How to read the data

Taylor Marr, senior economist at Redfin, says these results are telling.

“Only a small share of buyers will scrap their plans to buy a home if rates surpass 5 percent. This reflects their determination to be a part of the housing market,” he notes.

Marr says buyers are well aware that rising mortgage rates mean slightly higher monthly payments. Yet buyers are willing to make compromises, as they understand that actual wages are higher today, making the purchase more affordable. Also, they know that real estate generally appreciates.  Finally, today’s rates remain very low, compared to historical norms.

“By historical terms, 5 percent mortgages are not that high. A rate below 7 percent is really a good deal on long-term money,” Joshua Harris, clinical assistant professor of real estate at NYU’s Schack Institute of Real Estate, says. “Plus, rents are generally high. So even at 5 percent, many buyers will still be saving money on monthly housing costs.”

What buyers can do now

Most experts recommend the following steps:

Buy now if you can afford it – “While rates are going up, so are home prices in most markets,” says Harris. “The job market is great. Many are seeing wage growth in many sectors. These forces will push rates up and give people more money to spend on a house. So waiting can be a very costly decision if you need a house and don’t want to rent.”

Get your financial house together – start the pre-approval process and get qualified for a loan. “Ask questions and understand the monthly payments you’ll need to make,” suggests Suzanne Hollander, real estate attorney, broker and Florida International University instructor. Will your income be able to cover the principal, interest, taxes and insurance? Will it provide enough money to live the lifestyle you prefer?”

Don’t sweat a minor rate hike – “So long as you intend to hold the home for at least five years, these small fluctuations shouldn’t affect your decision to buy,” Harris adds.

With economic gains outpacing mortgage rate interest rates in many markets, you may be better able to buy a home today than at any time over the last 10 years. Don’t hesitate to reach out to me and find out more!

Home Buying Power Still High, Despite Rising Prices and Rates

June 10, 2018 / / 0 Comments

I’m receiving calls and questions all the time regarding mortgage qualification and home buying in today’s changing interest rate and price appreciation marketplace.

Your home buying power is the result of several variables – but there’s great news today when you consider increased income and historically low mortgage rates.

I’m linking today to an article by Amy Hale of The Mortgage Reports that really nails the answer. Go here for the entire article – and I’ve highlighted the key pieces below.

Are home prices really that high?

It might seem like home prices just keep rising, but according to the historical numbers, today’s housing is actually very affordable. “Real” home prices—those adjusted for income and interests rate changes—are currently 32.5 percent below their housing boom peak from 2006.

Home buyers still hold the power

According to the latest First American Real House Price Index, which aims to measure overall housing affordability by considering changes in income, interest rate and actual home prices, consumer home buying power is still strong.

“While unadjusted house prices have been on the rise since the end of 2011, nearly a seven-year run, consumer house-buying power has also increased by 14.3 percent over the same period,” said Mark Fleming, First American’s chief economist.

“House-buying power, how much one can buy based on changes in income and interest rates, has benefited from a decline in mortgage rates since 2011, and the more recent slow, but steady growth of household income.”

Buying power is actually up significantly from 2011 because real wages have actually increased over that time – household income has risen nearly 20% over the last 7 years. Also, mortgage lenders have relaxed some of the tight requirements and ratios for qualification. This combination makes it a great time for buyers and borrowers.

The real story on home prices

Overall, “real” home prices aren’t even close to their historical peak. In fact, according to Fleming, they’re currently 32.5 percent below July 2006’s prices and 9 percent lower than in January 2000.

Don’t let sticker prices fool you. American home buying power is still high. Want to get in on the market? Reach out to me for some answers, as it would be my privilege to help!

Rents Continue To Rise – Is It Time To Consider Purchasing Instead?

May 14, 2018 / / 0 Comments

According to a new report, if you’re renting a house in hopes of saving money, you might want to re-think that strategy. Amy Yale at The Mortgage Reports shows that single-family rents are up significantly over the year –particularly on lower-end properties.

You can access Amy’s article in its entirety here….

According to industry expert CoreLogic and their Single-Family Rent Index, rents on single-family properties are up 2.8 percent over the year.

On lower-priced properties (those with a rent lower than 75 percent of the regional median), rents have risen nearly 4 percent in the same period.

The Reason

Molly Boesel, CoreLogic’s principal economist, says growing demand for entry-level homes is the single largest factor:

“Single-family rent price growth remained solid in January,” Boesel said. “High demand and low supply for entry-level properties drove lower-priced rentals to have faster price growth than higher-priced rentals, revealing affordability pressures in this segment of the rental market.”

Hale also states that Phoenix showed over-4 percent gains in rent over the year.

The reason for these regional increases? Per Hale and CoreLogic, it’s strong economic growth, low levels of new construction, and increasing employment opportunities.

“Phoenix experienced 4.5 percent year-over-year rent growth in January 2018, driven by employment growth of 2.7 percent,” CoreLogic reported. This is compared with the national employment growth average of 1.4 percent, according to data from the United States Bureau of Labor Statistics.

This nationwide problem threatens to get worse before it gets better. Apartment builders are building more units, potentially creating supply that is beginning to crest. With that said, demand still exceeds the supply, especially for affordable housing.

Continuing The Trend

The relentless shortage of housing has lead to dramatic increases in rental rates – and the implications of high rent, and declining home ownership, could be profound over time.

“Almost all the housing demand in recent years has been filled by rental units,” says Sara Strochak, a research assistant with the Urban Institute. She also states that single-family rentals have gone up 30% within the last three years.

The trend began with large firms buying up cheap homes during the recession and turning them into cash-generating rentals—often rented by families who’d lost their own homes or who could no longer qualify for mortgages.

As is always the case with the supply and demand curve, high number of renters has caused rents to increase significantly – in many places, high enough for buying to become the better option.

The Solution

With rents continuing their upward climb, it might be time to consider buying or building a home.

One of the great underlying opportunities here is that buying a home can actually be  cheaper than renting. Renters interested in reducing expenses and collecting tax benefits should absolutely talk to a mortgage lender prior to signing that rental contract.

Current market trends this summer really should encourage home ownership – find out more here….

Mortgage uunderwriting guidelines have been slowly loosening and those that were denied for a mortgage last year may qualify this year.  There are also multiple down-payment assistance programs for borrowers with little to no down payment available.

Again, the first step should be contacting your local mortgage professional and work on pre-qualification.  Next, contact your real estate agent and begin your home search!

 

Today’s Mortgage and Real Estate Environment – Early Summer 2018 Edition

May 7, 2018 / / 0 Comments

Believe me, I understand that home inventories are tight across the country. And that is making home buying a bit challenging right now.

Nevertheless, I see a great opportunity in this market for first time buyers, investors, and existing homeowners who want to take advantage of rising equity.

Look at it this way….real wages are moving up, home equity is rising, and interest rates are keeping inflation at bay.

The Current Outlook

This is a recipe for a strong, long-term real estate market.

A decade ago, the housing market was the U.S. economy’s biggest weakness. Now, it offers crucial support.

The housing market has been trending on a path higher for some time now as it gradually recovered from the financial meltdown nearly a decade ago. Interestingly, it has even gained additional strength lately, despite broadly higher home prices.

This is due to the fact that owning a home right now is one of the better investments you can make.

Some analysts are saying that a rise in mortgage rates, prompted by higher Treasury yields and inflationary pressure, could eventually cut into demand for new homes.

The benchmark 30-year fixed mortgage hit nearly 5% at the end of April, its highest since early 2014, according to weekly data from Bankrate.com. As recently as September, it was right at 4%.

Still, the economy is much stronger than it was the last time rates spiked in 2013, which means the housing market has more ability to withstand higher mortgage rates than it used to, most analysts say.

As a matter of fact, real wages are up for the first time in 10 years, giving would-be buyers more purchasing power.

Couple that with expected equity increases in those home purchases, this looks to be a fantastic time to purchase.

The Data

Industry experts are also predicting an increase in purchases. Industry giant Zillow predicts that 2018 will shape up to be an even hotter real estate market than in 2017.

An analysis conducted by Zillow Research, a division of Zillow Group that operates the Zillow real estate marketplace, found that homes sold faster than ever in 2017 largely due to shrinking inventory.

Rising Rents Means It’s Time To Buy

The analysis has shown that rents have been increasing consistently the past three to four years. In the last year, for example, rents have over increased 4% nationwide.

That’s not necessarily a giant jump, but those increases year after year add up. If buyers can lock-in a monthly mortgage, that alone is a huge incentive to get into the home buying market.

Per Forbes Magazine: “according to an online survey of more than 1,000 active buyers conducted in early March by Toluna Research for realtor.com, 23% of millennials surveyed indicated that rising rent was a trigger for their home buying purchase.

Realtor.com reports that HUD data shows rents were up in 85 of the top 100 metro areas, including nine metros where rents were up by double-digit percentages from a year ago.”

More from Forbes: “These are the market dynamics and challenges Millennials face especially in urban areas where they naturally migrate.

Craig Furfine, clinical professor of finance at Kellogg School, Northwestern University thinks differently. ‘An alternative viewpoint is Millennials have been reluctant to enter the housing market having witnessed the effects of the housing collapse of a decade ago. Now they see interest rates rising and they think now may be a good time to buy’.

Interestingly, just like their baby boomer parents, many Millennials want that family home with a yard and in a good school system. It seems like the foundation of home ownership desire hasn’t really changed in a long time.

Don’t hesitate to reach out to me for more, as it would be my privilege to help!

A Great New Zero Down Payment Option – The Chenoa Fund

May 3, 2018 / / 0 Comments

Choosing the right loan type is an important part of home buying. There are many different mortgage options available, and each comes with its own set of benefits – including a zero down payment loan option.

Making a good decision about your down-payment is one of the key aspects getting the most value from your home purchase.

The amount you put down will play a large role in your monthly payments, your mortgage rate, and how much home you can qualify for.

For some buyers, making a large down payment makes sense. For others, there are options that require little or no down payment. There is no “good” or “bad” down payment amount. It depends on the buyer’s situation and long-term goals.

For more, check out The Mortgage Reports and Tim Lucas’ article here….

The Chenoa Fund – A Great No-Down Option

100% Home Financing

The Chenoa Fund provides first mortgages to any borrower meeting minimum credit standards. This is not a narrow, limited program for which only a select few borrowers can qualify. There is no first-time home-buyer, income or geographic restrictions or recapture provisions with this particular program.

Borrowers who qualify for a first mortgage may also receive assistance with their down payment.

Second Mortgages

Under FHA guidelines, Chenoa Fund is qualified to provide borrowers with grants or second mortgages to cover the borrower’s 3.5% minimum contribution (down-payment), with rates as low as 0% to help in qualifying.

Borrowers qualifying for an FHA first mortgage through Chenoa Fund can obtain a grant or second mortgage if they have at least a 640 credit score, a 43% debt-to-income ratio, and meet other qualification guidelines.

Contact me for more details…

Other Zero-Down Options

USDA Loans

USDA loans could be the right choice for those who want a home in a suburban or rural area. Find out more here…

The United States Department of Agriculture (USDA) backs this loan in an effort to promote home-ownership and economic development in less-dense areas.

But don’t let the word “rural” concern you, as its definition is quite generous, per the USDA. Many suburban areas just outside of major metro centers are within USDA home loan boundaries.

USDA loans offer 100 percent financing, so the buyer doesn’t need to put any money down on their home if they don’t want to.

VA Loans

Another popular zero-down loan program is the VA loan. The U.S. Department of Veterans Affairs (VA) offers this loan program to active military members and veterans of the U.S. armed forces.

VA loans also carry the lowest mortgage rates of any loan type, typically around 0.25% below rates for conventional loans – and no mortgage insurance is required!

Also, a VA loan can be extraordinarily flexible. Lenders allow credit scores down to 620 or lower thanks to strong government backing and the VA utilizes a different debt-to-income calculation. VA loans were created to make home-ownership accessible and affordable for military members and veterans.

Options Between 3% and 5% Down

3% Down Conventional

Fannie Mae and Freddie Mac both have low down-payment options where the home-buyer needs only 3% down, making the loan-to-value (LTV) ratio 97. This mortgage option generally requires a credit score of at least 620.

This loan requires private mortgage insurance, but depending on your credit score, the mortgage insurance could be less expensive than that of FHA.

Those looking to keep the home and loan long term might opt for this loan; mortgage insurance automatically drops off when you build 22% equity in the home. FHA mortgage insurance remains for the life of the loan. Also, homeowners must refinance to cancel FHA mortgage insurance.

Because conventional PMI can be cancelled, buyers often opt for it, even when it is more expensive than FHA mortgage insurance.

3.5% Down FHA Loan

One of the most popular low down-payment options is the FHA loan. These mortgages are backed by the Federal Housing Administration (FHA) and require a credit score of just 580 and a down-payment as little as 3.5%.

FHA loans require a monthly mortgage insurance premium (MIP) payment. This is FHA’s “brand” of mortgage insurance and serves the same purpose as private mortgage insurance (PMI) on conventional loans. While mortgage insurance of any type means extra cost, it also means the buyer can put less money down and buy a home sooner.

Low down-payments are not the only reason FHA loans are popular.  Because of their lenient credit requirements, debt-to-income ratios, and low down-payment, many home buyers will find that an FHA loan works best for them.

The Next Step

Make sure you find out more by contacting your local mortgage professional and working on pre-qualification. It would be my pleasure to do just that!

 

April 15, 2018

Seller Paid Closing Costs – FHA Loans

FHA loans are a popular mortgage option among homebuyers, especially first-time purchasers and those with limited funds for a down payment.

See the video above for more….

One of the fantastic benefits of this program is that it allows the seller to contribute money toward the buyer’s closing costs. These are called “concessions” and they used to attract buyers and offers, making their property more attractive for purchases.

Under current HUD guidelines, sellers can pay money toward a homebuyer’s closing costs, when an FHA loan is being used. These seller contributions are typically limited to 6% of the purchase price.

You might wonder why any buyer would ask a home seller to pay a closing cost credit for the buyer.  The first thought that crosses a seller’s mind is “doesn’t the buyer have any money?” – and if the buyer doesn’t have any money, “why should the seller subsidize the buyer’s home purchase?”

However, it is common for sellers to pay a closing cost credit for some buyers in certain situations.

Here’s a brief look at the rules and requirements when a seller pays for some of or all of the buyer’s closing costs…

Seller Concessions and FHA Loans

Because this is a federal program, the US Department of Housing and Urban Development (HUD) sets the rules for seller contributions toward closing costs for FHA loans. It is their Single Family Housing Policy Handbook (HUD Handbook 4000.1) that outlines the regulations for the FHA loan program.

Their handbook further states that “interested parties” (seller, builders, etc.) can contribute money “toward the Borrower’s origination fees, other closing costs and discount points.” These contributions are generally limited to 6% of the sales price.

Believe it or not, seller contributions that exceed 6% do not happen very often. In most cases, these contributions fall at or below the 6% cap.

How Does It Work?

The number one way many buyers get the sellers to pay a closing cost credit is by increasing the sales price to cover the additional expense. For example, let’s say the sales price is $200,000, and the buyers need 3 percent of the purchase price. If you were to divide the sales price by .965 (a 3.5% down payment), that would equal $207,254. If you take $207,245 X 3.5% and deduct it from the sales price, the seller is still netting that same $200,000.

The drawback to this approach is what happens if the home does not appraise by the buyer’s lender at $207,245? If there is no provision for this in the purchase contract, the seller could be stuck paying a credit from a lower sales price and netting much less than the seller anticipated.

The Down Payment Portion

Homebuyers who use an FHA loan to buy a house must make a down payment of at least 3.5% of the purchase price or appraised value.

The FHA handbook states that “Interested Party Contributions may not be used for the Borrower’s [down payment].”

This means that the seller cannot contribute money to the home buyer’s down payment, when an FHA is used to finance the purchase.

It’s the responsibility of the buyer to produce the entire down payment.

Offer a Trade Off for a Closing Cost Credit

Sellers will often agree to pay a closing cost credit if they get everything they want. Sellers want qualified buyers who will close escrow and not cause any problems during the escrow period.

In other words, offer to buy the home in its AS IS condition and assure the seller the buyer will take care of any home inspection issues after closing.

Too ​many sellers, it is worth it to give a little discount on the price upfront in return for assurance the escrow will close on time without hassles. Some sellers work a little flexibility into the sales price to begin with, so it’s not a hardship to offer a closing cost credit.

In Conclusion

It’s important to distinguish that HUD allows home sellers to contribute toward the buyer’s FHA closing costs — but they do not require it. Seller concessions and contributions are typically agreed upon during the negotiation process, prior to closing.

Generally speaking, sellers tend to be more willing to pay buyer closing costs in a slower real estate market, and less inclined to do so in a hot market with competing offers.

In fact, in a sluggish market you’ll often see real estate yard signs that say things like “seller pays closing costs.” This is an enticement to attract more offers, which might be necessary in a buyer’s market.

In an active and highly competitive housing market, however, this kind of offer is less common. That doesn’t mean buyers can’t ask for the seller to pay some or all of their closing costs. It just means that the current state of the market will affect their willingness to do so. So when it doubt, rely on your real estate agent’s advice.

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