Category: Mortgage (Page 32 of 60)

Buying a Home Is the Most Affordable It’s Been in Almost 3 Years

December 7, 2019 / Tom Bonetto

Home prices have slowed a bit in some areas, but they continue to climb in the majority of markets in the U.S. Inventory is stubbornly low in many parts of the country, but even with these factors, now is actually a good time to purchase.

Believe it or not, research shows that housing has actually become more affordable this year, despite home appreciation and tight inventory. Affordable homes are possible thanks to lower mortgage rates and greater purchasing power.

“Affordability is about the best it can be compared to what it is likely to be over the next few years. So, in that sense, it’s a good time to buy right now if you have the financial means.” –Lawrence Yun, Chief Economist, National Association of Realtors

However, this positive development may not last for too much longer. That’s why it pays to hunt for homes and mortgage rates now, as waiting could prove expensive.

I’m linking to an article from Erik Martin at The Mortgage Reports – you can find the entire piece here…

What The Numbers Show

Martin highlights a Black Knight study (found here) that shows “housing affordability hit nearly a three-year high in September.” Other findings from the report include:

The drop in mortgage rates since November has been enough to amp up buying power by $46,000 while keeping monthly principal and interest (P&I) payments the same
The monthly P&I needed to buy an average-priced home is $1,122. That’s down about $124 a month from November 2018, when interest rates were near 5%
Monthly P&I payments now require only 20.7% of the national median income. That marks the second-lowest national payment-to-income ratio in 20 months

Martin writes “that last point may be the most important. For the average home buyer, month-to-month housing costs are lower than they’ve been at almost any point in the last three years.”

Why Is Housing More Affordable Now?

Lawrence Yun, the chief economist for the National Association of Realtors, states that lower mortgage rates right now are helping to offset higher home prices.

“Assuming you put down 20% on a median-priced home, your monthly mortgage payment would be $1,070 at this time last year. That’s assuming a 4.7% mortgage rate at that time,” he says.

Today, your monthly payment on that same home could be down to $990 — $80 less — even though you would have paid more for the home thanks to rising real estate prices.

Will This Trend Continue?

Yun, and many other economists, believe that mortgage rates will likely remain attractive through 2020.

“But then they will rise, which will knock off many buyers from the pool of eligible purchasers,” predicts Yun.

Should You Act Now?

Please do reach out to me so we can analyze your current situation to see if a home purchase might be in your best interest. Based on the data, now is really the time to get started…and it would be my pleasure to help you.

New and improved conforming loan limits for 2020!

December 2, 2019 / Tom Bonetto

The Federal Housing Finance Agency announced last week that it is raising the conforming loan limits for Fannie Mae and Freddie Mac to more than $510,000.

In most of the U.S., the 2020 maximum conforming loan limit for one-unit properties will be $510,400, an increase from $484,350 in 2019.

What this means is that many buyers who were unable to qualify for $500,000 mortgages due to “jumbo loan” restrictions can now re-visit an application!

Data from FHFA shows that home prices increased by 5.38% on average between the third quarter of 2018 and the third quarter of 2019. So, the baseline maximum conforming loan limit in 2020 will increase by the same percentage.

As a result of generally rising home values, the increase in the baseline loan limit, and the increase in the ceiling loan limit, the maximum conforming loan limit will be higher in 2020 in all but 43 counties or county equivalents in the U.S.

Find out more from Housingwire here…

Conforming Loans – what are they?

A conforming loan gets its name because it meets or “conforms” to specific guidelines set by the two largest government-controlled loan entities — Fannie Mae and Freddie Mac. Loans that are greater than $510,400 in general are considered “jumbo” mortgages and are not controlled by Fannie Mae or Freddie Mac.

Recent History

This marks the fourth straight year that the FHFA has increased the conforming loan limits after not increasing them for an entire decade from 2006 to 2016.

In 2016, the FHFA increased the Fannie and Freddie conforming loan limit for the first time in 10 years, and since then, the loan limit has gone up by $93,400.

Back in 2016, the FHFA increased the conforming loan limits from $417,000 to $424,100. Then, the next year, the FHFA raised the loan limits from $424,100 to $453,100 for 2018. And in 2018, the FHFA increased the loan limit from $453,100 to $484,350 for 2019.

Median home values generally increased in high-cost areas in 2019, driving up the maximum loan limits in many areas. The new ceiling loan limit for one-unit properties in most high-cost areas will be $765,600 — or 150% of $510,400.

Find out More

Please do reach out to me and find out what the conforming loan limit is for your neighborhood!

Quick Credit Score Improvement Tips

October 31, 2019 / Tom Bonetto

Let’s talk credit, as it’s so important. Your FICO scores can determine whether you are able to purchase that home or not, and save you a good deal of money on the rate you’re going to pay if your scores are good.

Of course, you want to make your payments on time, but how can you actually improve your credit score in a relatively short period of time? What can you do?

Here are a few things that you might be able to do relatively quickly and improve your scores…

Lower The Balances

It’s a good idea to keep the balance you owe on any of those accounts below 30% of the credit line. If you have a credit card with $1000 limit on it, keep your balance to $300 or less.

Increase The Trade Line

So, what if your balance is higher than that and you can’t bring it down? Well, go to that credit card issuer and ask them if they’re willing to give you a higher limit. By bringing the limit up, the amount you owe becomes a smaller percentage of your limit. That will help your score.

Don’t Close Accounts

One key thing to remember, don’t close off any credit lines that you have from the past. That’s good history that you’ve built up. You want to keep that good history. It’s like getting straight A’s in high school and not wanting to show the report card. Keeping good history will help your credit score.

Collection Accounts

Finally, think about some of those collection accounts – only if they’ve popped up. If the seven-year reporting period is up (starting from when you first went delinquent with the original debt), dispute the debt from your credit report. Any proof you have regarding the first date of delinquency will strengthen your dispute.

When All Else Fails

If you’re not able to get the collection account removed from your credit report, pay it anyway. A paid collection is better than an unpaid one and shows future lenders that you’ve taken care of your financial responsibilities. Once you’ve paid the collection, just wait out the credit reporting time limit and the account will fall off your credit report.

If you have more questions about your credit and how it impacts your ability to finance a home, please do reach out to me, as it would be my pleasure to help!

The Cost of Waiting to Purchase a Home and Trying to Time the Market

October 28, 2019 / Tom Bonetto

If you’re shopping for a home today, you know it can be hard work. You might not find something right away and it’s easy to become frustrated and fatigued.

Sometimes buyers get discouraged and say, “Let me take off a few months, maybe I’ll come back 6 months later.”

Some, on the other hand, think that the market might weaken shortly or that interest rates will fall even further…and are trying to essentially “time the market” Is that the right strategy?

The Cost of Waiting

Here’s the potential problem with that thinking…while you might want to take time off and away from your search, the market isn’t taking time off!

The cost of waiting to buy is defined as the additional funds it would take to buy a home if prices & interest rates were to increase over a period of time.

The market is quite good in terms of appreciation right now in California and Arizona. The forecasted growth in value is 2.4% in just the next 6 months; let’s quantify that.

The Numbers

A home worth $300,000 today would be worth $7,300 more in 6 months. Additionally, if you were planning on putting the same percent down, you would have to borrow more because the home is more expensive.

What about interest rates? Rates today are at very attractive levels, so does it make sense to wait for rates to go down further…and what if they don’t?

No, the monthly savings with a lower rate are nice but are dwarfed by the missed appreciation and amortization, and it would take many, many years to recoup what you would have lost.

One other thing to consider…if rates drop significantly after your purchase, you can always refinance in the future to take advantage of that lower rate.

Today’s Data

Here’s the data from FHFA – see how the forecast is for nearly 5% appreciation in the year ahead. The longer you wait, the more you miss out on appreciation and the more expensive you new purchase will be.

Stick with it, keep shopping, and you will find something. Don’t hesitate to reach out to me with questions, as it would be my pleasure to help!

Know Your Down Payment Options: From 0% to 20%+

October 5, 2019 / Tom Bonetto

Coming up with enough cash for a down payment when buying a house is the single biggest roadblock for many hopeful home buyers.

But how much do buyers really need?

What is a down payment?

In real estate, a down payment is the amount of cash you put towards the purchase of home.

It is deducted from the total amount of your mortgage and represents the beginning equity — your ownership stake — in a house and property.

Down Payment Options

Many borrowers still believe that 20% is the minimum…and that’s just not the case. There are options from 0% to 20%+ that can work for many would-be buyers.

For today’s most widely-used purchase mortgage programs, down payment minimum requirements are:

FHA Loan: 3.5% down payment minimum
VA Loan: No down payment required
HomeReady/Home Possible Conventional Loan (with PMI): 3%
Conventional Loan (with PMI): 5%
Conventional Loan (without PMI): 20% minimum
USDA Loan: No Down Payment required
Jumbo Loan: 10% down

PMI is “private mortgage insurance…and you can find out more about that here…

Remember, though, that these requirements are just the minimum. As a mortgage borrower, it’s your right to put down as much on a home as you like and, in some cases, it can make sense to put down more.

Benefits of a larger down payment

Conventional loans without mortgage insurance require a 20% down payment. That’s $60,000 on a $300,000 home, for example. There are a number of benefits to bringing in 20%:

No mortgage insurance
Lower interest rate, in most cases
More equity in your home
A lower monthly payment

As a reminder, the down payment is not the only upfront money you have to deal with. There are loan closing costs (you can find out more about those here…) and earnest money to consider as well. Before the dramatic music returns, let’s explore some lower down payment options.

Benefits of a smaller down payment

From Dan Green at The Mortgage Reports:

“A large down payment helps you afford more house with the same payment. In the example below, the buyer wants to spend no more than $1,000 a month for principal, interest, and mortgage insurance (when required).

Here’s how much house this home buyer can purchase at a 4 percent mortgage rate. The home price varies with the amount the buyer puts down.”

Even though a large down payment can help you afford more, by no means should home buyers use their last dollar to stretch their down payment level.

A down payment will lower your rate of return

“The first reason why conservative investors should monitor their down payment size is that the down payment will limit your home’s return on investment.

Consider a home which appreciates at the national average of near 5 percent.

Today, your home is worth $400,000. In a year, it’s worth $420,000. Regardless of your down payment, the home is worth twenty-thousand dollars more.

That down payment affected your rate of return.

With 20% down on the home — $80,000 –your rate of return is 25%
With 3% down on the home — $12,000 — your rate of return is 167%

That’s a huge difference.

However! We must also consider the higher mortgage rate plus mandatory private mortgage insurance which accompanies a conventional 97% LTV loan like this. Low-down-payment loans can cost more each month.

Assuming a 175 basis point (1.75%) bump from rate and PMI combined, then, and ignoring the homeowner’s tax-deductibility, we find that a low-down-payment homeowner pays an extra $6,780 per year to live in its home.”

Once you make your down payment, it’s tougher to get that money back

More from Green: “when you’re buying a home, there are other down payment considerations, too.

Namely, once you make a down payment, you can’t get access to those monies without an effort.

This is because, at the time of purchase, whatever down payment you make on the home gets converted immediately from cash into a different type of asset known as home equity.

Home equity is the monetary difference between what your home is worth on paper, and what is owed on it to the bank.

Unlike cash, home equity is an “illiquid asset”, which means that it can’t be readily accessed or spent.

All things equal, it’s better to hold liquid assets as an investor as compared to illiquid assets. In case of an emergency, you can use your liquid assets to relieve some of the pressure.

It’s among the reasons why conservative investors prefer making as small of a down payment as possible.”

In Conclusion

As you can see, there are a wide variety of down payment options for buyers. Please feel to contact me to go over those choices, as it would be my pleasure to help you in financing your next home.