The SCOOP! Blog by ChangeMyRate.com®

The coronavirus pandemic has put many things on hold, but real estate continues to chug along. Sales and listings persist across the country, with some markets harder hit than others. And home prices are rising, throwing a wrench in the plans of those who thought they might be able to swoop in for a steal. 

“Any thoughts of bargain-hunting in the aftermath of the coronavirus shutdown have proven to be a losing strategy,” said Forbes. “While it seemed likely that house prices would decline due to lack of sales activity, the opposite has occurred. According to recent statistics issued by Realtor.com, median listing prices are 5.6% higher than one year ago, and more than a full percentage point above the levels just before the COVID pandemic shut down the economy.”

But, interest rates are at historic lows, which stretches your buying power. “Buying now will give you an opportunity to lock-in the lowest mortgage rates in history,” they said. “Though it’s possible mortgage rates can fall even lower from here, there’s no way to know that will happen. But what we do know for certain is that interest rates are better now than they’ve ever been, making buying now more compelling than ever.”

If you’re considering buying your first home right now, here are the questions you’ll want to ask yourself.

Do you have job security?

For many of us right now, it’s hard to know what the future holds. But if you are in a profession that has some level of job security and you’re currently in a rental, you might want to consider making a move. 

"If you're secure in your job and you've got some savings it's actually not a bad time to buy," said Consumer Reports. "There are going to be opportunities that probably didn't exist even just a few months ago."

Do the numbers make sense?

Your lender will establish if your debt-to-income (DTI) ratio meets the standard for mortgage qualification. “The 43% debt-to-income (DTI) ratio standard is generally used by the Federal Housing Administration (FHA) as a guideline for approving mortgages,” said Investopedia. “This ratio is used to determine if the borrower can make their payments each month. Some lenders may be more lenient or more rigid, depending on the real estate market and general economic conditions. A 43% DTI means all your regular debt payments, plus your housing-related expenses—mortgage, mortgage insurance, homeowner's association fees, property tax, homeowner's insurance, etc.—shouldn't equal more than 43% of your monthly gross income.”

Beyond your DTI, you also need to think about things like: increased utility costs, landscaping, commute costs, repairs, renovations, and all that furniture you’ll want to buy to deck out your new place.


Do you have down payment funds?

Depending on your mortgage, your down payment could be 3% of your loan or 20%. That means coming up with thousands of dollars. If you don’t have the funds on your own, consider alternate means, like a family gift or an assistance program. 

With mortgage rates so low, it may also make sense to dip into your retirement funds. “If you are a first-time home buyer, you may be able to use some funds from retirement accounts (including IRAs and 401(k)s) for a down payment without incurring the typical early withdrawal penalties that come with taking money out of these accounts,” said Money Under 30.

How about those closing costs?

It’s easy to focus on down payment funds and forget about closing costs. But if you don’t weave this expense into your homebuying plan, you could end up with a big, expensive surprise at closing time. “Average closing costs for the buyer run between about 2% and 5% of the loan amount,” said NerdWallet. “That means, on a $300,000 home purchase, you would pay from $6,000 to $15,000 in closing costs.”

How’s your credit?

“The state of your credit is just as important as the state of your finances when it comes to deciding whether you are ready to buy a home,” said MoneyCrashers. “Your credit score determines whether a mortgage lender will give you a loan at all, as well as the rate. A low credit score can result in a significantly higher interest rate, which means that you will pay thousands (or hundreds of thousands) more over the life of the loan. Typically, you need a credit score above 720 in order to get the most advantageous rates.” 


Do you have an emergency fund?

It’s always important to be prepared in case of emergency, but with so much uncertainty right now, it’s more crucial than ever. “You need to have a plan to pay your mortgage in the event that something does go wrong in the future, such as a layoff or a medical problem,” said MoneyCrashers. “Typically, this means you should have an emergency fund—at least a few months’ worth of living expenses—set aside before you buy a home. An emergency fund can also come in handy to help you to bear all of the unexpected costs that come along with being a homeowner. For instance, having cash set aside for repairs is essential, since you will not have a landlord to call when something goes wrong.”

Are you ready for the responsibility?

Let’s talk about those repairs. What are you going to do when the air conditioner breaks on the hottest day of the year? Or the roof leaks on the rainiest day of the year? Or your fence blows over in a storm or your toilet overflows in the middle of the night?

It can be a shock to the system to suddenly be in a position where anything that goes wrong is your responsibility to fix—or find someone to do it. If you’re not planning to learn a bunch of new skills, it’s a good idea to ask around in your neighborhood, or ask your real estate agent, for some local resources you can depend on.


Are you ready to make a long-term commitment?

Signing a lease for a year at a time means you can up and move pretty frequently. Want to move to the beach? The heart of the city? A whole new state? No problem! Buying a house—that’s more of a commitment. 

Make you’re ready to settle down in one location and stay awhile. If you purchase in a place where homes are appreciating, you may be in a position to sell—and make money—in a matter of a few years. But going into a home purchase with that assumption may end up in disappointment.  

To view the original article click here

Posted by Jackie A. Graves, President on August 9th, 2020 9:11 AM

First the good news: You’ve made an offer on a home and the seller has accepted. You’ve signed a contract and paid a deposit, usually a few thousand dollars.

Now for the not-so-good news: The appraiser says the house is worth less than your offer — and the bank won’t grant a mortgage. Enter the appraisal contingency, which protects you in situations just like these.

What is an appraisal contingency? 

Contingencies are conditions that must be met before a real estate contract becomes legally binding. Most real estate contracts include three conditions:

•    The appraisal contingency says the house must be appraised at the sale price or higher, which will help you secure a mortgage.

•    The finance contingency states that the deal depends on the bank granting a loan.

•    The inspection contingency requires the home to pass an inspection.

If these conditions aren’t met within a specified time frame, the deal is off, and you are entitled to a refund of your deposit, sometimes called earnest money.

How do appraisal contingencies work?

Typically, your bank will hire a licensed appraiser to determine the fair market value of the home, based on its general condition, location and the sales price of similar properties in the area known as comparable sales, or comps.

Let’s say you’re buying a house for $300,000 with a $30,000 down payment and a $270,000 mortgage. If the house is appraised at $260,000, the bank will only loan that amount — leaving you $10,000 short. If the seller refuses to lower the price to make up the difference, the appraisal contingency lets you walk away and get your deposit back.

Doesn’t the finance contingency accomplish the same thing?

The finance contingency sometimes covers the same risks as the appraisal contingency. If the home is appraised at less than your offer and the bank refuses to write a mortgage, you can exit the deal — but, it’s possible that the bank will agree to a smaller loan that will meet the finance contingency. The seller can then demand that the difference be paid by you, the buyer. If you don’t have the extra cash and there is no appraisal contingency, you are in breach of contract and can lose your earnest money deposit.

That’s why appraisal contingencies are almost always included in a contract, regardless of whether there is a finance contingency.

How long is an appraisal good for?

Because an appraisal is a real-time valuation, it becomes outdated — but exactly when depends on the local market and how fast it shifts. Often, the lender sets the time frame, which can range from 60 to 120 days, and commonly no longer than six months, at the longest.

Why do appraisals become outdated? When appraisers assess comps, they generally include recent sales. Because of that, your appraisal can “expire” is as little as two months, especially in an area where there’s changes frequently in the market.

Keep in mind that there are cases when an extension is necessary, so your lender may not order a second valuation. Also, different loan types, such as FHA loans, may have their own requirements. Always check with your lender so you meet their specific standards.

What can I do if an appraisal is too low?

Although both parties can walk away from a deal that fails to meet the appraisal contingency, they may not want to. In this case, you can petition the bank to reassess the value of the home.

Ask for a second appraisal while presenting evidence you think makes the house worth more — such as comps the appraiser might have missed, or features that are hard to see, such as radiant-floor heating. If the second appraisal deems the house more valuable, you may be able to secure a loan for the full amount you need.

Should I waive the appraisal contingency?

In a hot real estate market, an appraisal contingency can sour a deal. Sellers field offers from multiple buyers, and tend to prefer deals with fewer conditions. Eliminating the appraisal contingency can give you an edge; however, you’re taking on the risk that you might not get the loan you hope for, and sellers might require proof that you have the cash to cover a deal.

To view the original article click here

Posted by Jackie A. Graves, President on August 8th, 2020 8:14 AM

When Congress passed Section 4021 of the CARES Act in response to the effects of COVID-19, their intent was to help borrowers who were having problems making their mortgage payments. Little did Congress realize that they were potentially setting up borrowers for trouble in the future when it comes to creditworthiness as assessed by the lending community.

According to Mark Hanf, president of Pacific Private Money, “Section 4021 of the CARES Act contained a regulation that loan servicers “shall report the credit obligation or account for those participating in forbearance as current”.  In other words, those participating in a forbearance program should not see their credit scores drop. However, there is a loophole that allows lenders to discover whether or not a borrower is actually making payments. It is the “comments” section of a credit report.  The CARES Act does not mention the comments section of credit reports, and that’s where forbearance notations are going.”  What borrowers are not being told is that any reference in a credit report to forbearance can be a Scarlet Letter for an applicant seeking a new mortgage, according to Kathleen Howley in an article she wrote in early May 2020.

According to Hanf, within a week of Howley’s article, his company received a loan request from a home buyer who was denied credit from a major bank for just this very situation. Although the bank sees the existing mortgage as “current” the forbearance has let the world know via the comment section that this borrower has requested a deferment. The major bank involved would most likely not deny the loan on its face due to the deferment, as this would violate the law; however, banks are notorious for coming up with a myriad of reasons for denying a loan and still stay within the guidelines set out for them.

Conventional lenders desire to have plain vanilla borrowers who pay back loans in a timely manner. When a borrower changes terms of the loan by requesting principal forgiveness or other aspects of the loan, the lenders generally do not usually extend credit again to these borrowers and can negatively affect the borrower’s ability to borrow again from unrelated lenders. Such is the case back during the Great Recession wherein some borrowers took advantage of the economic climate by asking their lender to reduce the principal of their loan [total forgiveness rather than just a deferment]. The borrowers may have gotten a reprieve, but the long-term effects may have been more drastic. Similarly, to when a borrower files bankruptcy. The borrower may get out of paying creditors, but their ability to borrow in the future is usually severely hampered.

In one case, back in 2009, during the heart of the Greta Recession, one banker tells a story of how a wealthy borrower first asked for a principal loan reduction of $500,000 because his collateralized real estate had decreased and his request was granted. But, when this borrower was faced with the prospects of having this reduction reported on his credit report or the fact that he would have to inform any new lender that he requested a principal reduction [as this question is usually on bank applications], he voluntarily requested that the $500,000 abatement be reinstated. He decided his ability to borrow in the future was worth more than the $500,000 principal reduction.

Borrowers will have to decide if requesting deferments is worth the risk of potential future lending restrictions based upon the lender's desire to lend to borrowers who choose to defer mortgage payments when the opportunity arises. Whoever said, “there’s no free lunch” must have been talking about these very situations.

To view the original article click here

 
Posted by Jackie A. Graves, President on August 7th, 2020 9:23 AM

Yulanda Munford is the assistant vice president/mortgage operations manager at Citizens Trust Bank, based in Atlanta. Munford said now is a great time to apply for a mortgage or refinance your home, but there are a few things you should know before you do. Above all, she said, educating and empowering yourself about the mortgage process and personal finance is key.

She gave Bankrate tips for first-time mortgage and refinance applicants on how they can take advantage of historically low interest rates. This conversation has been lightly edited for length and clarity.

What should first-time mortgage applicants know?

First-time homebuyers should know how much they can afford before they start looking for a new place to live. An assessment of monthly obligations and monthly household income should be completed by a mortgage lender before the process starts.

The first tip we try to give is making sure they understand where they are from a credit profile. That way they can tell if there’s anything that needs attention right away.

Mortgage officers will look at a couple of things: your credit, your income, the length of time at your current job and your residential history. We want to make sure you’ve been in your job for at least two years and you can show some stability by being at a residence for two years or longer.

If all those elements aren’t in order, we try to educate people on what steps they’d need to take. We try to give you a road map to homeownership. 

What are some of the biggest mistakes first-time mortgage applicants make?

One of the biggest and most common mistakes for first-time homebuyers is not knowing how the mortgage loan process works or what options are available. Prospective buyers should always research loan and down payment options. If you’re not familiar with down payment requirements and assistance programs and credit score requirements, it can be difficult to determine what mortgage product is best for you.

A lot of the time, people just don’t know what’s on their credit report. Not knowing where you are personally from a credit standpoint can be a roadblock.

A lot of people may not understand what it means if you’re a slow payer of your credit cards or your car loan, too.

Another huge thing in our millennial market are the student loans. They may not be in a position where they’ve been focused on making regular payments on those student loans or may be paying slow. If you’re delinquent in your student loans, you will not be eligible for homeownership, even if you’ve landed a great job in the industry you went to school for.

For self-employed borrowers, when you file your taxes, you may be writing off a lot of the income when it’s time to file. That hurts your loan application because the more you write off, the less we can use to show how much income you make to support your mortgage.

What advice do you give to all first timers?

When starting the homebuying process, all first-time homebuyers should obtain a copy of their credit report to begin working on items that reflect negatively against their homeownership dream. Next, they should avoid making any major new purchases or adding new financial obligations like opening another credit card. It’s also important to keep on top of existing debt obligations.

Credit is the largest factor when determining interest rates and loan terms. It’s vital for the homebuyer to know what is on their credit report. We recommend that first-time buyers enroll in a credit monitoring program to ensure their report is monitored for any erroneous activity that will need to be disputed.

You also want to make sure you have an opportunity to utilize funds for down payment, so regularly contributing to your savings is important. You definitely have to exercise discipline if you are trying to truly get to homeownership.   

What do you need to know if you’re refinancing your mortgage?

If an existing homebuyer is interested in refinancing their current mortgage, the lender will still analyze their credit and income to make sure the applicant has met the initial loan parameters. But, when refinancing, the loan you choose can affect the process.

You’ll have to pick between a rate and term change — a change in interest rate and/or repayment period — or a cash-out refinance, which allows you to use the equity you’ve built up in your home to get access to cash or consolidate other debt.

For cash-out refinances, the interest rate could go up, and you may need to get your home re-appraised to determine its current value.

Your home value and your equity are going to make a big difference in a refinance transaction. Credit and income will still play a very big role, but the biggest piece will be to determine what the value of your home is.

What are some of the pitfalls of the refinance process?

In most cases, when a homebuyer refinances their existing mortgage, it can lower the monthly payment and interest rate. However, it will also restart the loan terms, so it’ll take you longer to pay off. And, refinancing comes with closing costs similar to closing on a house when you first purchase it.

If you’re looking to do a cash-out transaction, you might not be able to get a new loan if you haven’t built up enough equity.

Is now a good time to buy a home or refinance your mortgage?

This is the perfect time for two reasons. Values are starting to go up if you’re looking to refinance and interest rates are going down. Interest rates are at an all-time low right now. If you were interested in purchasing, this would give you an opportunity to afford a little bit more because you have the opportunity to get a lower rate. This is the best time, this is the prime time, I’ve never seen rates this low before in about 19 years in the industry. 

What else should people know?

I like for anyone that comes to us to stay educated and empowered. The more you know, the better opportunity you will have to get what you are looking for. Know your financial health and credit to get prequalified for a mortgage before you start looking for a home.

Know how to get your credit where it needs to be, know how to save. When you come as a strong candidate, you leave with better options. Being educated means you are a better consumer and you’re more easily able to get what you’re looking for.

To view the original article click here



Posted by Jackie A. Graves, President on August 6th, 2020 8:01 AM

The historic plunge in mortgage rates has created eye-popping deals, with many borrowers locking in 30-year loans well below 3 percent.

But borrower beware: The sweet deals sometimes bring a sour surprise in the form of hefty closing costs. Don’t get so distracted by the rate in the 2s or by the low monthly payment that you lose sight of the bigger picture, mortgage experts advise.

“Some lenders are getting borrowers focused on the 2.5 percent rate, but there might be $13,000 in closing costs,” says Gordon Miller, owner of Miller Lending Group in Cary, North Carolina.

Paying a significant sum in closing costs generally isn’t a wise move — those costs eat up the monthly savings that come from a lower rate. However, making sense of the numbers isn’t easy.

Qualifying for and closing a mortgage is a complicated transaction with many moving parts. Even savvy consumers can struggle with mortgage offers that include a jumble of jargon and a pile of numbers.

“It is confusing,” says Kevin Parker, vice president of field mortgage operations at Navy Federal Credit Union. “It is overwhelming.”

Record-low rates spur flood of refinances

The average rate on a 30-year fixed-rate mortgage last week was 2.99 percent, not including origination points, according to lending giant Freddie Mac. Bankrate’s national survey of lenders showed the average 30-year mortgage rate last week fell to a record-low 3.30 percent, including points.

Nearly 16 million American homeowners could cut the rate on their 30-year loan by at least 0.75 percentage points by refinancing, mortgage data firm Black Knight says.

Many homeowners already have refinanced in recent months. The flood of activity has created a logjam, with lenders struggling to keep up. Some mortgage quotes are higher than the national average, a quirk explained by consumers’ race to lock in lower rates.

“Some lenders have so much volume that they’ve raised their rates,” says Alan Rosenbaum, chief executive of GuardHill Financial, a New York-based lender. “What they’re really saying is, ‘We don’t want to lend right now until we can catch up.’”


Take a hard look at closing costs

While many homeowners indeed can benefit from refinancing, it’s also important to analyze the costs. Closing costs — including appraisal fees, title insurance, credit checks and other items — can range from 2 percent to 5 percent of the amount of the loan. So on a $300,000 loan, you could pay $6,000 to $15,000.

Miller says he has seen closing costs range even higher. He worked with one borrower who was refinancing a $300,000 loan and didn’t realize that the new loan amount was $318,000–including all those costs rolled into the principal of the loan.

It’s likely that the borrower will sell the home or refinance into another mortgage long before lower monthly payments offset those costs.

Keep in mind, Miller says, that the average life of a mortgage is just two or three years, so paying hefty closing costs doesn’t make sense. Miller believes some in the industry create “intentional confusion” in the minds of borrowers.

For instance, many borrowers focus on the phrase “no out-of-pocket costs” but overlook the reality that thousands of dollars in closing costs are being rolled into their new loans. In some cases, the fees push the borrower’s equity below 20 percent, adding private mortgage insurance to the tab, Miller says.

Parker says Navy Federal Credit Union doesn’t charge the “underwriting” or “processing” fees that can add hundreds of dollars to closing costs. “In the industry, we refer to those sarcastically as junk fees,” Parker says.

Navy Federal Credit Union does charge borrowers for appraisals, title and credit checks “Whatever the vendor is charging, we just pass that through,” he says.

Calculate the break-even point

Any refinance decision should include a calculation of the break-even point. That’s the moment at which the savings in monthly payments offset the amount of the closing costs.

Say you have a $250,000 loan at 3.75 percent. Your monthly principal and interest is $1,157. If you can lower the rate to 3 percent, your payment would fall to $1,054, a savings of $103 a month.

But even if your closing costs are $5,000 — at the low end of the 2 percent to 5 percent range — you won’t break even on the costs for four years. If you plan to stay in the home for five years and not refinance again in that time, then the refi makes sense.

But if you’ll sell next year, or refi again in two years, you’re actually increasing your costs, not saving money.

What about no-closing-cost loans?

If closing costs have you feeling skittish, there is an alternative: A number of lenders market loans with no closing costs. The catch is that you’ll pay a higher interest rate.

In one example, Third Federal Savings and Loan of Cleveland markets no closing-cost loans to homeowners throughout the country. That loan carried a 3.44 percent rate in one recent promotion for a 30-year fixed loan, compared with 2.99 percent for a standard loan in which the buyer pays the costs at closing.

To run through the numbers, borrowing $250,000 at 2.99 percent would mean a monthly payment of $1,052. Raising the rate to 3.44 percent would boost the payment to $1,114, an extra $62 a month. However, if the higher rate means avoiding $5,000 or more in closing costs, you’d make nearly seven years of payments before you offset the closing costs.

Miller advocates no-closing-cost loans as a way to essentially refinance for free. You won’t be able to brag about your microscopic interest rate — but you’ll also feel secure in the knowledge that there’s more to refinancing than the interest rate alone.

However, Rosenbaum isn’t a fan of no-closing-cost deals — especially if you expect this loan to be your forever mortgage. That’s because the higher rate translates to a smaller monthly savings that add up over the years.

Comparing the options

Say you have a $250,000 mortgage at 4 percent, with a payment of $1,194. Here’s how a $250,000 refinance would stack up under several scenarios:  

Lending standards have grown stricter

Another factor to keep in mind: Banks have narrowed the pool of applicants who get the best rates, GuardHill Financial’s Rosenbaum says. The coronavirus pandemic has led lenders to extend generous relief programs that give borrowers forbearance for up to a year. Lenders don’t want to make a loan to a borrower who stops paying a few months later.

“Most of the banks are having a very difficult time approving customers,” he says. “Credit standards are getting much tighter across the board. The lending community is just very concerned with where this market is going. Who’s going to be able to afford their mortgage going forward? Who’s going to ask for forbearance? Who’s going to lose their job?”

Amid the flood of refinancings, the lowest rates go to borrowers with excellent credit scores, solid incomes and plenty of equity in their homes.

“The best rates are for those whose loan profile has the least amount of risk,” says Elizabeth Rose, certified mortgage planning specialist at AmCap Home Loans in Plano, Texas. “There are many details that factor into a person’s interest rate. Most believe it is just the credit score, but other things such as loan-to-value, debt-to-income, among many others, are also factors. Getting an interest rate around 2.5 percent or 2.625 percent will depend on the layers of risk.”

Another consideration: How long will it take your refinancing to close? Many lenders have long wait times. If you don’t want the process to drag on for months, make sure you ask questions and do some research, says Joe Bilko, chief revenue officer at AmeriSave.

“Rate is the starting point,” Bilko says. “Then you need to go another level deeper and dig into customer testimonials.”

           

What you can do

To score the best deal on a mortgage:

•    Shop around. Closing costs and rates vary by lender, so get three bids.

•    Understand the breakeven point. That’s the moment at which the savings in monthly payments offset the amount of the closing costs. This refinance calculator can help you decide.

•    Don’t chase the lowest rate. Yes, a low rate and paltry payment are good, but make sure those benefits aren’t overwhelmed by closing costs.

To view the original article click here


Posted by Jackie A. Graves, President on August 5th, 2020 11:15 AM

When Congress passed Section 4021 of the CARES Act in response to the effects of COVID-19, their intent was to help borrowers who were having problems making their mortgage payments. Little did Congress realize that they were potentially setting up borrowers for trouble in the future when it comes to credit worthiness as assessed by the lending community.

According to Mark Hanf, president of Pacific Private Money, “Section 4021 of the CARES Act contained a regulation that loan servicers “shall report the credit obligation or account for those participating in forbearance as current”.  In other words, those participating in a forbearance program should not see their credit scores drop. However, there is a loophole that allows lenders to discover whether or not a borrower is actually making payments. It is the “comments” section of a credit report.  The CARES Act does not mention the comments section of credit reports, and that’s where forbearance notations are going.”  What borrowers are not being told is that any reference in a credit report to forbearance can be a Scarlet Letter for an applicant seeking a new mortgage, according to Kathleen Howley in an article she wrote in early May 2020.

          

According to Hanf, within a week of Howley’s article, his company received a loan request from a home buyer who was denied credit from a major bank for just this very situation. Although the bank sees the existing mortgage as “current” the forbearance has let the world know via the comment section that this borrower has requested a deferment. The major bank involved would most likely not deny the loan on its face due to the deferment, as this would violate the law; however, banks are notorious for coming up with a myriad of reasons for denying a loan and still stay within the guidelines set out for them.

Conventional lenders desire to have plain vanilla borrowers who pay back loans in a timely manner. When a borrower changes terms of the loan by requesting principal forgiveness or other aspects of the loan, the lenders generally do not usually extend credit again to these borrowers and can negatively affect the borrower’s ability to borrow again from unrelated lenders. Such is the case back during the Great Recession wherein some borrowers took advantage of the economic climate by asking their lender to reduce the principal of their loan [total forgiveness rather than just a deferment]. The borrowers may have gotten a reprieve, but the long-term effects may have been more drastic. Similarly, to when a borrower files bankruptcy. The borrower may get out of paying creditors, but their ability to borrow in the future is usually severely hampered. 

In one case, back in 2009, during the heart of the Greta Recession, one banker tells a story of how a wealthy borrower first asked for a principal loan reduction of $500,000 because his collateralized real estate had decreased and his request was granted. But, when this borrower was faced with the prospects of having this reduction reported on his credit report or the fact that he would have to inform any new lender that he requested a principal reduction [as this question is usually on bank applications], he voluntarily requested that the $500,000 abatement be reinstated. He decided his ability to borrow in the future was worth more than the $500,000 principal reduction. 

Borrowers will have to decide if requesting deferments is worth the risk of potential future lending restrictions based upon the lender desire to lend to borrowers who choose to defer mortgage payments when the opportunity arises. Whoever said, “there’s no free lunch” must have been talking about these very situations.

To view the original article click here


Posted by Jackie A. Graves, President on August 4th, 2020 7:58 AM



KEY POINTS

  • For everyday Americans with good credit, there are many advantages to historically low-interest rates.
  • Riskier borrowers will have a hard time benefiting.

The Federal Reserve said Wednesday it would keep its benchmark interest rate near zero for as long as it takes until the economy starts to recover from the coronavirus crisis.

 In addition to holding rates near rock bottom, the central bank also said it will extend it's lending and credit initiatives until at least the end of the year.

The Fed’s commitment to low rates means that for everyday Americans, loans are cheaper — if you can get them.

“ In general, it’s good to borrow at low-interest rates but the reward for saving is lower,” said Yiming Ma, an assistant finance professor at Columbia University Business School.

“ That comes with the caveat that if you are able to get a loan, the rate is lower,” she added. “It doesn’t imply everyone that wants a loan is able to get a loan.”  

           

Some borrowers benefit

Although the federal funds rate, which is what banks charge one another for short-term borrowing, is not the rate that consumers pay, the Fed’s moves still affect the borrowing and saving rates they see every day.

For example, the average 30-year fixed rate home mortgage is now at a record low 3.33%, according to Bankrate. (The economy, the Fed, and inflation all have some influence over long-term fixed mortgage rates, which generally are pegged to yields on U.S. Treasury notes.)

Refinancing is the single biggest opportunity to save money, according to Greg McBride, chief financial analyst at Bankrate.com. “You can shave $150 to $200 off of your monthly payments — that’s the pay raise you haven’t gotten in a while.”

However, some lenders have stopped offering certain refinancing options and jumbo mortgage programs, due to the new risk in the market from the mortgage bailout program, part of the CARES Act. 

“The challenge is that lending standards have gotten much stricter,” said Tendayi Kapfidze, chief economist at LendingTree, an online loan marketplace.

“Banks are tightening standards pretty aggressively because they are concerned that the damage to the economy is going to be long-lasting.”

Credit card rates are also down to a four-year low of 16.01% from a high of 17.85% when the Fed started cutting rates one year ago, according to Bankrate. (Most credit cards have a variable rate, which means there’s a direct connection to the Fed’s benchmark rate.)

But with millions of people out of work and a growing number of Americans feeling severely cash-strapped, credit card issuers are closing accounts and lowering credit limits, particularly on those accounts that are at a greater risk of becoming delinquent.

“Many issuers have slowed lending to a trickle because of all the risk caused in the wake of the pandemic,” said Matt Schulz, the chief industry analyst at CompareCards.

“Banks don’t have a good handle on who is a safe borrower and who is a risky borrower. When that happens, they tend to retreat into their shells,” he said — “that’s definitely what we’re seeing today.”

Anyone shopping for a new car will have a similar experience with auto loans. Currently, the average five-year new car loan rate is down to 4.24% although rates are higher for riskier borrowers.

Concerns about defaults prompted Wells Fargo to stop making auto loans to most independent dealers in the country altogether.

“ A credit score of 700 or above is where you want to be,” said Bankrate’s McBride. “As you get further below that mark, the availability of credit starts to dry up.”

Rates for college loans decline

On the upside, students headed to college in the fall will pay less on their college debt.

Based on an earlier auction of 10-year Treasury notes, the interest rates on federal student loans taken out during the 2020-21 academic year are at an all-time low.

For those already struggling with outstanding debt, the CARES Act offered even more relief by pausing payments on federal student loans until the end of September. 

Student borrowers with private loans can benefit as well.

Although federal loans are fixed, private loans may have a variable rate tied to Libor, prime or T-bill rates, which means that when the Fed holds rates down, those borrowers will likely pay less in interest, depending on the benchmark and the terms of the loan. 

Savers get stung

For savers, historically low rates offer almost nothing in return.

Now, according to the Federal Deposit Insurance Corp., the average savings account rate is a mere 0.06%, or even less, at some of the largest retail banks. (Although the Fed has no direct influence on deposit rates, those tend to be correlated to changes in the target federal funds rate.)

Online-only banks offer slightly higher returns, thanks in part to lower overhead expenses than traditional banks. However, those rates are falling, as well.

A better bet could be high-yield reward checking accounts, according to Ken Tumin, founder of DepositAccounts.com, which are offered at some regional banks and credit unions. Those can pay as much as 3% on deposits, although not all customers will qualify.

Unlike regular checking accounts, which often impose minimum-balance requirements, high-yield accounts have maximum balance limits of $10,000 to $20,000, depending on the bank, and could also require a minimum number of monthly debit card transactions among other conditions.  

Source: To view the original article click here


Posted by Jackie A. Graves, President on August 3rd, 2020 8:51 AM

The list price may be the first thing that catches your eye when house hunting, but the actual cost of buying and owning a home is much greater. If you’re buying a home, here are all of the costs to consider.

Breaking down the cost of buying a home


Costs to pay upfront

In addition to the initial price tag of the home, expect two other upfront expenses: the down payment and closing costs

1. Down payment 

You’ll get the most favorable mortgage rates and avoid paying private mortgage insurance by making a down payment of 20 percent or more. That’s because lenders take on less risk with borrowers who put more money down. With a 20 percent down payment, you’ll pay $20,000 for every $100,000 of the home’s price. For example, on a $300,000 home, a 20 percent down payment would be $60,000.

There’s no requirement to make a down payment of 20 percent or more, and there are several low or no down payment mortgages out there that allow for less money upfront. Some conventional mortgage programs backed by Fannie Mae and Freddie Mac require just 3 percent down. (The caveat with these types of loans is that they may have income restrictions and require higher credit scores.)

FHA loans from the Federal Housing Administration require just 3.5 percent down, and you’ll need a credit score of at least 580 to qualify. VA loans and USDA loans don’t require a down payment at all, although you’ll need to meet certain criteria in order to be eligible.

2. Closing costs 

Generally, you can expect to pay 2 percent to 5 percent of the purchase price in closing costs. In 2019, borrowers paid an average $5,749 in closing costs, according to ClosingCorp, a real estate data firm.

The actual amount you’ll pay depends on the location of the home, the home price and the local real estate market.

Closing costs include lender and third-party fees, which may include appraisal fees, credit report fees, origination fees, application fees, title search fees, title insurance and underwriting fees.

If you don’t have cash to pay for closing costs, ask your lender about no-closing-cost options. Some lenders will roll the expenses into the overall loan. Just keep in mind that doing so will cost you more in the long run, since you’ll be paying interest on the additional amount.

             


Expenses for homeowners

After the initial cost of purchasing a home, there are several ongoing costs to think about, as well.

1. Mortgage payment

Your monthly mortgage payment — the principal and interest — is one of the most predictable ongoing costs. You can use a mortgage calculator to figure out how much you’ll owe each month.

For example, if you borrow $240,000 and finance it with a 30-year, fixed-rate mortgage at 3 percent, you’d pay $1,011 in monthly principal and interest.

The mortgage rate you receive has a big impact on your monthly mortgage payment, which makes it crucial to shop at multiple lenders for the best mortgage rate. According to a Consumer Financial Protection Bureau study, more than three-quarters of all borrowers only applied for a mortgage with one lender, and failing to comparison-shop can cost you thousands over the life of the loan.

2. Homeowners insurance 

Homeowners insurance generally covers the repair or replacement of the structure of your house and the contents within from disasters, theft and vandalism. The national average for home insurance in the U.S. is $2,305 per year, but the cost of homeowners insurance varies by state, the location of the home, the home’s condition and personal factors, such as your marital status.

3. Property taxes

The cost of property taxes differs widely by state and county, and your real estate agent can provide an estimate of what you’ll pay annually for the home you’re purchasing. The average property tax on a single-family home in 2019 cost $3,561, according to ATTOM Data Solutions.

It’s important to note that property taxes are not a fixed cost. Local governments adjust property tax rates annually depending on needs, so your annual bill could increase over time.

4. HOA fees

Homeowner’s association or HOA fees fluctuate by community and can be costly, ranging anywhere from $150 to $1,500 or more per month. The fees you pay to your HOA take care of amenities that, depending on the community, might include landscaping, pool maintenance, trash removal, utilities for common areas, security, fire alarms and pest control.

If you’re purchasing a home in an HOA, pay close attention to the HOA fees, how often they’re billed (monthly or quarterly) and what they cover.

5. Maintenance and utilities

It’s important to factor in common utilities like electric, water, gas and internet into the total ongoing cost of a home. Also include potential ongoing maintenance items, like landscaping, snow removal, trash and recycling pickup and other upkeep-related expenses.

At times, there are also bigger costs, such as an HVAC system that quits or a dryer that needs replacement. Consider budgeting for emergency home repairs and maintenance in the amount of 1 percent or more of your home’s value every year. For example, on a $300,000 home, your budget for maintenance-related items would be $3,000 annually.


How to prepare to buy a home

Once you’ve decided to purchase a home and weighed all of the costs, it’s time to start preparing. Here are some steps to take to prepare to buy a home.

1. Check your credit. Lenders use your credit score, along with other criteria, to determine your creditworthiness. You can get your credit score from each of the three major credit reporting agencies (Equifax, Experian and TransUnion) for free every 12 months from AnnualCreditReport.com. There are also many online services now offering credit scores for free — and your bank may do this, too. If your score is on the lower side, you may want to improve your credit before seeking out a mortgage.

2. Create a budget. Based on the costs listed above, create a realistic budget. Many experts recommend following the 28/36 percent rule, with which you should spend no more than 28 percent of your gross monthly income on housing and no more than 36 percent total on debt.

3. Save for a down payment. You’ll typically need at least 3 percent of the purchase price of the home as a down payment. Keep in mind that you’ll need to put at least 20 percent down to avoid private mortgage insurance.

4. Shop for a lender. Getting preapproved by a lender for a mortgage is helpful when shopping for a home. Not only does it make you look like a serious buyer to sellers, but it also provides you with a better idea of how much home you can truly afford. Start by shopping around and getting quotes from at least three lenders.

Bottom line

When it comes to how much money you need to buy a house, there’s more than meets the eye. Make sure to consider both upfront and ongoing expenses when creating a budget, and take a close look at your monthly finances to make sure that carrying a mortgage and paying for continuing expenses won’t be a financial burden long-term.

To view the original article click here


Posted by Jackie A. Graves, President on August 2nd, 2020 7:25 AM

As the effects of the pandemic continue, nine in 10 REALTORS® say their housing markets are in recovery mode, with many even saying their markets are hotter now than a year ago, recent member surveys from the National Association of REALTORS® show.

“The delayed spring market is definitely occurring now in the summer months,” says Jessica Lautz, NAR’s vice president of demographics and behavioral insights. The housing market is seeing unprecedented monthly jumps in existing-home sales, and home price appreciation remains strong. (Read more: Contract Signings Make a ‘Remarkable’ Move and Existing-Home Sales Surge to Record Pace in June)

Lautz notes several insights, culled from recent NAR research, that show how buyers' and sellers' behavior is changing during the coronavirus health crisis. She highlighted those findings at Thursday’s “REvive! From Crisis” virtual conference that featured an all-day lineup of industry leaders and speakers.

Your Changing Client

1. Buyers are in a rush. Last year, buyers looked at an average of nine homes before making a home purchase. Now, they’re looking at three to four homes before initiating a contract. “Buyers are fast-forwarding their transactions,” Lautz says. Homes are selling in an average of just 24 days. More than a quarter of REALTORS® report their buyers are acting with greater urgency over recent weeks, particularly those making home purchases in rural areas.

2. Wish lists are shifting. Home shoppers are changing some of their priorities for home features. For example, NAR research shows that the top feature desired by buyers is a home office. Many households may need more than one. Also, more home buyers are sizing up outdoor space, showing an increasing desire for a pool, garden, or just more space to enjoy the outdoors.

© National Association of REALTORS®

 

Source: NAR’s Market Recovery Survey, July 2020

Many REALTORS® Say They’re Prepared for a Second Wave

3. Buyers are less concerned about commutes. As remote work grows, 22% of about 2,300 REALTORS® surveyed by NAR say their buyers are becoming less concerned about commute time when shopping for a home. Freedom from the bounds of the commute has allowed some buyers to expand their searches beyond city centers to the suburbs and exurbs—which may also offer more affordable housing. A quarter of REALTORS® report their buyers are looking away from the city center and toward to the suburbs or smaller towns. “If workplaces keep changing and there’s this greater acceptance of remote working, this trend could stick around longer,” Lautz says. Also, second homes may be in greater demand. “If they can work from any place, we could see more buyers embrace second homes in rural areas,” Lautz said.

4. Multigenerational households may grow more common. One in six Generation Xers and younger baby boomers purchased a multigenerational home pre-COVID. Lautz suggests that trend could increase as more generations, including aging parents and adult children, all come under the same roof during the pandemic. “Moving forward, that could mean your buyers will be looking for larger single-family homes,” Lautz says. “They also may want to make sure they have a sizable living space on the first level” for an aging parent. (Read more: Will McMansions Trend Once Again?) Also, recent surveys show a growing desire of buyers—particularly younger buyers—wanting to live closer to their family. The top reasons to move before the pandemic were a new job, marriage, or baby. But now most moves are being driven by young millennials—twenty-somethings—who want to be near their family or friends. “The family unit appears to be becoming more important, and I think COVID could increase this trend,” Lautz says.

5. Pets could drive purchase decisions. The pandemic has sparked a surge in households that want a pet. NAR surveys have shown that pets can influence when and where people buy. Forty-three percent of households say they’d be willing to move to better accommodate their pet, according to NAR’s 2020 pets in real estate study, “Animal House: Pets in the Home Buying and Selling Process.” “We see consumers actually want to buy a property because of a pet, and then they may want a fenced-in yard and extra space for their animals,” Lautz says.

6. A first-time buyer wave could emerge. Consumers may show more commitment to their home than to long-term relationships. In the 1980s, 75% of first-time buyers were married. In 2019, that dropped to 53%. Young adults are waiting longer to get married. Meanwhile, unmarried couples are buying homes at the highest levels ever recorded by NAR: 17%. Also, NAR research has seen a rise in roommates pooling their incomes to purchase a home together. NAR’s research shows that percentage at a mere 4%, but Lautz notes it’s the highest share that NAR has ever recorded. Overall, in 2019, first-time buyers comprised 33% of the housing market, still a low number by historical standards. “But there could be an uptick, particularly in affordable places further out,” Lautz says. “If young professionals become less tied to a metro area for work—in metros where it can be difficult to afford a property—they may increase their purchases.”

7. Housing tenure could fall. Over recent years, homeowners have stayed put in their homes longer than they have in past—an average of 10 years, which is longer than the traditional six-year average. Americans are not moving longer distances like they did in the 1980s. As cities urged stay-at-home restrictions during the pandemic, consumers may start to question whether their home fits their current needs. “Interest rates are at all-time lows; [consumers] may want to move and find a home where they can work from and the kids can too, and they want more yard space to relax,” Lautz notes. “This change in homeowner tenure could be one we see coming soon.”

To view the original article click here


Posted by Jackie A. Graves, President on August 1st, 2020 9:31 AM


As the Federal Open Market Committee (FOMC) prepares to meet this week, mortgage borrowers are facing some of the lowest interest rates in history. The housing market is heating up—driving home prices higher—after a slow spring season. And refinance activity has exploded, up 122% year-over-year in mid-July.

By adjusting its monetary policy, the Fed’s response to the coronavirus pandemic has helped keep the home mortgage market revving. The Fed has responded in two key areas: It pushed the federal funds rate lower and increased its purchase of mortgage-backed securities, moves that tend to drive interest rates lower, and free up more money for lending. The Fed will assess the impact of these two actions at this week’s meeting.

“There are a lot of pros to what the Fed has done and continues to do,” says Chris de la Motte, co-founder and president of Simplist, a digital mortgage marketplace. “They’re avoiding widespread contagion of a problem affecting retail, travel, entertainment and a few other sectors from spreading into the housing market, as well. This is definitely helping consumers in the short term. Consumers can refinance and save potentially hundreds of dollars a month on their mortgage.”

How the Fed Funds Rate Influences the Cost of ARMs and HELOCs

The federal funds rate, which is the rate U.S. banks charge each other to lend money overnight, directly affects short-term consumer interest rates. This includes mortgage products like adjustable-rate mortgages (ARMs), home equity loans, and home equity lines of credit (HELOCs). 

When the Fed lowers its target rate as it did in March after COVID-19 hit the U.S., loans with floating interest rates get cheaper. Usually, the reduction will show up on the following billing statement after the Fed announces the change. Of course, the opposite is true, too. When the Fed raises its target rate, those variable-rate loans get more expensive.

The Fed lowered the target federal funds rate by 1.5 percentage points on March 15, to a range of 0% to 0.25%, a move that reduces the cost of borrowing, which is intended to stimulate the economy. The target rate is expected to remain at this level through 2022.

“The Fed will leave rates where they are, which is good for people with variable-rate mortgages,” says David Wessel, director of the Hutchins Center on Fiscal & Monetary Policy at the Brookings Institution. “What they’re doing is building a bridge to the other side.”

Along with lowering the federal funds rate, the Fed has pledged billions of dollars to purchase mortgage-backed securities (MBS), an aggressive play that helped stabilize the industry as the threat of foreclosures, falling home prices and unemployment loomed large during the early stages of the pandemic. 

How Purchasing Mortgage-Backed Securities Helps Consumers

The Fed swooped in at the beginning of the pandemic and poured billions of dollars into the mortgage market amid uncertainty from investors about a potential housing market collapse. 

“In March and April of this year, investors had no idea what might happen to home values and therefore didn’t feel comfortable buying MBS at even lower rates,” says de la Motte.

The Fed, which is responsible for the financial stability of the country, employed a strategy called qualitative easing (QE) to prevent lending from freezing up. QE is when a central bank purchases long-term securities—in this case, mortgages—from the open market and extends credit to lenders, allowing them to make future loans.

The QE strategy also helped stabilize mortgage rates at the beginning of the coronavirus outbreak, which shocked the economy within a matter of days. On March 12, the average interest rate on a 30-year fixed-rate mortgage was 3.36%, according to Freddie Mac’s Primary Mortgage Market Survey. The next day, on March 13, President Trump declared a state of emergency for COVID-19, and a few days later mortgage rates spiked to 3.65%, signaling major trouble for the mortgage industry.

The Fed responded on March 23 by announcing it would use its full range of tools to help stabilize the financial system. This included purchasing a minimum of $200 billion of MBS held by government-sponsored enterprises Fannie Mae, Freddie Mac, and Ginnie Mae. Since mid-March, the Fed has bought $719 billion of agency MBS.

“Buying long-term Treasury bonds and mortgage-backed securities in large quantities on a regular basis should keep long-term interest rates lower and less volatile than they otherwise would be,” says Frank Nothaft, chief economist for CoreLogic, a real estate analytics firm. “Lower mortgage rates stimulate housing demand: new construction, additions, and alterations to existing homes and home sales, all part of residential fixed investment. Thus, lower long-term interest rates spur economic growth.”

Mortgage Rates Are Falling, But Home Prices Continue to Climb

The QE strategy had two significant consequences for consumers: It kept mortgage rates low and pushed home prices up. 

With the support of the Fed, lenders were able to lower rates and increase their volume. Rates have fallen steadily from the March 19 peak of 3.65% to 3.01% this week. These historically low rates have sparked a buying and refinancing frenzy. 

In June, mortgage applications (to purchase a new home) shot up 54.1% from the same month last year, according to the Mortgage Bankers Association Builder Applications Survey.

Along with an increase in purchases came an increase in prices. The average loan size of new homes climbed 1.74% in just a single month, from $332,793 in May to $338,589 in June. As homebuyers crowd the market, hoping to lock in low-interest rates, home prices continue to rise, which is making it harder for entry-level buyers to find affordable homes.

A shortage of housing has also helped keep home prices up while reducing options for would-be buyers. According to a report by Realtor.com, the inventory of homes in the U.S. fell in June by 27.4% year-over-year.

A critic of the Fed’s MBS-purchasing policy, Ed Pinto, director at the American Enterprise Institute Housing Center and former chief credit officer for Fannie Mae, says that offering an almost unlimited budget for MBS is driving up demand for cheap mortgages in an already squeezed market.

“The actions by the Fed are disproportionately affecting low-income families and minority borrowers. The Fed is spiking the punch bowl,” Pinto says. “Right now they’re offering a really strong stimulus, they’re increasing asset prices—which is why home values are soaring.”

Pinto also blames programs like FHA mortgages, which make getting a loan relatively easy, for creating too much competition in a low-supply environment. If the Fed slowed down on purchasing MBS at the same time the FHA pulled back on lending, there would be fewer buyers competing for the same homes; this would help home prices flatten or even fall to more affordable levels, Pinto says.

Peter Schiff, CEO and chief global strategist of Euro Pacific Capital Inc., a broker-dealer based in Westport, Connecticut, says that many of his clients are closing their accounts to buy a house.

“I’ve never seen people running to buy a house so fast. The government is propping up the prices of homes, but other costs will also rise: Maintenance costs and utilities are also going to go up,” Schiff says.

Source: To view the original article click here


Posted by Jackie A. Graves, President on July 31st, 2020 8:43 AM

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