Archive for Mortgage
Video Introduction from David Meek
Posted by: | CommentsPlease visit our YouTube channel for a home buying tip labeled “Home Buying Tip – The Good Faith Estimate (GFE)” that is referenced at the beginning of this video.
Giddy Up: Last Chance to Refinance Below 5%
Posted by: | CommentsIf you are an Indianapolis homeowner and have been sitting on the fence about when to refinance your loan, do it. Now.
I check mortgage rates with different lenders everyday when I first sit down at my desk in the morning. I am not an expert, but I have noticed gradual trends.
I’ve seen rates dip many times in the last year just under that 5.00% psychological threshold. But now I am confidently asserting that this is the last time that rates like this will be seen on the radar for 30-yr fixed rate mortgages for the foreseeable future. There are a couple of reasons:
- The expiration date of the Fed’s MBS (Mortgage Backed Securities) purchase program is March 31st, 2010. The Federal Reserve starting buying mortgage-backed securities 14 months ago that had been backed by Freddie Mac and Fannie Mae in order to give buoyancy and liquidity to the secondary mortgage market and keep money moving… $1.25 trillion worth of purchases. After the DJIA had fallen 3,000 points in a short time in 2008, investors had lost their appetites for the mortgage market. This program is ending in 45 days and a the government is leaving the MBS market. Fewer buyers of MBS means that the sellers of those bonds will need to offer a higher rate of return in order to sell them to the remaining buyers. That cost is passed on to mortgage consumers. Rates are pushed upward.
- According to my back-of-the napkin calculation, the average annual 30-yr fixed rate was 6.29% for the years 2000-2009. I found this data on Freddie Mac’s website under the Primary Mortgage Market Survey (that dates back to 1971). The artificially low rates that we have seen recently have been a result of government stimulus. Now rates will slowly seek equilibrium at higher levels over time as the economy inches toward lower unemployment and higher production.
Set your expectation level for doing a little work to get the lowest rate. Getting a mortgage rate under 5% will take a credit score above 720, at least a 20% down payment or equivalent equity position, a consistent job history and a loan amount exceeding $125,000.
How Rising Consumer Sentiment Is Linked To Higher Home Prices
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Consumer Sentiment has been on the rise since last February and it’s something to which Indianapolis home buyers might want to pay attention.
The affordability of your next home may hinge on consumer confidence.
As the economy recovers from a near-the-brink recession, many of the elements of a full recovery are in place. Business investment is returning, household spending is expanding, and financial systems are gaining strength.
Consumer confidence is at a 2-year high.
What’s missing from the recovery, though, is jobs growth. Another net 20,000 jobs were lost in January. Data like that hinders economic growth.
That said, twenty-thousand jobs lost is a much better figure than the several hundred thousand that were shed per month throughout early-2009, but it’s still a net negative number. Not only does household income drop when Americans lose jobs but so does the average American’s confidence in his or her own economic future.
This is one reason why jobs growth is so closely watched by Wall Street — jobs are linked to higher confidence levels which, in turn, is believed to spur consumer spending.
Consumer spending represents 70% of the U.S. economy.
As confidence rises, it could be good news for the economy, but bad news for home buyers. More spending expands the economy and, all things equal, that leads mortgage rates higher.
Same for home prices. More confidence means more buyers which, in turn, squeezes the supply-and-demand curve in favor of sellers.
Later this morning, the University of Michigan will release its February Consumer Sentiment survey. If the reading is higher-than-expected, prepare for mortgage rates to rise and home affordability to worsen.
Separating FHA Fact From Fiction : Mortgage Insurance Premiums
Posted by: | CommentsThe mortgage lending landscape changes a lot. Rates and guidelines are in constant flux, and it creates preparedness challenges for buyers in Carmel that aren’t paying in cash.
The loan you get today won’t always be the loan you get tomorrow.
Because of how frequently bank rules are changing, it can be hard to distinguish between mortgage fact and fiction of “what’s coming next”.
Recently, we saw this with respect to FHA home loans.
January 20, 2010, the FHA issued a press release with new lending guidelines. Specifically, it announced 3 changes that will be effective starting April 5, 2010:
- Upfront mortgage insurance premiums increase from 1.75% to 2.25%
- Allowable seller concession reduced from 6% to 3%
- FICO scores of 580 or lower are subject to a minimum 10% downpayment
But, also in its official statement, the FHA announced it would ask Congress for permission to raise monthly mortgage insurance premiums. This is where the rumors started.
Nestled on page 348 of the Budget of the United States Government, Fiscal Year 2011, in a section titled Special Topics, there is a 1-paragraph notation that details the FHA’s petition.
- Raise monthly premiums by roughly 0.30%, or $25 per $100,000 borrowed per month
- Lower upfront mortgage insurance premiums by 1.25%, or $1,250 per $100,000 borrowed at closing
For now, the request is neither approved nor acknowledged by Congress. It’s merely a request. And in the event that Congress does approves it, that doesn’t mean that FHA has to stand by its initial projections.
Truth is, about the only thing we know about the future of FHA lending is that, come April 5, 2010, borrowing money is going to be tougher, and more expensive. These are the facts as we know them today.
Homebuyers should plan accordingly.
The January 2010 Jobs Report May Lead Mortgage Rates And Home Prices Higher
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On the first Friday of every month, the U.S. government releases its Non-Farm Payrolls data from the month prior. The data is more commonly known as “the jobs report” and it swings a big stick on Wall Street.
Especially now — many analysts believe job growth is tightly linked to the future of the U.S. economy.
Therefore, when January’s jobs report hits the wires at 8:45 AM ET tomorrow, Indianapolis home buyers would do well to pay attention. A net job reading that is much higher (or lower) than Wall Street’s expectations can make a serious change in home affordability.
Wall Street expects that the economy added 13,000 jobs last month. It would mark the second time in 3 months that the jobs report showed a net monthly gain.
In November 2008, the economy added 4,000.
Jobs matter to the economy for a lot of reasons, but one of the biggest is that when Americans are working, Americans are buying and consumer spending accounts for 70 percent of the economy.
Job growth spurs the economy and draws money to the stock market. Unfortunately for rate shoppers, that kind of stock market growth happens at the expense of the bond market which is where mortgage rates are made.
Good jobs data usually means higher mortgage rates.
Also, job growth can lead to higher home prices. This is because working homeowners are less likely to default on a mortgage versus non-working homeowners. In this way, job growth helps hold foreclosures to a minimum which, in turn, suppresses the housing supply.
Less supply means higher prices for home buyers.
Mortgage rates are idling this morning in advance of tomorrow’s data. If you’re shopping for a mortgage rate, the prudent play may be to lock your rate before the jobs data is released. A jobs figure that’s higher than the 13,000 expected could cause rate to rise sharply.
Simple Real Estate Definitions : Short Sale
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A “Short Sale” is when a home seller sells his home for a lesser amount than what is owed on his mortgage, and the mortgage lender agrees to accept the lesser amount in lieu of a full payoff.
By way of example, a Short Sale may be appropriate for a Carmel home seller whose mortgage balance is $250,000 but whose home wouldn’t sell for more than $220,000. Rather than pay the $30,000 difference to the lender at the time of sale, the seller enters into an agreement with the lender by which all sale proceeds are paid to the bank and the deficient balance is forgiven.
Short Sales are a preferable alternative to foreclosure but the process still harms both parties. For one, the seller is penalized with a derogatory tradeline on credit for not fulfilling a mortgage obligation. And, two, the lender is forced to take a loss on a mortgage loan. Versus an executed foreclosure, however, Short Sale damages are relatively limited on both sides.
For this reason, Short Sales are sometimes considered “the economical alternative” to default.
The process of getting a Short Sale approved varies from lender-to-lender and can be time-intensive. Home sellers should not go at it alone — speaking with a real estate agent about the proper protocol is usually the best place to start. And sellers should be aware of how a Short Sale on their credit can impact future borrowing.
Current Fannie Mae guidelines prevent short-selling homeowners from obtaining new mortgage financing for a period of 2 years.
A Simple Explanation Of The Federal Reserve Statement (January 27, 2010 Edition)
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The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.
In its press release, the FOMC noted that the U.S. economy “has continued to strengthen”, that the jobs markets is getting better, and that financial markets are supportive of growth.
There was no mention of the housing market’s strength. The last 3 statements from the Fed included that specific verbiage.
It’s the fifth straight statement in which the Fed spoke about the economy with optimism. This should signal to markets that 2008-2009 recession is over and that economic growth is returning to U.S. economy.
The economy isn’t without threats, however, and the Fed identified several in its press release, including:
- Credit remains tight for consumers
- Businesses are reluctant to hire new workers
- Housing wealth is down
The message’s overall tone, however, remained positive and inflation appears is still within tolerance.
Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to wind down its $1.25 trillion commitment to the mortgage market by March 31, 2010. This is noteworthy because Fed insiders estimate that the bond-buying program suppressed mortgage rates by 1 percent through 2009.
Mortgage market reaction to the Fed press release is, in general, negative. Mortgage rates in Indianapolis are rising this afternoon.
The FOMC’s next scheduled meeting is March 16, 2010.
A Rate-Locking Strategy Ahead Of The Fed’s Meeting Today
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The Federal Open Market Committee ends a scheduled, 2-day meeting today in Washington. It’s the first of 8 scheduled meetings for the policy-setting group in 2010.
The group adjourns at 2:15 PM ET.
As is customary, upon adjournment, the Fed will issue a press release to the markets recapping its views of the country’s current economic condition, and the outlook for the near-term future.
The post-meeting statements from the Fed are brief but comprehensive. And Wall Street eats them up. Every word, sentence and phrase is carefully dissected in the hope of gaining an investment edge over other active traders.
It’s for this reason that mortgage rates tend to be jittery on days the FOMC adjourns. Wall Street is frantically re-balancing its bets.
Today should be no different.
The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent — the lowest it’s been in history. However, it’s what the Fed says Wednesday that will matter more than what it does.
After the Fed’s last meeting in December, it made several observations:
- The jobs market is getting “less worse”
- The housing sector is making improvements
- Financial markets are stabilizing further
The economy is gradually improving, the Fed told us, but there are still risks to the economy ahead. Furthermore, inflation remains in check.
As compared to December’s press release, today’s FOMC statement will be closely watched. If the Fed changes its verbiage in any way that alludes to strong growth and/or inflation in 2010, expect mortgage rates in Indianapolis to rise as Wall Street moves its money from bonds to stocks.
Conversely, reference to slower growth in 2010 should lead rates lower.
We can’t know what the Fed will say so if you’re floating a mortgage rate right now or wondering whether the time is right to lock, the safe approach would be to lock prior to 2:15 PM ET Wednesday. After that, what happens to rates is anyone’s guess.
Understanding Your Credit Score
Posted by: | CommentsGood credit scores are an integral part of your ability to obtain a home loan. When you make an application for a mortgage, a bank representative will review your file. Since this bank underwriter knows very little about you, much weight will be given to your payment history. This is reflected in your credit score (ranging from 375 to 850).
It used to be that the approval process was mostly subjective. In casual terms, your mortgage approval depended upon what the underwriter ate for breakfast! The credit score has become increasingly referred to as an indication of the buyer’s financial stability.
Credit scoring was introduced in the 1950s, but has become more commonly used just in the last 20 years. In the early 1980s, the three major credit bureaus (TransUnion, Equifax and Experian) worked with the Fair, Isaac & Company analysts to develop a generic and scientific method for determining credit worthiness of consumers. The result was a uniform credit score model across the three credit bureaus.
The rankings are referred to as “FICO” (Fair, Isaac & Company) scores. The higher your score is, the more stable (and less risky) you are considered to be. As a result, higher scores enable you to get more favorable terms on your loan than the lower score ranges.
Within the past decade, banks have studied the relationship of delinquent accounts and matched them against credit scores. What they found was a strong relationship between solid credit scores and secure credit risks. For example, about half of all individuals with a 550 or lower credit score will have at least one delinquent payment during the term of a loan.
The following table represents the likelihood of an account with a 90+ day delinquency:
FICO
SCORE
595 (2.25 to 1)
600 (4.5 to 1)
615 (9 to 1)
630 (18 to 1)
645 (36 to 1)
660 (72 to 1)
680 (144 to 1)
700 (288 to 1)
780 (576 to 1)
As you can see from the table, a credit score above 700 is a very positive reflection on your payment history and credit worthiness. Purchasers with this type of credit score can usually obtain a home loan quickly and with very few obstacles.
Average scores are in the 620-650 range. This range indicates a basically good payment history, but suggests to the bank that they may look at the potential borrower to assess any potential credit risks prior to extending a large credit limit. People in this range have a good chance of getting a home loan on favorable terms, but may have to provide additional documentation (bank statements, pay stubs, tax returns, landlord reference letters) prior to loan approval.
On the other hand, a credit score under 620 likely reflects late payments to a credit grantor of 30 days or greater. It may also be an indication of a previous bankruptcy. Don’t despair if your score is in this range. The process may be a little lengthier and the interest rate may not be as competitive as they would for higher scores. For example, recently revised FHA lending guidelines will still permit loans under the 580 mark, however, the buyer must provide a 10% down payment instead of a 3.5% down payment.
It is possible that the applicant may not have a negative credit history, but instead has little credit history to reference. If you do not have an established credit history, and a home purchase is in your future, it may be time to apply for a small credit line to prepare for buying your new home.
The trick to building a strong credit profile is to start small. Apply for a reasonable line of credit with a local department store, gas station or credit union. Most retail locations have lower credit standards than local banks. Before applying, ask to make sure that the creditor reports to one of the three major U.S. credit bureaus.
Significant credit score increases can be achieved in a matter of months with timely payments and paying down credit card and revolving loan balances below 30% of the available credit line. To take additional steps to clean up your credit report, make sure to check for inaccuracies. Often, your credit report may contain mistakes. Incorrect dates, misspellings and open accounts (which have been closed) are common occurrences.
If you have been turned down for a loan (or if you believe that you are a victim of credit fraud), you are entitled to receive a free copy of your credit report from the three major credit bureaus. You also may check your credit profile at www.annualcreditreport.com annually at no cost. This is the official site where the 3 major credit bureaus have partnered to meet their consumer obligations under the Fair and Accurate Credit Transactions Act (FACT Act or FACTA).
Heads Up: Change in Closing Funds Requirements in Indiana
Posted by: | CommentsIf it has been more than 6 months since you last purchased or sold a residential property in Indiana, you will notice a change in state law regarding how your funds are to be taken to the closing table.
The new law, HEA 1374, or the Good Funds Act, covers residential purchases, sales and refinances.
The Act guarantees that the funds for a real estate transaction in the state are available immediately for disbursement after all of the closing documents have been signed. Home buyers and sellers have the assurance that the other party has brought cleared funds to the closing.
All closing funds for the purchase, sale or refinance of residential property in Indiana that exceed $10,000 must now be wired into the settlement agent using a Federal Reserve Bank wire.
Previously, electronic wires, cashier’s checks, certified checks and personal checks (usually permitted up to $500) were allowable forms of payment. Due to the passage of Indiana HEA 1374, after July 1, 2009, any funds presented by a buyer or seller at the closing in excess of $10,000.00 (ten thousand dollars) MUST be in the form of an electronic wire before the title company can disperse. Amounts under $10,000.00 are still permitted in the form of certified, cashier’s checks and wires.
Only electronic wires through the Federal Reserve Bank are permitted. ACH (Automated Clearing House) wires can be recalled by the sender up to 90 days after being sent and, as a result, are not allowable under the new law.
If you are bringing more than $10,000 to the settlement, do a little footwork in advance of closing to ensure that the funds are delivered on time. Contact the title company where you will closing to obtain their “wiring instructions.” The instructions are usually a one page letter that can be faxed or emailed to you immediately upon request. The instructions contain the name of the title company, the bank name, the ABA routing number and the account number. Your real estate agent will also know how to find the information.
Visit your local bank branch to initiate the Federal Reserve Bank wire with the title company’s instructions sheet. Be aware that many banks may have a 2:30pm EST cut off time for same-day wires.
Your last name and the address of the transacted property should be listed on the outbound wire as the FBO, or “For the Benefit Of.” This will allow the receiving title company to know who to apply the wire credit to. Know that some electronic wires can take up to 4 hours to post at the other end. Electronic wires that are initiated a day or more in advance will arrive in plenty of time for closing. However, don’t wait until the last minute.
Before closing, call the receiving title company to confirm that your funds have landed successfully.
The Good Funds Act will apply more often to buyers. However, some sellers who have sold a home where there is no more equity (and who need to bring funds to closing) will also need to be aware of the update to the law.
Yes, there are exceptions. Lenders who are closing in their own office and who are providing a refinance on a homeowner’s existing mortgage with the same lender are not subject to the Good Funds Act.
