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Monthly Archives: December 2015

The 4 most important mortgage documents you will sign

Recent regulatory changes to the mortgage process have made it so many new buyers are now working off new and unfamiliar documents. Here is a guide to the most important documents you will encounter and sign on the way to closing on your new home:

The Loan Estimate

A new form that was put into place by the Truth In Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), this document is issued within three days of applying with a lender, and it replaces the Good Faith Estimate and Truth In Lending disclosures. It will show loan terms, your projected payments over the span of a mortgage, and line item closing costs. It is designed to make it simpler to compare different loan programs and lenders so you can be sure you are getting the best deal. 

The Closing Disclosure

Virtually identical to the Loan Estimate, though this form is issued at least three business days before closing on your mortgage and includes a breakdown of costs paid by buyer versus seller versus third parties. This way, the buyer can see if the initial quote and final terms have changed and easily compare the two documents. 

FHA easing rules on financing for condos

Bowing to pressure from buyers looking to take advantage of low down payments and flexible credit qualification requirements, the Federal Housing Administration has eased rules that previously made it difficult to purchase a condo unit with an FHA loan. The restrictive rules had resulted in only 20 percent of previously eligible condo communities open to FHA loans on units. FHA condo loan endorsements dropped to 22,800 in 2014, less than half of the 57,800 endorsements the previous year.

"The fact that the mortgagee letter is effective immediately tells me that FHA understands that there is a problem," said Brian Chappelle, a mortgage consultant and co-founder of Potomac Partners.

Condos can be notoriously hard to finance due to the "unit-by-unit" nature of selling, but also are, "often the most affordable option for homebuyers, especially first-time buyers," according to NAR President Chris Polychron. With the new rules in place, condo units that are second homes will be considered owner-occupied units and count toward the current 50% owner occupancy requirement, even if they are not the owner's principal residence. The FHA has also simplified the condo certification procedures, easing restrictions on condo association insurance.

Market Preview 12.22: Be Careful What You Wish For

EASING INTO 2016

Home builder confidence took a slight dip last month. The Wells Fargo/NAHB Sentiment Index posted at 61 for December. That’s still not bad; anything over 50 means the outlook is positive.

First-time buyers appear to be holding spirits in check. This is especially concerning because the Fed’s recent rate hike will impact the down payments first-time buyers will be able to put down. The traffic component of the home builder index continues to drop, posting at a sub-50 reading of 46 for December. This component reflects the lack of first-time buyers in the new-home market.

The good news is that overall new-home activity remains strong. Housing starts were up 10.5% to 1.173 million units on an annualized basis in November. Multi-family starts lead the charge with a 16.4% monthly increase. The single-family component was up 7.6%.

So far, so good. We think mortgage rates will remain staid for the near future. The long-term imperative, though, is for rates to rise.

Underwater homeowners: Take advantage of an FHA Streamline

For underwater homeowners—people who owe more on their mortgage than the current value of their home—finding a way to stable financial ground can be tough. Monthly payments add up and it may feel like there's no way out from under home debt. Luckily, for those who already have Federal Housing Administration-insured loans, there is possible relief: an FHA Streamline refinance.

FHA Streamline is a mortgage program that allows homeowners with existing FHA-backed loans to simply and quickly take advantage of today's low rates. Qualifications include:

  1. Borrower must have an existing FHA-insured loan
  2. Minimum three month perfect payment history
  3. The refinance must result in a lowering of the borrower's monthly principal and interest payments— or under certain circumstances change the loan from adjustable rate mortgage (ARM) to a fixed-rate
  4. No cash-out refinancing allowed
  5. 210-day "waiting period" between refinances

Home improvement loans could help "maxed out" homeowners

For homeowners with large amounts of debt, finding the resources to make needed renovations can be difficult. Luckily, home improvement loans can offer relief to borrowers looking to invest in their home and or make costly repairs.

Certain mortgage products like The Department of Housing and Urban Development's FHA loan offer the ability to put financing from the loan towards home improvement costs—while also offering low interest rates and down payments to those who qualify. FHA Title I loans are available to owner-occupants and investors offering up to $25,000 towards repairing or improving their property. This includes up to $15,000 which can be obtained regardless of home value and no security required on loans of $7,500 or less.

To obtain the loan, the borrower needs to own the property or hold a long-term lease to it. From there, qualifications are relatively lenient and total debt (including present mortgage debts) may not exceed 45 percent of monthly income. Title I loans may be used for any improvements that "will make your home basically more livable and useful.

Borrowers should not be afraid of Fed rate hikes

Over the last few months, there has been much talk about the impending Federal Reserve interest rate hike. Federal Reserve Chair Janet Yellen signaled that the central bank plans to boost the federal funds rate — what banks charge each other to lend funds — after its meeting today, December 16.

But what does this mean for homebuyers or those looking to refinance? Some experts are saying it may not mean much at all—at least in the short term.

With Fed rates currently close to zero percent and mortgage rates historically low, a marginal increase is unlikely to see mortgage rates rise dramatically. While credit cards and auto loans are likely to see an immediate rate increase, these are short-term loans whose rates are innately much more volatile.

Market Preview 12.15; The Anatomy of a Rate Hike

THE FULL COURT PRESS IS ON

Last week, we said that if the employment numbers came in strong for November, the odds of the Federal Reserve raising interest rates would shoot higher. That’s exactly what happened.

November payrolls came in at a solid 211,000, while the unemployment rate held steady at 5%. Wage growth continues to inch forward. Hourly wages rose 0.2% to $25.25 after rising 0.9% in October. As a result, traders in fed funds rate futures contracts are now pricing an 87% chance that the Fed will raise the fed funds rate on Wednesday.

As it is, mortgage rates are already priced for a 25-basis-point increase in the fed funds rates. When (and still “if”) the blessed event occurs, it should be a non-event for credit markets. Still, the mortgage rates we see today might be the best rates we see for a while.

Add on or trade up? Making the right choice for extra living space

Homeowners faced with the dilemma of needing more living space have two main options: renovate their existing home and build additions or move to a larger home. But choosing between the two possible outcomes can be trickier than it seems. 

Few homeowners have sold and bought a home simultaneously and many have not had major renovations. Both pose unique challenges and stresses. Here is a guide to help homeowners decide what option is right for them. 

Know what kind of space you need

Are you looking for just an extra bathroom or bedroom to accommodate a new baby? Or are you looking to create an entire new family space for elderly relatives? The key is to determine how much and what kind of spaces you need and then see if the current imprint of your home could accommodate them—or if you can create an expansion on your property. 

4 facts about jumbo loans

If you're on the hunt for a larger, more expensive home, finding a mortgage can sometimes be a struggle. Luckily, with the continued recovery of the housing market, more and more lenders are offering jumbo loans.

Jumbo loans are mortgages that exceed the conforming lending limits set by Fannie Mae and Freddie Mac. These limits vary by area, but in most places the limit for a single-family home is $417,000. For borrowers looking to finance a larger home, here are three facts about jumbo loans:

  • Most jumbo loans are adjustable rate. This means that the interest rates on a jumbo loan will periodically reset to align with to current market rates. Fixed-rate jumbo loans—where the interest rate remains set for the entire duration of the loan or until refinancing—are relatively rare.

Refinancing to consolidate debt

A mortgage refinance is very often a smart financial decision: it can allow a homeowner to lower monthly payments, shorten their loan terms or get a lower interest rate. But did you know that refinancing can also be used to help consolidate other debt and that this could end up saving you significant money in interest?

The key is that a mortgage is considered "cheap debt". With historically low market rates, a home loan very rarely will have an interest rate of over four percent. Compare this to interest rates on credit cards and other personal loans which can range anywhere from 10 to almost 30 percent.

Through refinancing, you may be able to access the equity in your home and use this equity to pay off other debts resulting in a single, low-interest monthly payment. Better yet, the interest on mortgage payments is tax deductible. Paying off high-interest debts can also raise your credit rating.