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Monthly Archives: June 2016

What the Brexit Means for US Housing

The UK shocked the world last week, and not in a good way. After stocks tumbled from New York to Hong Kong, the smoke cleared and London was left blushing, with many of the British themselves apologizing over the worldwide anxiety that they single-handedly created.

Up to $3 trillion was wiped off worldwide stocks. Britain has seen its currency crash, its credit rating lowered, and its prime minister resign, but when it comes to Brexit’s effect on US housing sector, economists are reporting a mixed bag of pros and cons.

A Boost for the Housing Market?

Lending rates are at three year lows right now. While stocks and 401K plans may have been negatively impacted, home buyers could have the opportunity to purchase a property with less out of pocket expenses and reap the benefits of an appreciating long term investment; thus using this event to their advantage.

This can be good news for sellers too. “Lower mortgage rates mean higher home prices because low rates enables homebuyers to afford a more expensive home with the same income,” says Chris Matthews of Fortune.

It’s a good time for homeowners to consider refinancing too, with many economists forecasting that rates may stay low for some time. This is because Brexit has investors climbing over each other to buy up US Treasuries, and high demand for government debt lowers interest rates. In addition, the US dollar is on its fastest rise in 40 years according to Citibank, strengthening against all major currencies over the past eight months.

College degrees increasingly important to qualify for home loans

One factor that has become a new focus for lenders and borrowers is the level of education a borrower has attained. Recent research seems to point to a correlation between a person not getting a college degree and struggling afford a home. This undermines a lot of the common wisdom that says that student loan debt has majorly inhibited many possible buyers. 

"It takes college graduates 10 years to save up for a down payment - and those without college degrees even longer."

 

According to research by Apartment List, a rental listing website, it takes college graduates 10 years to save up for a standard down payment. In spite of having less to pay in student loans, borrowers without degrees on average require almost 15.5 years. This can be even longer in some expensive markets.

Market Preview: Despite Brexit, US Housing Expected to Stand Strong

We started 2016 by expressing skepticism that the Fed would raise the fed funds rate within the first six months. Now, we wouldn’t be surprised if we went the entire year without a rate increase.

The Brexit has blindsided worldwide markets, with the US market seeing its worst crash in 10 months after the UK vote. According to the Wilshire 5000 Index, the Brexit erased about $800 billion in US market value. The Fed was already skittish on rate hikes due to disappointing job growth and a strong dollar. We’ve never been so sure that a Fed rate hike is not in the immediate future.

What is in the immediate future are staggeringly low interest rates. The Mortgage Bankers Association has reported that loan applications have increased 17 percent from the first quarter. Refinancing is up 10 percent.

While the world scratches its head at the UK decision to leave the European Union, the mortgage industry can expect a rush of refinance applications, although we think that rates will stay low for some time.

What borrowers should know about co-signing a mortgage

For younger people, first-time homebuyers, the self-employed and buyers with minimal credit or assets, qualifying for a mortgage may be difficult without the help of a co-signer. While having a co-signer with a strong credit history can certainly make qualifying for home financing easier - and possibly allow the signee to get better loan terms and interest rates - it also brings with it a variety of complications as well for all parties. Here is what you need to know about co-signing a mortgage:

"For some borrowers, it may be difficult to qualify for a loan without a co-signer."

It doesn't matter how you are related
While one of the most traditional co-sign relationships is a parent co-signing for a child, a person doesn't need to be a blood relative or married to the signee to add their name to a loan. Even still, just for the sake of trust and dependability, a closer relation is likely preferred.

The co-signer is on the hook in case of default
This is one of the most serious implications of co-signing: If the loan defaults, both parties are held accountable. This can effectively ruin your credit, which makes it very important to work with your co-signer to establish that full-repayment is a possibility. 

There are two types of co-signers
Co-signers are broken into two primary groups: Non-occupant co-borrowers and occupant co-borrowers. As the name suggests, an occupant co-borrower plans to live in the home along with the primary borrower, while a non-occupant co-borrower is there primarily to vouch for the other signatory. Non-occupant co-borrowers are more common than occupant co-borrowers.

Ownership can be divided between co-signers
Both borrowers can be treated either as equal owners and share the title 50/50 or take the title as tenants in common, dividing their share of ownership as they see fit. This, however, still means borrowers are vulnerable in case of default. 

With Brexit Vote Looming, Rate Hikes are Unlikely

When credit markets began to seriously anticipate the December rate hike, interest rates trended higher.  The 30-year fixed-rate conventional mortgage moved up roughly 20 basis points from October to mid-December.  But as soon as the Fed declared a rate hike, down they went, and with a vengeance. The 30-year fixed-rate loan is now 40 basis points lower today than where it was seven months ago. 

The December rate hike was supposed to be one of at least two by this point. Fed officials hinted strongly last year that a couple rate hikes would be in the bank by mid-2016. Rates should have established an upward trend by now. This hasn’t been the case, with May seeing only 38,000 new jobs. 

July 27 is the next scheduled meeting of Federal Reserve officials, but no one sees a rate hike coming. Yields on U.S. and European Union bonds have fallen to multi-year lows in the past week. (Indeed, the yield on the 10-year German bond was even negative.)  They have been driven lower by the crisis du jour.  This time it’s the Brexit. On June 23, U.K. citizens will vote on a referendum for the United Kingdom to leave the European Union. 

The Brexit is really a big deal about nothing, but financial market participants thrive on neurosis. And with a Brexit vote looming, they’re more neurotic than usual. The prospect of change always heightens tensions: Will the EU collapse? Will U.K. markets implode? Both events are highly unlikely, but pondering the improbable keeps some people awake at night.  

But one day a Fed rate hike will loom large. The key, though, will be to act as far ahead of the actual rate hike as possible. When market participants begin to buy into the rumor, that’s when rates will begin to rise.  

Common, and avoidable mortgage mistakes

If you’re in the market to purchase your first home, it can be easy to go into the entire process with a variety of misconceptions – which in turn open you up to costly errors. The following is the first installment of a two part guide to some of the most common mistakes buyers make when they start and go through the homebuying process, and how to avoid them.

Assuming you’ll get the best rate or loan at a big bank
While a larger bank may have more resources, it may also be subject to stricter internal rules and regulations that limit your options when it comes to picking the loan that is right for you. A smaller, non-depository lender may be able to offer a more customized loan product, with more flexible rates and qualification standards. Your best bet to find the loan that is right for you is to shop around with several lenders and get a few different offers – but not so many that your credit is hurt by multiple inquiries.

Waiting too long on a good rate
A mortgage is a significant, multi-year investment, so it makes sense that a buyer should consider things carefully before they make a decision. That said, if you find yourself eyeing an attractive rate, keep in mind that interest rates fluctuate frequently. Waiting too long can mean that rates go up, potentially costing you thousands more over the lifespan of your loan.

The CFPB targets high-interest, 'contracts for deeds' loans

Regulators at the New York State Department of Financial Services recently sent subpoenas to several investment firms as part of an ongoing Consumer Financial Protection Bureau probe into seller-financing arrangements. These loan products - often referred to as contracts for deeds - are typically aimed at low income homebuyers looking to afford inexpensive homes, but carry with them high interest rates. 

Contract for deeds became a popular product following the housing crisis as many investors encountered a surge in the number of foreclosed homes. Larger banks have moved away from lending to low-income, low-credit-rated consumers, private investment firms stepped in to offer contract for deed lending.

"Some argue that contract for deeds loans are predatory."

Similarities and differences
Similar to a regular mortgage, the contract for deed loan is a long-term financing agreement - as long as 30 or 40 years - where a buyer pays off the home installments. Unlike a traditional mortgage, the agreement is between the home's seller and the buyer - rather than the buyer and a bank/lender - and the seller retains the title for the entirety of the contract, until the home is fully-paid off. Also, unlike traditional mortgages, interest rates can be anywhere from 6 to 8 percent or more - compared to under 5 percent offered to qualifying buyers. 

Common and Avoidable Mortgage Mistakes

If you're in the market to purchase your first home, it can be easy to go into the entire process with a variety of misconceptions - which in turn open you up to costly errors. The following is the first installment of a two part guide to some of the most common mistakes buyers make when they start and go through the homebuying process, and how to avoid them.

"Here are common buyer mistakes, and how to avoid them." 

 

Assuming you'll get the best rate or loan at a big bank
While a larger bank may have more resources, it may also be subject to stricter internal rules and regulations that limit your options when it comes to picking the loan that is right for you. A smaller, locally-owned bank may be able to offer a more customized loan product, with more flexible rates and qualification standards. Your best bet to find the loan that is right for you is to shop around with several lenders and get a few different offers - but not so many that your credit is hurt by multiple inquiries.

Market Preview: Lousy payroll numbers mean rate hike unlikely

A month of suboptimal job growth has all but ended talk of rising interest rates.

The May payroll numbers were much worse than everyone expected.  Payrolls increased by a paltry 38,000. This is 100,000 fewer payroll additions than even the lowest of estimates. 

Labor Secretary Tom Perez blamed the disappointing May payroll count on a Verizon strike, which is estimated to have removed 35,000 jobs. The strike might explain why the May numbers were so disappointing. But it can't explain the trend. Monthly payrolls have been trending lower since early 2015.

Oddly enough, the unemployment rate dropped in May, to 4.7%, the lowest rate since August 2007. It turns out that the drop was due to 664,000 potential workers exiting the labor market.

Fed officials will announce their rate decision next week. With current payroll numbers, there is zero to little chance they will go through with a rate hike.

 

Tips for getting a mortgage if you are self employed

Traditionally, the self-employed have had a somewhat more difficult path to obtaining a mortgage than those with full-time work. But just because you're self-employed doesn't mean the doors to homeownership are closed to you.  

"Just because you're self-employed doesn't mean you can't own a home."

What to expect
Since self-employment is considered "riskier" than other forms of employment, some loan products may not be available - or, if they are, at slightly higher rates than for prime borrowers. Keep in mind that as a self-employed person, the kind of expenses and deductions you take on your income taxes may also come into play. Often, the self-employed will claim lots of business expenses so as to reduce taxable income on tax returns. This may be all well and good as a move to strengthen your business, but when your loan officer looks at your tax returns to decide whether to approve you, it may lead them to believe that you will lack sufficient funds for a down payment or monthly payments.

"How we qualify self-employed doesn't always agree with how the IRS says you can run your business legally," Pava Leyrer, training and development manager at Northern Mortgage Services, tells Bankrate. "So they are finding it harder to get a loan unless they want to show more income to the IRS. It's a fine balance."