June 2, 2014

June, 2, 2014

Weekly Review

Here is the week’s review of the news that affected the financial markets during this past week.

Monday… the markets were closed in observance of the Memorial Day holiday.

Tuesday… kicked off the final trading week of May with a strong beginning suggesting investors have a renewed appetite for risk even though on a historical basis, this month has not been that positive for the stock market. The stock market was boosted by another round of encouraging economic news in housing and durable goods.
Housing took center stage once again, as the 20-city S&P Case-Shiller home price index climbed 1.2% vs. an expectation of 0.7% in March, and recorded a 12.4% year-over-year gain.

In other housing news, the Federal Housing Finance Agency (FHFA) reported their House Price Index for March at a slightly stronger than anticipated 0.7% vs. an estimate of 0.5%. The year-over-year price index was 6.6% higher which was slightly lower than February’s 6.9% reading. Please note this report only includes properties with conforming loan amounts.
Releases on durable goods orders and consumer confidence also pleased investors. Durable Goods Orders for April increased by 0.8% last month vs. expectations of a 0.7% decline and the consumer confidence index improved this month to 83.0 after falling to 81.7 in April.
For the day, the Dow Jones Industrial Average gained 69.23 points to close at 16,675.50. The S&P 500 Index hit a new intra-day high and finished above 1,900 for the second consecutive session by adding 11.38 points to close at 1,911.91. The Nasdaq Composite Index enjoyed a strong session by gaining 51.26 points to end at 4,237.07. The yield on the 10-year Treasury fell 1.8 basis points to 2.52% while the FNMA 30-year 3.5% coupon bond gained 20.3 basis points to close at $102.70.
Wednesday… saw little in the way of economic news and this may have contributed to a weak session on Wall Street.

The Mortgage Bankers Association announced their weekly Mortgage Applications Survey for the week ending May 23rd with the overall Market Composite Index, a measure of mortgage loan application volume, falling 1.2% on a seasonally adjusted basis from the previous week. Refinance activity and the seasonally adjusted Purchase Index both decreased by 1% from the previous week. The average interest rate for conforming 30-year fixed-rate mortgages decreased to 4.31% from 4.33% with 0.15 points paid. This was the lowest rate since June 2013.

At the close, the Dow Jones Industrial Average fell 42.32 points to end at 16,633.18; the broader S&P 500 Index dropped 2.13 points to close at 1,909.78; and the Nasdaq Composite lost 12.00 points to finish at 4,225.07. The yield on the 10-year Treasury plunged 7.3 basis points to 2.44% while the FNMA 30-year 3.5% coupon bond jumped 54.7 basis points to close at $103.25. The recent rise in bond prices and drop in yields, especially in the 10-year Treasuries, has all the look and feel of a “short-squeeze.” It is known there were several large institutional bond trading accounts with large short positions in the 10-year, and they have had to buy back bonds to curtail their losses as bond prices have risen. We could see bond prices retreat once all of the short-covering buying is finished.

Thursday… the stock market reversed Wednesday’s weakness with a solid performance during the afternoon while bond prices fell following some mixed economic news that began with the second estimate of 1st Quarter GDP. GDP for the first quarter surprised to the downside with a revised estimate of -1.0% after an initial reading of +0.1%. Pundits blamed the contraction on the harsh weather experienced by much of the nation that kept consumers at home. Forecasts had called for a -0.5% reading on GDP. Investors took the news in stride with the weather as an excuse since signs have surfaced that business is picking up some steam. One tell-tale sign is a slowing in business inventories that suggests manufacturing activity will increase to refill the inventory supply chain in the future.

Weekly Jobless Claims for the week ending May 24th dropped to 300,000 from an upwardly revised 327,000 in the prior week. The consensus estimate was 318,000 claims. Overall, claims have been trending lower with the four-week moving claims average reaching a new recovery low of 311,000.

 

In housing news, CoreLogic released their National Foreclosure report showing foreclosure inventory has decreased by 35% from a year ago. Also, serious mortgage delinquencies only accounted for 4.5% of all mortgages, a six year low. This is good news in the sense there should be fewer foreclosures in the future.

 

Pending Home Sales for April were reported a little lower than forecast at 0.4% vs. an estimate of 1.0%. After a strong, unrevised 3.4% gain in March, one could expect a lower number of sales in the following month.

As for the bond market, the yield on the 10-year Treasury note rose slightly during the session. However, the recent pullback in interest rates is providing renewed support for the housing market. Freddie Mac reported today that the average rate on a 30-year mortgage fell to 4.12% from 4.14% last week. A year ago, the rate on a typical 30-year mortgage was 3.81%.

For the session, the Dow Jones Industrial Average gained 65.56 points to close at 16,698.74. The S&P 500 added 10.25 points to finish at 1,920.03, and the Nasdaq Composite Index rose 17.49 points to end at 4,242.56. The yield on the 10-year Treasury climbed 2.5 basis points to end at 2.47%. The FNMA 30-year 3.5% coupon bond lost 32.8 basis points to finish at $102.92.

Friday… the stock market closed out the month of May with some optimism, sending two out of the three major U.S. indexes to record highs. May ended up to be the best month for investors since February, and the saying “sell in May and walk away” did not prove to be true this year. The S&P notched a 2.1% gain for the month, while the Dow Jones industrial average gained 0.8%, and the NASDAQ Composite increased 3.1%.

In economic news, the Personal Income and Spending report for April was released along with the Federal Reserve’s favorite measure of inflation, the Core PCE Prices. Personal Income matched forecasts at 0.3% while Personal Spending failed to meet the consensus estimate of 0.2% with a reading of -0.1%. PCE Core Prices were reported at 0.2%, matching the consensus estimate, and was at 1.4% year over year. Although Core PCE inflation remains low, the 1.4% reading was the highest in 18 months. The concern here is the rate of change is increasing as last month’s year over year Core PCE was at 1.2%. The Chicago Purchase Manager’s Index (PMI), a measure of manufacturing activity in the Chicago region, was reported at 65.5 and much stronger than the consensus estimate of 60.3. Although this was the best reading since March 2011, there was little market reaction.

For the session, the Dow Jones Industrial Average gained 18.43 points to close at 16,717.17. The S&P 500 added 3.54 points to finish at 1,923.57, and the NASDAQ Composite Index fell 5.33 points to end at 4,242.62. The yield on the 10-year Treasury increased 0.50 basis points, but overall fell 6.10 basis points for the week to end at 2.475%. The FNMA 30-year 3.5% coupon bond was unchanged on the day and gained 42.19 basis points on the week to finish at $102.92.

For the week, stocks ended with the Dow Jones Industrial Average gaining 110.90 points, the S&P 500 advancing 23.04 points, and the NASDAQ Composite gaining 56.81 points. Year to date for 2014, the Dow Jones Industrial Average has gained 0.85%, the S&P 500 has gained 4.07%, and the NASDAQ Composite has gained 1.58%. The national average 30-year mortgage rate fell from 4.16% to 4.12% while 15-year mortgage rates declined from 3.28% to 3.26%. FHA 30-year rates held steady at 3.75% and Jumbo 30-year rates retreated from 3.96% to 3.93%.

Mortgage Rate Forecast with Chart

The FNMA 30-year 3.5% coupon bond succeeded in breaking out last Tuesday above the rising wedge pattern pointed out in last week’s newsletter that is also shown in this issue’s chart. The upward breakout resulted in a move that challenged overhead resistance at the 0.0% Fibonacci retracement level at $103.36 on Wednesday and Thursday. On Thursday the bond pulled back from this overhead resistance level in a reversal generating a sell signal from a negative stochastic crossover. On Friday the bond was unchanged, and trading formed a “Doji” candlestick indicating market indecision. The bond remains “overbought” and it appears likely the bond is headed toward a test of support at $102.58, 34 basis points lower than Friday’s close. Should this test of support take place, interest rates will increase slightly this coming week.

Chart: FNMA 30-Year 4.0% Coupon Bond

Economic Calendar – for the Week of May 26

Looking ahead for the first trading week of June, the economic calendar strengthens considerably with a bevy of mid-level releases on manufacturing and nonmanufacturing activity, vehicle sales, the trade gap, jobless claims, and the Federal Reserve’s latest Beige Book summary of economic conditions.

Global equity markets will be keeping an eye on a G7 meeting on Wednesday and Thursday of seven of the eight leading industrialized nations in Brussels. Russia is excluded from participating because of its annexation of Crimea. The European Central Bank (ECB) also will hold its monetary policy meeting on Thursday, and this could have a huge impact on world equity markets, as it is believed the ECB will begin implementing stimulus measures to spark dreary European Union economies.

If the ECB implements their version of quantitative easing similar to what our central bank has done, investors would be wise to “short” the euro and also buy quality European stocks and exchange traded funds. The week concludes with the Employment Situation (Jobs) report from the Bureau of Labor Statistics (BLS) on Friday. Economic reports having the greatest potential impact on the financial markets this week are highlighted in bold.
Date Time (ET) Event /Report /Statistic Report
For Market
Expects Prior
Jun 02 10:00 ISM Index May 55.6 54.9
Jun 02 10:00 Construction Spending Apr 0.7% 0.2%
Jun 03 10:00 Factory Orders Apr 0.5% 1.1%
Jun 03 14:00 Auto Sales May NA 5.3M
Jun 03 14:00 Truck Sales May NA 7.5M
Jun 04 07:00 MBA Mortgage Index 05/31 NA NA
Jun 04 08:15 ADP Employment Change May 200K 220K
Jun 04 08:30 Trade Balance Apr -$41.3B -$40.4B
Jun 04 08:30 Productivity-Rev. Q1 -2.5% -1.7%
Jun 04 08:30 Unit Labor Costs Q1 4.8% 4.2%
Jun 04 10:00 ISM Services May 55.5 55.2
Jun 04 14:00 Fed’s Beige Book Jun
Jun 05 07:30 Challenger Job Cuts May NA 5.7%
Jun 05 08:30 Initial Jobless Claims 05/31 310K NA
Jun 05 08:30 Continuing Jobless Claims 05/24 2650K NA
Jun 06 08:30 Nonfarm Payrolls May 220K 288K
Jun 06 08:30 Nonfarm Private Payrolls May 230K 273K
Jun 06 08:30 Unemployment Rate May 6.4% 6.3%
Jun 06 08:30 Hourly Earnings May 0.2% 0.0%
Jun 06 08:30 Average Workweek May 34.5 34.5
Jun 06 15:00 Consumer Credit Apr $15.0B $17.5B

The Remaining 2014 Federal Reserve FOMC Meeting Schedule
June 17-18*
July 29-30
September 16-17*
October 28-29
December 16-17*
* Meeting associated with a Summary of Economic Projections and a press conference by the Chairman.

Road Signs – Five Things That Don’t Affect Your Credit Score
By Nikitas Tsoukalis

When you start learning about your credit scores, it’s easy to get paranoid about the numbers. But, there are a lot of myths about actions that will affect your credit rating, whether negatively or positively. A few actions that you do not need to be worried about:
Pulling Your Own Credit
When you check your own credit, this is known as a “soft pull.” “Hard pulls” are what occur when a bank or another organization looks at your credit reports with the intent of granting you a new loan. Because each new loan we get can increase the exposure of other creditors, having recent hard pulls will have a short-term, but minor, negative effect. But, looking at your credit yourself does not count against you. In fact, looking at your own records frequently can help you identify errors and problems, leading to a higher credit score overall.
Visiting a Credit Counselor
Many people who are struggling with bad credit are afraid to visit a credit counselor because they fear it may add another ding to their credit. But, the counseling itself is never recorded on your credit record in any way.
Multiple Inquiries
If you are shopping for a mortgage, creditors expect to see several pulls within a short period of time. All this indicates is that you are comparing offers, and it will generally be considered a single inquiry. If you are looking at new and different credit offers every few months, on the other hand, it can look like you are at risk of overextending yourself. Recent credit inquiries only make up about 10% of your score, so, even if an inquiry brings your score down, the effect is minimal and temporary.
Carrying a Balance on Your Cards
Many people believe that they need to carry a small balance month to month on their cards to improve their credit scores. This is not the case at all; carrying small balances just results in paying interest. Other people feel that any balance at all can hurt your rating. However, a balance between 10 and 30 percent of your available credit is considered in the healthy zone and will not harm your score.
Not Using Your Cards
Many people believe that you need to use all cards regularly for them to count toward your credit score. While a card company may close a credit line that hasn’t been used in a long time, you don’t need to keep a card in constant use. Charging items a few times a year and paying in full is sufficient to keep a card active. We recommend setting up automatic charges and payments on infrequently used cards only to simplify the process of keeping them in use.
Knowing what can and can’t hurt your score gives you a leg up in the credit game. Educate yourself and keep an eye on your records to keep your score high and get access to the best financial opportunities.
 

 

June 2, 2014 by · Leave a Comment

Seven Things Your Agent Should Know About Your Mortgage Approval

While many experienced real estate agents have a general understanding of the mortgage approval process, there are a few important details that frequently get overlooked which may cause a purchase to be delayed or denied.

New regulation, updated disclosures, appraisal guidelines, mortgage rate pricing premiums, credit score, secondary approval layering, rescission deadlines, property type, HOA insurance requirements, title and property flip rules are just a few of the daily changes that can have a serious impact on a borrower’s home loan financing.

With today’s volatile lending environment, it’s obviously important for home buyers to get a full loan approval which clearly defines all contingencies that pertain to each unique home buyer’s scenario prior to spending any time looking at new homes with an agent.

Either way, we’ve listed a few of the top things your agent should keep in mind while showing you new properties:

Caution – Agents Beware:

Property Type –

High-Rise, Condo, Town House, Single Family Residence, Dome Home or Shoe House… all have specific lending guidelines that can influence down payment, credit score and mortgage insurance requirements.

Residence Type

Need to sell one home before moving into another? Is a property considered a second home if it’s in the same city?  What if I’m buying a home for my children to live in, it is still considered an investment property?

These are just a few of several possible residence related questions that should be addressed by your agent and loan officer at the initial loan application.

Rates / Locks

Mortgage Rates are typically locked for a 30 day period, and one of the only ways to get a new rate is to switch mortgage lenders.  Rates also have certain adjustments for property / residence type, credit score and down payment which could have a big impact on monthly payments and therefore approvals.

A 1% increase in rate could literally mean the difference between an approval or denial.

Headline News / Employment

Underwriters watch the news as well.  Borrowers who work in a volatile industry during hard economic times may have to jump through a few extra hoops to prove that their employment and income is secure.

Job changes, periods of unemployment or property location in relation to the subject property are other things to consider that may cause a speed bump in the approval process.

Title / Property Flip –

A Flip is considered a property that has been purchased by an investor and quickly sold to a new buyer within a 30-90 day period.  Generally, an investor will do a little rehab work, fresh paint, landscaping…. and try to re-sell the property for a significant profit margin.

While it seems like a perfectly fair transaction, many lenders have strict guidelines in place that prevent borrowers from obtaining financing on properties that have a previous owner with less than 90 days of documented ownership.

These rules change frequently, and are specific to particular property types, so make sure your agent is aware of all the boundaries associated with your approval letter.

Homeowner’s Association Insurance

Some lenders require Condos and Town House communities to have sufficient insurance and reserves coverage pertaining to specific ratios on units that are owner occupied vs rented.

It may also take a few weeks and cost up to $300 to receive an HOA Certification, so make sure your Due-Diligence period is set accordingly in the purchase contract.

Appraisal Ordering Procedures

Appraisal ordering guidelines are changing quite frequently as regulators implement many new consumer protection laws created to prevent future foreclosure epidemics.

Unfortunately, some of the new appraisal regulations have proven to slow the home buying process down, as well as confuse lenders about the true estimate of neighborhood values.

VA, FHA and Conventional loan programs all have separate appraisal ordering policies, so make sure your agent is aware of which loan you’re approved for so that they document any anticipated delays in the purchase contract.

For example, if an appraisal takes three weeks and the average time for an approval is two weeks, then it probably isn’t smart to write a purchase contract with a four week close of escrow.

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Related Articles – Home Buying Process:

April 1, 2010 by · Leave a Comment

Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?

Although every situation is unique, it is not uncommon for homebuyers to qualify for a mortgage on a new home while still living in their primary residence.

Perhaps you are outgrowing your current house, or have been forced to relocate due to a job transfer?  Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the mortgage approval in mind:

So, Do I Have To Sell?

Yes. No. Maybe. It depends.

Welcome to the wonderful world of mortgage lending. Only in this industry can one simple question elicit four answers…and all of them may be right.

If you are in a financial position where you qualify to afford both your current residence and the proposed payment on your new house, then the simple answer is No!

Qualifying based on your Debt-to-Income Ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgage payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.

What If I Rent My Current Property?

This scenario presents the “maybe” and the “it depends” answers to the question.

If you’re not quite qualified to carry both mortgages, you may have to rent the other property in order to offset the mortgage payment.

In that scenario, the lender will typically only count 75% of the monthly rent you are proposing to receive.

So if you are going to receive $1000 a month in rent and your current payment is $1500, the lender is going to factor in an additional $750 of monthly liabilities in your overall Debt-to-Income Ratios.

Another detail that can present a huge hurdle is the reserve requirement and equity ratio most lenders have. In some cases, if you are going to rent out your current home, you will need to have at least 25% equity in order to offset your payment with the proposed rent you will receive.

Without that hefty amount of equity, you will have to qualify to afford BOTH mortgage payments. You will also need some significant cash in the bank.

Generally, lenders will require six months reserve on the old property, as well as six month reserves on the new property.

For example, if you have a $1500 payment on your old house and are buying a home with a $2000 monthly payment, you will need over $21,000 in the bank.

Keep in mind, this reserve requirement is incremental to your down payment on the new property.

What If I Can’t Qualify Based On Both Mortgage Payments?

This answer is pretty straightforward, and doesn’t require a financial calculator to figure out.

If you are in this situation, then you will have to sell your current home before buying a new one.

If you aren’t sure of the value of the home or how your local market is performing, give us a ring and we’ll happily refer you to a great real estate agent that is in tune with property values in your neighborhood.

…..

As you can tell, purchasing one home while living in another can be a very complicated transaction.  Please feel free to contact us anytime so we can review your specific situation and suggest the proper action plan.

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Related Articles – Mortgage Approval Process:

April 1, 2010 by · Leave a Comment

What Do Appraisers Look For When Determining A Property’s Value?

Most people are surprised to learn what appraisers actually look at when determining the value of a real estate property.

A common misconception homeowners generally have is that the value of their home is determined after the appraiser has completed their physical property inspection.

However, the appraiser actually already has a good idea of the property’s value by the time they have scheduled an appointment to stop by the property.

The good news is that you don’t have to worry so much about pushing back an appointment a few days just to “clean things up” in order to help influence the value of your property.

While a clean house will certainly make it easier for the appraiser to notice improvements, the only time you should be concerned about “clutter” is if it is damaging to the dwelling.

The Key Components Addressed In An Appraisal

The Site:

Location, view, topography, lot size, utilities, zoning, external factors, highest and best use, landscaping features…

Design:

Quality of construction, finish work, fixed appliances and any defining features

Condition:

Age, deterioration, renovations, upgrades, added features

Health & Safety:

Structural integrity, code compliance

Size:

Above grade and below grade improvements

Neighborhood:

Is the property conforming to the neighborhood?

Functional Utility:

Is the property functional as built – style and use?

Parking:

Garages, Carports, Shops, etc..

Other:

Curb appeal, lot size, & conforming to the neighborhood are obvious to the appraiser when they drive down into the neighborhood pull up in front of your home.

When entering your home, they are going to look at the overall design, condition, finish work, upgrades, any defining features, functional utility, square footage, number of rooms and health and safety items.

Be sure to have all carbon monoxide and smoke detectors in working condition.

Since the appraisal provides half the weight in any credit decision involving the security of real estate, the appraisal should be done by a qualified, licensed appraiser whom is familiar with your neighborhood, and the type of home you are buying, selling or refinancing.

If you’re interested in what specifically appraisers are looking for, here is a copy of the blank 1040 URAR form that is used by every appraiser in the country.

Related Update on HVCC:

Appraisers hired for a mortgage transaction on a conforming loan are chosen from a pool of qualified appraisers at random. Neither you nor your lender has the flexibility of deciding which appraiser will inspect your home.

This recent change was brought on with the Home Valuation Code of Conduct HVCC, and is effective with conventional loans originated on or after May 1, 2009.

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Related Appraisal Articles:

March 29, 2010 by · Leave a Comment

Where Does My Earnest Money Go?

Hey, I gave my real estate agent a $5000 Earnest Money Deposit check… Where does that money go?

A basic and very obvious question that most First-Time home Buyers ask once their purchase contract gets accepted.

According to Wikipedia:

Earnest Money – an earnest payment (sometimes called earnest money or simply earnest, or alternatively a good-faith deposit) is a deposit towards the purchase of real estate or publicly tendered government contract made by a buyer or registered contractor to demonstrate that he/she is serious (earnest) about wanting to complete the purchase.

When a buyer makes an offer to buy residential real estate, he/she generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations.

An Earnest Money Deposit (EMD) is simply held by a third-party escrow company according to the terms of the executed purchase contract.

For example, there may be a contingency period for appraisal, loan approval, property inspection or approval of HOA documents.

In most cases, the Earnest Money held by the escrow company is credited towards the home buyer’s down payment and/or closing costs.

*It’s important to keep in mind that the EMD may actually be cashed at the time escrow is opened, so make sure your funds are from the proper sources.

The Process:

  1. Earnest Money is submitted to an escrow company with the accepted purchase contract
  2. At the close of escrow, the EMD is credited towards the down payment and / or closing costs
  3. If there are no closing costs or down payment, the EMD is refunded back to the buyer

Who Doesn’t Get Your Earnest Money:

  • Selling Real Estate Agent – A conflict of interest
  • Sellers – Too risky
  • Buying Agent – They shouldn’t have your money in their account

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Related Articles – Closing Process / Costs

March 28, 2010 by · Leave a Comment

Renting vs Buying A Home

Buying a home versus renting is a big decision that takes careful consideration.

While there are several biased sources that can make arguments for or against owning a home, we’ve found that most home buyers base their ultimate decision on emotion.

Yes, there are some tax advantages of owning real estate, as well as the potential to earn equity or pay a mortgage note off after several years.

However, let’s address some of the more obvious topics of discussion first.

Benefits Of Renting:

Lower Acquisition Cost –

Unless you’re able to qualify for a mortgage loan with zero down and have your closing costs paid for by the seller, a typical investment to purchase a home is around 3.5% – 7% of the purchase price for down payment and closing costs on an FHA mortgage, and an average of 13% – 23% for a home secured by conventional financing.

Compared to the cost of about 1-3 month’s rent payment, it’s obvious that renting a home makes financial sense in the short-term.

Lower Qualifying Standards –

While the FHA and other government insured mortgage programs have more flexible credit / qualifying guidelines than most traditional home loan programs, there is certainly a lot less paperwork and personally invasive probing required by most landlords and property management companies.

Generally proof of employment / income and a decent credit history (or a good explanation) is needed to rent a home.

Freedom To Move –

It’s easy to find a home through a reputable property management company, move in that weekend and then leave a year later when the rental contract expires.  Not being tied down by a long-term mortgage liability is ideal for people new to a community, in a career that keeps them on the go or for parents with children that prefer a certain school district.

Plus, if you’re planning on moving in the next 3-5 years, then it may become cost-prohibitive due to the amount of equity you’ll have to gain in the short-run just to cover the cost of paying an agent, buyer closing costs, transfer taxes…. so that you can at least break even at closing.

Less Maintenance and Cost –

If something breaks, a simple call to the property management company will generally solve the issue in 48 hours or less.  Plus, renters don’t have to carry expensive homeowners insurance, pay property taxes or worry about interest rates adjusting.

Benefits of Owning:

Pets Are Allowed –

Well, according to the rules and regulations of your county or neighborhood HOA, you can pretty much have as many domestic and exotic pets without having to pay extra deposits.

It may seem like a funny benefit to mention first, but the millions of dog and cat lovers would definitely rank this towards the top of their list.

Pink and Purple Walls –

Yep, you can paint the inside of your house any color you choose.  And depending on whether or not there is an HOA in place, you could probably do the same thing on the home’s exterior.  Landscaping, flooring, built-in shelving… it’s your property to renovate and grow in.

Peace-of-Mind and Security –

The only way you would be forced to move is if the bank forecloses on your property due to a default in mortgage payments.

So basically, you don’t have to worry about a landlord’s financial ability to make mortgage payments on time. Plus, you can stay in your own property as long as you wish.

Tax Benefits -

The US government has created certain tax incentives making it possible for many homeowners to exceed the standard yearly deduction.

*Disclosure – Check with your CPA or Tax Attorney to verify your own unique filing scenario*

The following three components of your home mortgage may be tax deductible:

a) Interest on your home mortgage
b) Property Taxes
c) Origination / Discount Points

Stability -

Remaining in one neighborhood for several years lets you and your family establish lasting friendships, as well as offers your children the benefit of educational continuity.

Appreciation of Property -

Historically, even with other periods of declining value, home prices have exceeded consumer inflation. From 1972 through 2005, home prices increased on average 6.5%, according to the National Association of Realtors®.

Forced Saving -

The monthly payment helps in repayment of the principal amount. Also when you sell you can generally take up to $250,000 ($500,000 for married couple) as gain without owing any federal income tax.

*Disclosure – Check with your CPA or Tax Attorney to verify your own unique filing scenario*

Increased Net Worth

Few things have a greater impact on net worth than owning a home. In a comparison of renters versus homeowners, the Federal Reserve Board of Consumer Finance found that the average net worth of renters was just $4,000 compared to homeowners at $184,400.

While the available tax advantages and potential for earned equity are generally highlighted by most industry professionals as the top reasons to own real estate, it’s important to remember that markets go through cycles.

However, owning real estate that appreciates more than the rate of inflation may help contribute towards your overall investment portfolio, provided your maintenance and mortgage costs are kept low.

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Related Articles – Home Buying Process:

March 28, 2010 by · Leave a Comment

What Does Title Insurance Protect Me From?

By including title insurance when purchasing property, your title insurer takes on accountability for legal expenses to defend your property title, should it ever be challenged.

Many different occurrences can come into play to warrant the need for title insurance.

The title company responsible will then take on the legal expenses to defend the property for as long as you are in possession of an interest in the property under the title.

If the defense is not successful, you will be reimbursed for any loss of value of the property.

Common Things Title Insurance Covers:

1. UNDISCLOSED HEIRS, FORGED DEEDS, MORTGAGE, WILLS, RELEASES AND OTHER DOCUMENTS

2. FALSE IMPRISONMENT OF THE TRUE LAND OWNER

3. DEEDS BY MINORS

4. DOCUMENTS EXECUTED BY A REVOKED OR EXPIRED POWER OF ATTORNEY

5. PROBATE MATTERS

6. FRAUD

7. DEEDS AND WILLS BY PERSON OF UNSOUND MIND

8. CONVEYANCES BY UNDISCLOSED DIVORCED SPOUSES

9. RIGHTS OF DIVORCED PARTIES

10. ADVERSE POSSESSION

11. DEFECTIVE ACKNOWLEDGEMENTS DUE TO IMPROPER OR EXPIRED NOTARIZATION

12. FORFEITURES OF REAL PROPERTY DUE TO CRIMINAL ACTS

13. MISTAKES AND OMISSIONS RESULTING IN IMPROPER ABSTRACTING

14. ERRORS IN TAX RECORDS

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Related Articles – Closing Process / Costs

March 28, 2010 by · Leave a Comment

Understanding the FHA Mortgage Insurance Premium (MIP)

* Disclaimer – all information in this article is accurate as of the date this article was written *

The FHA Mortgage Insurance Premium is an important part of every FHA loan.

There are actually two types of Mortgage Insurance Premiums associated with FHA loans:

1.  Up Front Mortgage Insurance Premium (UFMIP) – financed into the total loan amount at the initial time of funding

2.  Monthly Mortgage Insurance Premium – paid monthly along with Principal, Interest, Taxes and Insurance

Conventional loans that are higher than 80% Loan-to-Value also require mortgage insurance, but at a relatively higher rate than FHA Mortgage Insurance Premiums.

Mortgage Insurance is a very important part of every FHA loan since a loan that only requires a 3.5% down payment is generally viewed by lenders as a risky proposition.

Without FHA around to insure the lender against a loss if a default occurs, high LTV loan programs such as FHA would not exist.

Calculating FHA Mortgage Insurance Premiums:

Up Front Mortgage Insurance Premium (UFMIP)

UFMIP varies based on the term of the loan and Loan-to-Value.

For most FHA loans, the UFMIP is equal to 2.25%  of the Base FHA Loan amount (effective April 5, 2010).

For Example:

>> If John purchases a home for $100,000 with 3.5% down, his base FHA loan amount would be $96,500

>> The UFMIP of 2.25% is multiplied by $96,500, equaling $2,171

>> This amount is added to the base loan, for a total FHA loan of $98,671

Monthly Mortgage Insurance (MMI):

  • Equal to .55% of the loan amount divided by 12 – when the Loan-to-Value is greater than 95% and the term is greater than 15 years
  • Equal to .50% of the loan amount divided by 12 – when the Loan-to-Value is less than or equal to 95%, and the term is greater than 15 years
  • Equal to .25% of the loan amount divided by 12 – when the Loan-to-Value is between 80% – 90%, and the term is greater than 15 years
  • No MMI when the loan to value is less than 90% on a 15 year term

The Monthly Mortgage Insurance Premium is not a permanent part of the loan, and it will drop off over time.

For mortgages with terms greater than 15 years, the MMI will be canceled when the Loan-to-Value reaches 78%, as long as the borrower has been making payments for at least 5 years.

For mortgages with terms 15 years or less and a Loan -to-Value loan to value ratios 90% or greater, the MMI will be canceled when the loan to value reaches 78%.  *There is not a 5 year requirement like there is for longer term loans.

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Related Articles – Mortgage Approval Process:

March 28, 2010 by · Leave a Comment

First-Time Home Buyer Credit Checklist

Getting a new mortgage for a First-Time Home Buyer can be a little overwhelming with all of the important details, guidelines and potential speed bumps.

Since there are so many rules and steps to follow, here is a simple list of Do’s and Don’ts to keep in mind throughout the mortgage approval process:

DO:

  • Continue working at your current job
  • Stay current on all your accounts
  • Keep making your house or rent payments
  • Keep your insurance payments current
  • Continue to maintain your credit as usual
  • Call us if you have any questions

DON’T

  • Make any major purchases (Car, Boat, Jet Ski, Home Theater…)
  • Apply for new credit
  • Open new credit cards
  • Transfer any balances from one credit or bank acct to another
  • Pay off any charge-off accts or collections
  • Take out furniture loans
  • Close any credit cards
  • Max out your credit cards
  • Consolidate credit debt

Basically, while you are in the process of getting a new mortgage, keep your financial status as stable as possible until the loan is funded and recorded.

Any number of minor changes could easily raise a red flag or cause a negative impact on a credit score that may result in a denied loan.

Most importantly, check with your loan officer on even the simplest questions to make sure your loan approval is successful.

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Related Articles – Home Buying Process:

March 28, 2010 by · Leave a Comment

Should I Refinance or Get a HELOC For Home Improvements?

For homeowners interested in making some property improvements without tapping into their savings or investment accounts, the two main options are to either take out a Home Equity Line of Credit (HELOC), or do a cash-out refinance.

According To Wikipedia:

A home equity line of credit is a loan in which the lender agrees to lend a maximum amount within an agreed period, where the collateral is the borrower’s equity. 

A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses a line of credit to borrow sums that total no more than the credit limit, similar to a credit card.

HELOC funds can be borrowed during the “draw period” (typically 5 to 25 years). Repayment is of the amount drawn plus interest.

A HELOC may have a minimum monthly payment requirement (often “interest only”); however, the debtor may make a repayment of any amount so long as it is greater than the minimum payment (but less than the total outstanding).

Another important difference from a conventional loan is that the interest rate on a HELOC is variable. The interest rate is generally based on an index, such as the prime rate. This means that the interest rate can change over time. Homeowners shopping for a HELOC must be aware that not all lenders calculate the margin the same way. The margin is the difference between the prime rate and the interest rate the borrower will actually pay.

A Home Equity Loan is similar to the Line of Credit, except there is a lump sum given to the borrower at the time of funding and the payment terms are generally fixed. Both a Line of Credit and Home Equity Loan hold a subordinate position to the first loan on title, and are typically referred to as a “Second Mortgage”. Since second mortgages are paid after the first lien holder in the event of default foreclosure or short sale, interest rates are higher in order to justify the risk and attract investors.

Measuring The Different Between HELOC vs Cash-Out Refinance:

There are three variables to consider when answering this question:

1.  Timeline
2.  Costs or Fees to obtain the loan
3.  Interest Rate

1. Timeline –

This is a key factor to look at first, and arguably the most important. Before you look at the interest rates, you need to consider your time line or the length of time you’ll be keeping your home.  This will determine how long of a period you’ll need in order to pay back the borrowed money.

Are you looking to finally make those dreaded deferred home improvements in order to sell at top dollar? Or, are you adding that bedroom and family room addition that will finally turn your cozy bungalow into your glorious palace?

This is a very important question to ask because the two types of loans will achieve the same result – CASH — but they each serve different and distinct purposes.

A home equity line of credit, commonly called a HELOC, is better suited for short term goals and typically involves adjustable rates that can change monthly. The HELOC will often come with a tempting feature of interest only on the monthly payment resulting in a temporary lower payment. But, perhaps the largest risk of a HELOC can be the varying interest rate from month to month. You may have a low payment today, but can you afford a higher one tomorrow?

Alternatively, a cash-out refinance of your mortgage may be better suited for securing long term financing, especially if the new payment is lower than the new first and second mortgage, should you choose a HELOC. Refinancing into one new low rate can lower your risk of payment fluctuation over time.

2. Costs / Fees –

What are the closing costs for each loan?  This also goes hand-in-hand with the above time line considerations. Both loans have charges associated with them, however, a HELOC will typically cost less than a full refinance.

It’s important to compare the short-term closing costs with the long-term total of monthly payments.  Keep in mind the risk factors associated with an adjustable rate line of credit.

3. Interest Rate –

The first thing most borrowers look at is the interest rate. Everyone wants to feel that they’ve locked in the lowest rate possible. The reality is, for home improvements, the interest rate may not be as important as the consideration of the risk level that you are accepting.

If your current loan is at 4.875%, and you only need the money for 4-6 months until you get your bonus, it’s not as important if the HELOC rate is 5%, 8%, or even 10%. This is because the majority of your mortgage debt is still fixed at 4.875%.

Conversely, if you need the money for long term and your current loan is at 4.875%, it may not make financial sense to pass up an offer on a blended rate of 5.75% with a new  30-year fixed mortgage.  There would be a considerable savings over several years if variable interest rates went up for a long period of time.

…..

Choosing between a full refinance and a HELOC basically depends on the level of risk you are willing to accept over the period of time that you need money.

A simple spreadsheet comparing all of the costs and payments associated with both options will help highlight the total net benefit.

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Related Article – Refinance Process:

March 28, 2010 by · Leave a Comment

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