Looks like lower interest rages are here for a while – NOW IS THE TIME to buy a home. Call Linda.
Entire article: https://www.floridarealtors.org/NewsAndEvents/article.cfm?p=1&id=375648
Category: Loan Rates
A Low Credit Score Costs Home Buyers Big—Here’s How Much
With skyrocketing home prices and rising mortgage rates, many home buyers are frantically looking for ways to cut down on costs wherever they can. But in one area, it makes sense to ramp up spending, experts say—paying off old bills, debts, and credit cards.
That’s because a very good credit score can save home buyers tens of thousands of dollars over the life of their mortgage, according to a recent report from online financial services marketplace LendingTree. That’s not chump change.
LendingTree estimates borrowers with very good credit scores of 740 to 799 can save $29,106 over those with a fair credit score of 580 to 669. The savings would be on the annual percentage rate of a 30-year fixed mortgage of $234,437, which is the average size of those loans, according to the report. Those savings are the price of a decent new car.
Aside from monthly costs, it’s a lot harder to get a loan with poor credit.
“When you’re taking out a mortgage, you’re asking a lender to invest in you for a very long time,” says Kali McFadden, senior research analyst at LendingTree.
“If you have a higher credit score, it means statistically you’re more likely to pay your bill on time,” she says. But “if you have a lower credit score, lenders are taking a bigger risk that you’re not going to pay your mortgage off or [you’ll go into] foreclosure.”
Credit score sweet spot
The ideal credit score is from 760 to 780 and up, McFadden says. Anything much below that and lenders are more likely to charge a higher interest rate or pile on more fees to compensate for the risk that the borrower may miss payments.
She recommends that would-be borrowers get their credit reports and resolve any outstanding issues before applying for a loan. They should also pay down or pay off old balances, not open or close any credit cards, and pay their bills on time.
That’s not to say every lender will offer rates to those with sterling credit, says Don Frommeyer, a mortgage loan originator at Marine Bank in Indianapolis. But some will and others will knock off various charges, such as filing and overnight fees.
In addition, many buyers will save substantially less over the life of their loan. That’s because after five or six years, many are likely to refinance their loan or move into a new home requiring a new mortgage.
Still, buyers should focus on boosting their credit score.
“You always save money with a higher credit score,” Frommeyer says. But “you can pay a fee for a lower credit score.”
Is Family Mortgage Debt Out of Control?
Some homeowners have recently done a “cash out” refinance and have taken a portion of their increased equity from their house. Others have sold their homes and purchased more expensive homes with larger mortgages. At the same time, first-time buyers have become homeowners and now have mortgage payments for the first time.
These developments have caused concern that families might be reaching unsustainable levels of mortgage debt. Some are worried that we may be repeating a behavior that helped precipitate the housing crash ten years ago.
Today, we want to assure everyone that this is not the case. Here is a graph created from datareleased by the Federal Reserve Board which shows the Household Debt Service Ratio for mortgages as a percentage of disposable personal income. The ratio is the total quarterly required mortgage payments divided by total quarterly disposable personal income. In other words, the percentage of spendable income people are using to pay their mortgage.
Today’s ratio of 4.44% is nowhere near the ratio of 7.21% during the peak of the housing bubble and is instead at the lowest rate since 1980 (4.38%).
Bill McBride of Calculated Risk recently commented on the ratio:
“The Debt Service Ratio for mortgages is near the low for the last 38 years. This ratio increased rapidly during the housing bubble and continued to increase until 2007. With falling interest rates, and less mortgage debt, the mortgage ratio has declined significantly.”
Bottom Line
Many families paid a heavy price because of questionable practices that led to last decade’s housing crash. It seems the American people have learned a lesson and are not repeating that same behavior regarding their mortgage debt.
Don’t Let Fear Stop You from Applying for a Mortgage
A considerable number of potential buyers shy away from jumping into the real estate market due to their uncertainty about the buying process. A specific cause for concern tends to be mortgage qualification.
For many, the mortgage process can be scary, but it doesn’t have to be!
In order to qualify in today’s market, you’ll need to have saved for a down payment (73% of all buyers made a down payment of less than 20%, with many buyers putting down 3% or less), a stable income and good credit history.
Throughout the entire home buying process, you will interact with many different professionals, all of whom perform necessary roles. These professionals are also valuable resources for you.
Once you’re ready to apply, here are 5 easy steps that Freddie Mac suggests you follow:
- Find out your current credit history & score – even if you don’t have perfect credit, you may already qualify for a loan. The average FICO® Score of all closed loans in September was 724, according to Ellie Mae.
- Start gathering all your documentation – income verification (such as W-2 forms or tax returns), credit history, and assets (such as bank statements to verify your savings).
- Contact a professional – your real estate agent will be able to recommend a loan officer that can help you develop a spending plan, as well as determine how much home you can afford.
- Consult with your lender – he or she will review your income, expenses, and financial goals to determine the type and amount of mortgage you qualify for.
- Talk to your lender about pre-approval – a pre-approval letter provides an estimate of what you might be able to borrow (provided your financial status doesn’t change), and demonstrates to home sellers that you are serious about buying!
Bottom Line
Do your research, reach out to professionals, stick to your budget, and be sure that you are ready to take on the financial responsibilities of becoming a homeowner.
Number of Buyers Putting Down Less Than 10% Hits 7-Year High
According to Black Knight Financial Service’s Mortgage Monitor Report, 1.5 million Americans have purchased a home with down payments under than 10% over the last 12 months. This is great news for buyers as this marks a 7-year high.
Many mortgage programs offered by agencies like Freddie Mac and Fannie Mae allow buyers to put down as low as 3% to purchase their dream homes. The strength of the housing market has aided buyers who used low-down-payment programs to buy. As a recent CNBC article points out,
“Defaults on recent low down payment loans, so far, are slow, but that is as much a factor of the good credit quality as it is the strength of the housing market. Home prices are rising incredibly fast, meaning those borrowers are gaining equity in their homes quickly.”
Low down payments aren’t just great for first-time homebuyers. These programs have allowed homeowners who want to capitalize on the equity they have in their homes to use the profit from their sale to pay off high-interest credit cards, fund education or even start a business.
According to a new Census Report, the Annual Survey of Entrepreneurs , home equity was used to start 7.3% of all businesses in the United States, which equates to over 284,000! The industries that saw the most growth from home equity are accommodation & food services, manufacturing and, retail trade.
Bottom Line
Gone are the days of 20% down or no mortgage.’ What could you build with the equity in your house? Let’s get together today to evaluate your ability to achieve your dreams today!
Interest Rates
To start the year, housing experts all agreed on one thing: 2017 was going to be the year we would see mortgage interest rates begin to rise. After years of historically low rates, and an improving economy, the question wasn’t if they would increase but instead how much they would increase. Some thought we could see rates hit 5-5.5% by the end of the year.
However, the exact opposite has happened. Instead of higher rates as we head into the middle of 2017, we now have the lowest rates of the year (as reported by Freddie Mac). Here is a graph of mortgage rate movement since the beginning of the year:
Projections still call for an increase…
Four major entities (Freddie Mac, Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors) are still projecting that rates will increase by the fourth quarter of the year.
Bottom Line
No one knows for sure where interest rates will be in six months. However, if you are thinking about buying your first house or trading up to the home of your dreams, you can still get a mortgage at historically low rates RIGHT NOW.
Mortgage Rates Impact on 2017 Home Values
There is no doubt that historically low mortgage interest rates were a major impetus to housing recovery over the last several years. However, many industry experts are showing concern about the possible effect that the rising rates will have moving forward.
The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are all projecting that mortgage interest rates will move upward in 2017. Increasing interest rates will definitely impact purchasers and may stifle demand.
In a recent study of industry experts, “rising mortgage interest rates, and their impact on mortgage affordability” was named by 56% as the force they think will have the most significant impact on U.S. housing in 2017. If rising rates slow demand for housing, home values will be impacted.
To this point, Pulsenomics, recently surveyed a panel of over 100 economists, investment strategists, and housing market analysts, asking the question “In your opinion, at what level will the 30-year fixed rate mortgage rate significantly slow home value appreciation?” The survey revealed the following:
Bottom Line
Most experts believe that rates would need to hit 5% or above to have an impact on home prices.
Student Loans = Higher Credit Scores
According to a recent analysis by CoreLogic, Millennial renters (aged 20-34) who have student loan debt also have higher credit scores than those who do not have student loans.
This may come as a surprise, as there is so much talk about student loans burdening Millennials and holding them back from many milestones that previous generations have been able to achieve (i.e. homeownership, investing for retirement).
CoreLogic used the information provided on rental applications and the applicants’ credit history from credit bureaus to determine if there was a correlation between student loan debt and credit scores.
The analysis concluded that:
“Student loan debt did not prevent millennials from access to credit even though it may delay their homebuying decisions.”
In fact, those with a higher amount of debt actually had higher credit scores.
“Renters with student loan debt have higher average credit scores than those without; and those with higher debt amounts have higher average credit scores than those with lower student loan debt amounts.”
Bottom Line
Millennials are on pace to become the most educated generation in our nation’s history, with that comes a pretty big bill for education. But there is a light at the end of the tunnel:
“Despite the fact that student loan debt has grown into the nation’s second largest consumer debt, following mortgage, and has created a significant financial burden for millennials, it does not appear to prevent millennials from accessing credit.”
5 Stats that Prove the Real Estate Market is Getting Stronger
Whenever there is talk about an improving housing market, some begin to show concern that we may be headed toward another housing bubble that will be followed by a crash similar to the one we saw last decade.
Here are five data points that show the housing market will continue to recover, and that a new housing crisis is not about to take shape.
1) Mortgage availability is increasing, but is nowhere near the levels we saw in 2004-2006.
A buyer’s chances of being approved for a mortgage have increased over the last three years; That’s good news for the market. This is not a precursor to another challenge, as many experts maintain that it is still too difficult for many buyers to attain house financing.
As Jonathan Smoke, the Chief Economist of realtor.com, recently explained:
“The havoc during the last cycle was the result…of speculation fueled by loose credit. That’s the exact opposite of what we have today.”
2) The Housing Affordability Index, which measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home, based on the most recent price and income data. The current index shows that it is more affordable to buy a home today than at any other time between 1990 and 2008. With median incomes finally beginning to rise, houses should continue to remain affordable and housing demand should remain strong.
3) Home prices are well within historic norms. Prices have increased substantially over the last several years; However, those increases followed the housing crash of 2008 and national prices are still not back to 2006 levels. If there were no bubble (and subsequent bust), today’s prices would actually be lower than if they were measured by historic appreciation levels from 1987-1999.
4) Demand for housing, as measured by new household formations, is growing. The Urban Land Institute projects that 5.95 million new households will be formed over the next three years. Even if the homeownership rate drops to 60%, that would be over 3.5 million new homeowners entering the market.
5) New home starts are finally beginning to increase. This helps eliminate the number one challenge in the industry – lack of inventory. And it does so in two ways:
- Some first time buyers will, in fact, purchase a newly constructed home.
- Many current homeowners will move-up (or move-down) to a new construction and then put their current home on the market.
This means that there will be an increase in both new construction and existing home inventories.
30-year fixed mortgage rates hit three-year low
WASHINGTON (AP) – May 12, 2016 – Long-term U.S. mortgage rates fell this week for a third straight week, posting new lows for the year. The benchmark 30-year rate reached a three-year low.
The low rates come amid the spring home buying season, luring prospective purchasers.
Mortgage buyer Freddie Mac said Thursday the average 30-year fixed-rate mortgage dipped to 3.57 percent from 3.61 percent last week. It’s far below its level a year ago of 3.85 percent.
The average rate on 15-year fixed-rate mortgages eased to 2.81 percent from 2.86 percent last week.
Prices of U.S. government bonds have been at high levels since the Federal Reserve’s recent decision not to increase the benchmark interest rate – which it had raised from record lows in December. Some economists believe the Fed may not raise rates again until the second half of the year.
That means low levels for the bonds’ yields, which move in the opposite direction from their prices and tend to influence mortgage rates.
The yield on the 10-year Treasury bond stood at 1.73 percent Wednesday, down from 1.77 percent a week earlier. The yield rose to 1.75 percent Thursday morning.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.
The average fee for a 30-year mortgage was 0.5 point, down from 0.6 point last week. The fee for a 15-year loan was unchanged at 0.5 point.
Rates on adjustable five-year mortgages averaged 2.78 percent this week, down from 2.80 percent last week. The fee was steady at 0.5 point.
Courtesy of the AP
Linda Parvin Hutchinson, REALTOR 