It’s only natural that we begin to think more about the holidays in late October. Naturally we tend to avoid making critical financial decisions such as beginning the process of buying a home. In our view this strategy could lead to major regrets early next year. For borrowers who enjoy good to moderate credit, have at least 2 solid years of consistent work history, and possess enough liquid assets to put at least 3.5% down, a great opportunity for home ownership exists. Below we will discuss ten solid reasons to consider applying for a home loan now.
The most compelling of these reasons is that money is cheap. Mortgage rates have dropped to the lowest levels since last June. In general, the force behind this trend has been the escalation of bond prices since August due to the political uncertainty over budget and health care issues. The mortgage rate chart since 1970 resembles a child’s backyard slide with a steep drop from 1970 through the mid 2000’s ending with a flattening during the past 3 years. Mortgage outlays as a percentage of household income have never been lower. Qualified borrowers can lock in rates below 4 ½% yielding monthly payments that beat rental rates even before considering the income tax benefit.
The second most important reason to act now relates to the 2014 implementation of the Dodd-Frank act by the Consumer Financial Protection Board. After January 1, mortgages that do not meet new and drastically tightened underwriting requirements (i.e. higher down payments and lower debt ratios etc.) will be considered “non-qualified mortgages”. Banks who close these loans will be forced to retain 5% of the risk. Only the very largest banks are likely to entertain such risk resulting in decreased competition for mortgage loans. Less competition equals higher rates, higher fees and fewer borrowers who qualify. Under consideration by the CFPB is a new requirement of a minimum 30% down payment for all qualified mortgages. How many buyers of $150,000 homes have $45000-$50,000 to put down?
Thirdly housing prices across the nation are beginning to recover. In our Houston metro area houses priced fairly are not staying on the market long and discounts below asking price are rare. Sellers realize that they are going to “pay up” for their next house and are inflexible with their asking prices and closing concessions.
Houston has always been populated with a higher percentage of renters than many comparable cities. With 1200 people moving into Texas each day rental properties are scarce and expensive. It is true that new apartment complexes are being built all over our area but until mid-2014 demand will continue to out-pace supply. Rents are not going down anytime soon and there is no tax advantage to paying it.
Conventional loan programs are becoming more conservative. For the past several years Fannie Mae has approved 97% fixed rate loans to qualified borrowers at rates barely above those found when 20% down payments were made. This allowed borrowers with good credit but short on funds to close and avoid FHA programs with their up-front mortgage insurance premiums. This 97% Fannie Mae program is being dropped in November. The minimum down payment for a conventional loan will then be 5% until January.
Tax benefits of home buying are always a consideration. Closing a new home loan before January 1 allows borrowers to file a homestead exemption with local tax authorities. Additionally many tax payers who historically filed a short form can realize the benefit of itemizing deductions if they close in 2013.
Builder inventories need to be reduced by the end of the year. This always incentivizes builders to offer upgrades and discounts not available before the fourth quarter in most years.
Currently there is a healthy inventory of ‘For Sale By Owner’ properties. These sellers are saving real estate commission fees at closing and normally have up to 3% room in their pricing. These listings can normally be found online. Buyers who recruit an agent representative are normally able to work most effectively with FSBO sellers.
There is a temporary lull in demand by investors during the 4th quarter. Labor availability for rehabbing properties drastically decreases this time of year resulting in softer pricing for starter-type homes. Investors do not want vacant unfinished projects and tend to wait until the labor migration returns in January to bid up the market again.
The ripple effects of the government shutdown are making certain aspects of the loan process easier. Underwriters have temporarily eased certain requirements that normally demand government validation. Such things as income and employment verifications have been temporarily replaced with more efficient “work- arounds” thus speeding the entire loan cycle time.
We feel that these facts present a very compelling case for house hunting during this period before Thanksgiving. Loans should take no more than 30 days from application to closing. We recommend that anyone with the slightest inclination toward home ownership act today.
Now that a temporary solution reopening the government has been approved, mortgage rates appear to be headed for slightly lower levels at least through the end of 2013. The opposing forces are as follows:
Rates will not drop to the levels seen in April of this year simply because the economies in the US and Europe are moderately improved. As an example, Italian bond prices have stabilized and US housing prices are improving. Additionally, the Federal Open Market Committee is not supporting Treasury bond prices at the same levels seen in April. These fundamentals will likely prevent large bond price increases, at least for the next 60 to 90 days.
Supportive of lower rates is the hope that by “kicking the budgetary can down the road” once again, time has been purchased to reach an equitable solution to the economic impasse. It is our belief that bond traders continue to mistrust politicians but at least the temporary time out will allow them to trade their positions with more confidence. In the past 2 days (since the resolution was passed) bond traders have shown willingness to trade above the narrow range seen during the shutdown. This suggests that bond prices will remain higher until another major economic event occurs.
Finally, now that the government is working again, the publishing of economic indicators such as the non-farm payroll report can be resumed. Traders are confident that when these reports are issued next week they will reflect negative values. This will negatively impact stock market prices and strengthen bond prices.
When the smoke clears we think that mortgage rates will improve very slightly through the end of the year. They will not test the all-time lows seen in April however. We believe that intra-day bond price volatility will moderate as well. Mortgage seekers are being given more time to ponder their decisions. In other words, it’s ok to shop but be certain to lock in your rate by the end of December.
During the past 2 weeks mortgage rates have remained unchanged owing to a great deal of uncertainty about the future direction of our economy. With the political deadlock in Washington and the distinct possibility that the U.S. could soon default on its debt obligations, bond traders are unwilling to deal at values outside of a very narrow range. Ironically, daily trading volatility has been high, but at the end of each day bond yields are largely unchanged. It is rather like a herd of cattle running furiously about the pasture, but unwilling to break through the gate.
A resolution (or the hint of a possibility of one) to the stalemate in Washington will likely cause bond prices to quickly deteriorate. Rates will increase dramatically when this occurs. If no solution is negotiated and interest payments on our debt are missed, the damage to our economy will be severe and bond prices will either hold steady or increase. If this is indeed the case, lenders will likely tighten guidelines or back away from mortgage lending entirely.
These fundamentals have the potential to impact the economy far more than any in recent history. Therefore, traders are simply unwilling to take positions outside of the narrow trading range seen in the past two weeks until “the smoke clears”.
The fact remains that mortgage rates remain very favorable, at least for now. Lenders are making significant underwriting policy concessions to keep good loans moving through their pipelines despite the roadblocks that the government shutdown is causing. FHA, VA, USDA and reverse mortgages are being underwritten and closed. Our message for anyone with even a remote interest in home ownership is to act now rather than wait until after the politicos have pushed the economy in a new direction. Take action by getting approved, finding a new home and making a great deal for the family.
This week mortgage rates are continuing their slow decline that began last Wednesday (9/18) after the Fed announced that “tapering” the purchase of mortgage-backed securities and treasury bonds would be delayed for the foreseeable future.This announcement spurred a record breaking increase in bond prices which lowered mortgage rates by 1/4% to 3/8% in most lending shops.
This week, several key fundamentals are driving bond prices slightly higher.The looming government shut-down over the political battle to increase the budget limit and fund the Affordable Care Act is the central issue.If it appears that a compromise is in the offing, bond prices will retreat and mortgage rates will increase.Several regional Federal Reserve heads (some voting members) are due to add their comments this week on the tapering issue.Elections are being held in Germany this week which could impact the direction of the European Union and ultimately German support of the Euro.If the elections support the Euro, U.S. treasuries prices will soften and their rates could increase.Finally, treasury auctions are scheduled and the market will digest the relative values as either supportive of higher prices or of higher rates.
Technically, the 100 day moving average ($104.14) of the 4.0, 30 year FNMA coupon has been exceeded.During the past four months this resistance level was tested three times.In all three cases buyers refused to make offers above it.This morning they have relented and are paying 10-15 bps above that level.This is good news for mortgage seekers.
A real “shot in the arm” was given to mortgage seekers today as the Federal Open Market Committee announced that they had abandoned the idea of “tapering”. In other words, the fed will continue to purchase treasury bonds and mortgage backed securities at the same rate they have in the recent past. Both the stock and bond markets rallied on the news as it was widely anticipated that purchases were to be reduced by $10 billion per month going forward. Bond traders submitted offers at rates above the recent resistance levels. Mortgage rates are better (lower) this afternoon by 1/8th to ¼% for most qualifying programs.
This gives refinance procrastinator’s one last chance to lock in exceptional rates. It gives low income first time buyers another opportunity to qualify for their first closing. It gives lifelong renters another reason to plan for ownership. These low rates are making one last curtain call. It is time to lock them in.
Many luxury home buyers may not be aware of all the financing options available for loan amounts considered to be “non-conforming”. Non-conforming means that the loan amount (in Texas) exceeds $417,000. These are considered “Jumbo” programs which normally require higher credit scores, larger down payments, and interest rates that exceed conforming loans by ½% -1%. On a selling price of $1,500,000 the jumbo applicant generally expects to put 25% down ($375,000) for a 30 year fixed rate above 5 ½ %. This buyer’s payment would be $6387.63 before taxes and insurance escrows. Additionally, no buyer need apply if their credit score falls short of 740.
Better jumbo options are available with AmeriPro Funding Home Loan Specialists Team such as:
• With loan amounts from $417,000 to $750,000, 90% loans are available
• 85% loans are available for credit scores above 720
• 80% loans for credit scores as low as 680 can be closed for amounts up to $900,000
• 80% loans can be closed up to $1,350,000 with credit scores above 720
• Jumbo loans to $2,000,000 are available
• 10 year Interest only jumbo loans are available amortized over 30 years
• Loans to $1,500,000 are available for vacation homes
• Non-permanent resident aliens can qualify for jumbo loans
• Up to $500,000 cash can be carried in hand after closing a jumbo home equity loan
• No jumbo loans carry mortgage insurance
In our example above, the applicant could close a 5 year adjustable rate at 3.5% with a payment of $5051.75 saving over $1300 per month or close a 10 year adjustable at 4.75% with a payment of $5868.53 saving over $500 per month.
Please contact us at 832-286-1591 for a more creative way to finance your luxury home in Texas.
Mortgage backed securities are currently trading at the lowest levels of the year. As a result, mortgage rates are continuing the upward trend that began in early May. Mortgage rates for fixed programs are approximately 1% higher than they were during October 2012. The main fundamental reason for this trend is the increasing belief that the government’s quantitative easing program will come to end shortly. Hence the demand for mortgage backed securities will erode very quickly and prices will take a steep dive while rates skyrocket.
Other influences are the lack of alarming economic news from the European Union. When it appeared that several European countries were headed for bankruptcy, investors rejected Euro-backed fixed income securities and bought US Treasuries heavily resulting in low mortgage rates throughout 2012.
Economic reports have been consistently supportive of a strengthening economy this summer. This has pushed cash that was sitting on the sidelines back into equities and away from bonds; hence a third reason for higher mortgage rates.
We have seen the end of super-low mortgage rates and refinance activity has disappeared. Housing demand is strong especially in the energy corridor. Housing inventories are critically low in our trade area along the Gulf Coast. We never suggest to our clients that they participate in panic buying, but we firmly believe that rates will not retract for the foreseeable future.