2008 was the year of the foreclosure when we saw record numbers of defaulted home loans and people simply walking away from their homes. 2009 was the year of refinance with interest rates hovering at insanely low rates in the low to mid 4% range. 2010 appears to be the year of the home purchase.
The Federal “First Time Homebuyer Tax Credit” program was extended until the end of April and already this stimulus seems to be having the desired affect on depressed housing markets across the country. Locally, this program continues to encourage first time home buyers to jump into the market. And with the addition of the $6,500 tax credit for subsequent home buyers the hope is that the housing market will be more brisk, at least for the first half of 2010.
What shape is your financial house in? Until just a few months ago the best home loans required a minimum credit score of 720. Most lenders now require a minimum score of 740 for the best rates. And for folks who have these scores need to be prepared to provide their lender with more documentation than ever. Higher credit scores will still open the door to the lowest interest rates, but before the lender will let you have the rates, even people with ultra high scores will be required to provide more documentation than ever before.
The days of the no-doc or low-doc home mortgages are gone. Borrowers with high credit scores used to be able to “state” the income they made and still get great rates. Not any more. Borrowers with scores in the 800’s are now required to validate every dollar of income and assets before being approved for a home loan.
Your credit scores may be fine, but what is your debt to income ratio? An easy way to discover this number is to add up all the monthly payments showing on your credit report and divide that number by your gross monthly income. If that is above 40% that could limit the amount the lender is willing to extend to you.
What about a down payment? In the housing hey-day, home buyers routinely put nothing down to buy their home. 100% single loans were an every day happening. Other buyers stacked piggy-back loans to avoid mortgage insurance. Now in all but a few instances, 100% financing is gone. Lenders require most home buyers to bring a minimum down payment to closing. FHA still requires a relatively small 3.5% down payment and many lenders still require a minimum credit score of 620 to qualify.
Other conventional financing may have slightly lower interest rates, but also require a more substantial down payment of 10% or more. For those home buyers who are “rolling over” the equity from their existing home, this won’t be an issue.
The down payment hurdle can be made easier by the generosity of family who, in certain circumstances, can “gift” that amount to other family members purchasing a home. The gift must come from a bone-fide family member who must also sign a letter declaring the money to be a gift with no repayment required. Check with your own lender for the specifics of the gifting of down payment monies.
Is the timing right for you to buy? If you are considering the purchase of your first home you should plan on owning that home for at least three to five years. Some experts believe that housing prices still have a way to fall before they turn around. Our local market doesn’t seem to support this concern, but just to be on the safe side, it would be wise to buy the home only if you plan on living there for at least three to five years.
If your plan is to buy a home, fix it up and sell it within a year or less, you had better find the right house for the right price and know what you’re doing. Even the pro’s in years past who made their living “flipping” houses aren’t doing much of this type home buying.
Friday, January 8, 2010
What
2008 was the year of the foreclosure when we saw record numbers of defaulted home loans and people simply walking away from their homes. 2009 was the year of refinance with interest rates hovering at insanely low rates in the low to mid 4% range. 2010 appears to be the year of the home purchase.
The Federal “First Time Homebuyer Tax Credit” program was extended until the end of April and already this stimulus seems to be having the desired affect on depressed housing markets across the country. Locally, this program continues to encourage first time home buyers to jump into the market. And with the addition of the $6,500 tax credit for subsequent home buyers the hope is that the housing market will be more brisk, at least for the first half of 2010.
What shape is your financial house in? Until just a few months ago the best home loans required a minimum credit score of 720. Most lenders now require a minimum score of 740 for the best rates. And for folks who have these scores need to be prepared to provide their lender with more documentation than ever. Higher credit scores will still open the door to the lowest interest rates, but before the lender will let you have the rates, even people with ultra high scores will be required to provide more documentation than ever before.
The days of the no-doc or low-doc home mortgages are gone. Borrowers with high credit scores used to be able to “state” the income they made and still get great rates. Not any more. Borrowers with scores in the 800’s are now required to validate every dollar of income and assets before being approved for a home loan.
Your credit scores may be fine, but what is your debt to income ratio? An easy way to discover this number is to add up all the monthly payments showing on your credit report and divide that number by your gross monthly income. If that is above 40% that could limit the amount the lender is willing to extend to you.
What about a down payment? In the housing hey-day, home buyers routinely put nothing down to buy their home. 100% single loans were an every day happening. Other buyers stacked piggy-back loans to avoid mortgage insurance. Now in all but a few instances, 100% financing is gone. Lenders require most home buyers to bring a minimum down payment to closing. FHA still requires a relatively small 3.5% down payment and many lenders still require a minimum credit score of 620 to qualify.
Other conventional financing may have slightly lower interest rates, but also require a more substantial down payment of 10% or more. For those home buyers who are “rolling over” the equity from their existing home, this won’t be an issue.
The down payment hurdle can be made easier by the generosity of family who, in certain circumstances, can “gift” that amount to other family members purchasing a home. The gift must come from a bone-fide family member who must also sign a letter declaring the money to be a gift with no repayment required. Check with your own lender for the specifics of the gifting of down payment monies.
Is the timing right for you to buy? If you are considering the purchase of your first home you should plan on owning that home for at least three to five years. Some experts believe that housing prices still have a way to fall before they turn around. Our local market doesn’t seem to support this concern, but just to be on the safe side, it would be wise to buy the home only if you plan on living there for at least three to five years.
If your plan is to buy a home, fix it up and sell it within a year or less, you had better find the right house for the right price and know what you’re doing. Even the pro’s in years past who made their living “flipping” houses aren’t doing much of this type home buying.
The Federal “First Time Homebuyer Tax Credit” program was extended until the end of April and already this stimulus seems to be having the desired affect on depressed housing markets across the country. Locally, this program continues to encourage first time home buyers to jump into the market. And with the addition of the $6,500 tax credit for subsequent home buyers the hope is that the housing market will be more brisk, at least for the first half of 2010.
What shape is your financial house in? Until just a few months ago the best home loans required a minimum credit score of 720. Most lenders now require a minimum score of 740 for the best rates. And for folks who have these scores need to be prepared to provide their lender with more documentation than ever. Higher credit scores will still open the door to the lowest interest rates, but before the lender will let you have the rates, even people with ultra high scores will be required to provide more documentation than ever before.
The days of the no-doc or low-doc home mortgages are gone. Borrowers with high credit scores used to be able to “state” the income they made and still get great rates. Not any more. Borrowers with scores in the 800’s are now required to validate every dollar of income and assets before being approved for a home loan.
Your credit scores may be fine, but what is your debt to income ratio? An easy way to discover this number is to add up all the monthly payments showing on your credit report and divide that number by your gross monthly income. If that is above 40% that could limit the amount the lender is willing to extend to you.
What about a down payment? In the housing hey-day, home buyers routinely put nothing down to buy their home. 100% single loans were an every day happening. Other buyers stacked piggy-back loans to avoid mortgage insurance. Now in all but a few instances, 100% financing is gone. Lenders require most home buyers to bring a minimum down payment to closing. FHA still requires a relatively small 3.5% down payment and many lenders still require a minimum credit score of 620 to qualify.
Other conventional financing may have slightly lower interest rates, but also require a more substantial down payment of 10% or more. For those home buyers who are “rolling over” the equity from their existing home, this won’t be an issue.
The down payment hurdle can be made easier by the generosity of family who, in certain circumstances, can “gift” that amount to other family members purchasing a home. The gift must come from a bone-fide family member who must also sign a letter declaring the money to be a gift with no repayment required. Check with your own lender for the specifics of the gifting of down payment monies.
Is the timing right for you to buy? If you are considering the purchase of your first home you should plan on owning that home for at least three to five years. Some experts believe that housing prices still have a way to fall before they turn around. Our local market doesn’t seem to support this concern, but just to be on the safe side, it would be wise to buy the home only if you plan on living there for at least three to five years.
If your plan is to buy a home, fix it up and sell it within a year or less, you had better find the right house for the right price and know what you’re doing. Even the pro’s in years past who made their living “flipping” houses aren’t doing much of this type home buying.
Wednesday, December 30, 2009
Lock or Float Your Interest Rate?
When it comes to guessing the best time to lock in a mortgage interest rate, I’ve seen easier games on the carnival midway. Hitting everything just right so as to capitalize on the best rates and costs is not impossible, but it can be quite daunting in today’s volatile market.
Before the recent downturn in the real estate industry, the movement of mortgage rates was relatively easy to predict. But now the key indicators that once predicted the movement of mortgage interest rates are not as closely linked to the actual rates on any given day. Making it further difficult to predict, rates may fluctuate by 25 or 30 basis points in a few hours or a few days. Even the experts confess to having greater difficulty giving advance notice of rate movements.
Interest rates are usually locked for 30 to 45 days, depending on the time stipulated in the purchase contract. At the same time, rate locks are available for 60 and 90 days while some lenders offer locks up to 180 days. Borrowers can expect to pay a premium for longer lock periods, and these prices can very widely between lenders. Most lenders require that the loan be locked between 7 and 15 days before closing.
First, Find a Home. Most lenders require an address to lock a loan. This is one way the lender knows the borrower is serious about actually purchasing their financing. When the rate is locked, the lender is committing their money to you at that price. Once that amount of money is committed, they can’t use it to secure someone else’s financing. So, lenders take rate locks very seriously.
Second, Track the Time. The average purchase contract is written for 30 days. But if your situation is different, you need to make certain that your rate lock won’t expire before your scheduled closing date. In fact it’s a good idea to check with your lender the seven days prior to closing just to make sure your loan will close before the rate expires. If there is a question about this, request a rate extension.
Third, Bank the Benefit and Sever any Surprises. Most borrowers find a rate they can live with and lock it in. This way, they know what their monthly payment will be and can budget for it. Further, they simplify their home buying experience by limiting the number of distractions they have while waiting to close.
There are still some buyers who can’t resist the urge to “play the market” and they will choose not to lock their rate but instead “float” it hoping for a market improvement and a lower rate. What they hope for is a dramatically lower rate. In the best real life scenario what they actually receive is a slightly lower rate, perhaps as much as .125%. Unfortunately in many cases the rate actually increases by the same 1/8th of a percentage point. You win some, you lose some. This is why most borrowers choose to lock their rate instead of float.
Having said all of this, some lenders offer a “float down” option for their interest rates. This option (usually accompanied by a fee…of course) allows the borrower to re-lock at a lower rate, should rates drop by a specified amount during the time their loan is in processing.
Fourth, Follow the Fed. Earlier this year the Federal Reserve announced plans to buy up more than $1 Trillion in mortgage-backed securities. The reason this is so important is because interest rates on fixed-rate mortgages are determined by mortgage-backed securities that are traded on the bond market. When demand for these instruments goes up, fixed interest rates drop, and vice-versa. This promise by the Fed has helped keep rates lower throughout the last few months of the year.
It is not certain what the Fed will do after the first of the New Year. What could happen (emphasis on the could) is that the market for mortgage backed securities could shrink a bit driving down the demand and causing rates to rise.
Before the recent downturn in the real estate industry, the movement of mortgage rates was relatively easy to predict. But now the key indicators that once predicted the movement of mortgage interest rates are not as closely linked to the actual rates on any given day. Making it further difficult to predict, rates may fluctuate by 25 or 30 basis points in a few hours or a few days. Even the experts confess to having greater difficulty giving advance notice of rate movements.
Interest rates are usually locked for 30 to 45 days, depending on the time stipulated in the purchase contract. At the same time, rate locks are available for 60 and 90 days while some lenders offer locks up to 180 days. Borrowers can expect to pay a premium for longer lock periods, and these prices can very widely between lenders. Most lenders require that the loan be locked between 7 and 15 days before closing.
First, Find a Home. Most lenders require an address to lock a loan. This is one way the lender knows the borrower is serious about actually purchasing their financing. When the rate is locked, the lender is committing their money to you at that price. Once that amount of money is committed, they can’t use it to secure someone else’s financing. So, lenders take rate locks very seriously.
Second, Track the Time. The average purchase contract is written for 30 days. But if your situation is different, you need to make certain that your rate lock won’t expire before your scheduled closing date. In fact it’s a good idea to check with your lender the seven days prior to closing just to make sure your loan will close before the rate expires. If there is a question about this, request a rate extension.
Third, Bank the Benefit and Sever any Surprises. Most borrowers find a rate they can live with and lock it in. This way, they know what their monthly payment will be and can budget for it. Further, they simplify their home buying experience by limiting the number of distractions they have while waiting to close.
There are still some buyers who can’t resist the urge to “play the market” and they will choose not to lock their rate but instead “float” it hoping for a market improvement and a lower rate. What they hope for is a dramatically lower rate. In the best real life scenario what they actually receive is a slightly lower rate, perhaps as much as .125%. Unfortunately in many cases the rate actually increases by the same 1/8th of a percentage point. You win some, you lose some. This is why most borrowers choose to lock their rate instead of float.
Having said all of this, some lenders offer a “float down” option for their interest rates. This option (usually accompanied by a fee…of course) allows the borrower to re-lock at a lower rate, should rates drop by a specified amount during the time their loan is in processing.
Fourth, Follow the Fed. Earlier this year the Federal Reserve announced plans to buy up more than $1 Trillion in mortgage-backed securities. The reason this is so important is because interest rates on fixed-rate mortgages are determined by mortgage-backed securities that are traded on the bond market. When demand for these instruments goes up, fixed interest rates drop, and vice-versa. This promise by the Fed has helped keep rates lower throughout the last few months of the year.
It is not certain what the Fed will do after the first of the New Year. What could happen (emphasis on the could) is that the market for mortgage backed securities could shrink a bit driving down the demand and causing rates to rise.
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