New Home Loan Requirements Getting Stricter for Would Be Buyers

Home Loan Requirements Purchasing homes with all cash may be the trend that continues as new home loan requirements become more strict.

However, for those buyers who do need to purchase a home with a loan, expect to see some changes in the loan requirements as the new year rings in.

New Home Loan Requirements

Here are a just a few of the changes that are going into effect in January 2014. Some of these requirements are already in place by lenders.

The new guidelines are being implemented under The Consumer Financial Protection Bureau’s Qualified Mortgage (QM) and are designed to help avoid the borrowing catastrophes that caused the housing crisis. The guidelines are what the lenders use to prove borrowers’ ability to repay a loan.

One of the guidelines is borrowers must have a maximum debt-to-income ratio of 43 percent. Debt-to-income ratios have been in place but the new rules won’t allow for any compensating circumstances. That means that not even a significant down payment or a large cash reserve will be allowed to offset a higher debt ratio.

The incentive to follow these guidelines is huge for the lender. If the mortgages don’t meet the QM guidelines then the lender will be required to hold the loan as opposed to being sold to Fannie Mae and Freddie Mac.

The QM requirements potentially may have lower loan limits for conventional conforming loans. The agency that regulates Fannie Mae and Freddie Mac, The Federal Housing Finance Agency, will delay it’s normal adjustment of loan limits from January 1, 2014 to sometime later in the year. The agency is trying to see what kind of impact the new QM guidelines will have on the housing industry. For most housing markets, the current limits are $417,000 and up to $625,000 in high cost areas. How these figures will change remains to be seen in 2014.

Fee origination fees will be limited under the QM requirements which could make getting a smaller loan more difficult. Originating loan fees will be limited to no more than 3 percent of the loan amount. This could make mortgage lenders less likely to offer smaller loan amounts because they may not always be able to recoup their costs and make a profit.

The self-employed borrowers will also face tougher requirements with the new QM rules. These borrowers already face tough standards and they’ll likely be even more strict in 2014. In the QM guidelines, all borrowers must prove there is sufficient cash flow to make payments on their loan but self-employed borrowers’ incomes typically fluctuate. These borrowers frequently have cash reserves that they rely on to pay bills when the income is off in a particular month. However, even if there is a large amount of money in reserve, this may still be difficult for the self-employed borrower to get a loan approved due to this new “ability-to-repay” QM guideline.

We can expect to see changes in the loan approval process as the new year begins. However, some of the specific requirements may not be determined until later in 2014.

If you are considering buying a home in the Metro Phoenix, take advantage of Debra Obrock’s 25+ Years Exemplary Service as a Real Estate professional in the Valley of the Sun.
Call Debra: 480 688-2000 or start your search on her web site.

 

Mortgage Rates at Nine Week Low

Fixed mortgage rates downward CroppedAverage fixed mortgage rates fell following the Federal Reserve announcement that it will maintain its bond buying stimulus helping to keep home buyer affordability elevated according to Freddie Mac’s results of its Primary Mortgage Market Survey®. The average rate on the 30-year fixed mortgage is at its lowest level since the week ending July 25, 2013.

  • 30-year fixed-rate mortgage (FRM) averaged 4.32 percent with an average 0.7 point for the week ending September 26, 2013, down from last week when it averaged 4.50 percent. A year ago at this time, the 30-year FRM averaged 3.40 percent.
  • 15-year FRM this week averaged 3.37 percent with an average 0.7 point, down from last week when it averaged 3.54 percent. A year ago at this time, the 15-year FRM averaged 2.73 percent.
  • 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.07 percent this week with an average 0.5 point, down from last week when it averaged 3.11 percent. A year ago, the 5-year ARM averaged 2.71 percent.
  • 1-year Treasury-indexed ARM averaged 2.63 percent this week with an average 0.4 point, down from last week when it averaged 2.65 percent. At this time last year, the 1-year ARM averaged 2.60 percent.

These low rates should somewhat offset the house price gains seen the last number of months and keep housing affordability elevated.

If you are qualified to purchase a home, contact a Realtor and start shopping now. And, if you’re shopping in the Metro Phoenix area, give me a call at 480 688-2000– I pick out great homes!

Does An Interest-Only Mortgage Make Sense?

Interest-only mortgage What exactly does an “Interest-Only Mortgage” type of mortgage mean and how does it work?

Usually when you take out a loan, you must pay back the capital debt (the amount you borrowed) and the interest on that debt. An interest-only mortgage offers a cheaper option for purchasing a property, because you will only be making payments on the interest and not the capital.

Compared to a repayment style mortgage where you are paying down the principle of the loan, an interest-only mortgage will have much lower monthly payments.

However, when you reach the end of the mortgage term with an interest-only mortgage, you will not have paid off any of the original principle of the loan. This means that you will still not be any closer to owning the home than when you started, whereas with a repayment mortgage you would be in full possession of the property.

You will reach the end of the loan term, still owing the lender $250,000 or whatever the value of the house was. Also, if you do not pay off that lump sum at that point, the lender will charge you interest on the entire loan for the full time.

Best Scenario for Interest-Only Mortgage

From the description of how it works, it seems like there would never be a good situation for taking out an interest-only mortgage. However, if you are stretched financially and you are desperate to get onto the property ladder it might be a viable option. Some people take on an interest-only mortgage so that they can buy their first home, then when their income goes up they switch to a repayment mortgage.

These types of mortgages are often used by buy-to-let investors, who are able to claim their tax back against the mortgage interest. If this is your goal, you might find this strategy advantageous.

If you are qualified to purchase a home, contact a Realtor and start shopping now. And, if you’re shopping in the Metro Phoenix area, give me a call at 480 688-2000– I pick out great homes!

What Is Private Mortgage Insurance?

mortgage insurance If you are purchasing a home and have a down payment of 20% or less, the Lender will require you to have Private Mortgage Insurance.

Private Mortgage Insurance Defined

PMI is required by lenders if the down payment of a purchase is less than 20 percent of the home’s value. It protects the lender if the borrower defaults on the loan.

It also makes the lender more apt to loan, even if the down payment is as low as 3%, because in the long run, the lender’s investment is protected.

You Pay For It

Unlike other types of insurance which you pay to protect your interest in an asset, you pay Private Mortgage Insurance to the mortgage company to protect its interest in your new real estate. (Note that PMI is not usually tax deductible. Check with a tax professional for details.)

Make It Go Away: PMI Can Be Terminated Once You’ve Paid Down Your Loan

Once you pay down your mortgage to the point where it hits the magical 80% of the original purchase price or appraised value, whichever is less, you can request cancellation of PMI. The Homeowners Protection Act requires that loans made after 1999 include notifications to the borrower when you arrive at this point in your payments.

Your PMI payments must be automatically canceled once you pay down your loan to 78%. At closing, and on a yearly basis, you should receive information from your lender about when you can request cancellation.

Whether you’re ready to buy real estate or need more information before taking the plunge, I can help. Contact your trusted real estate professional today.

What Type of Mortgage Fits Your Budget

Type of Mortgage  Many of us will own our homes for a long time, and the type of mortgage you choose when we apply for a loan on our home may impact our finances over the years.

How do you determine which type of mortgage makes sense for you? You need to consider factors such as how much money you have available for a down payment, your credit standing, and whether your personal circumstances will allow you to qualify for any type of specialty loan. Find out about the  type of mortgage that will suit you best over the years of owning your home.

 What Type of Mortgage Will Suit You Best?
  • Adjustable-rate mortgages, or ARMs, feature a changing interest rate, which will affect the size of your monthly payments as the rate increases or decreases, depending on market conditions. Often, these rates adjust upward, meaning increasing monthly payments. While they may offer an attractive rate at the outset, it’s important to be aware that you will need to plan for potential rate increases.
  • Fixed-rate mortgages feature an interest rate that is locked in at the time that the mortgage is obtained. With a fixed interest rate, the borrower can be assured that monthly payments will be stable for the life of the loan.
  • Conventional mortgages are not guaranteed by the government. They are private loans that do not rely on any government backing.
  • Government loans, such as the FHA loan and VA loan are guaranteed by government-sponsored insurance. An FHA (Federal Housing Administration) loan is secured through a private lender, but insured by the FHA so that if a borrower defaults, the lender will still see repayment from the government. A VA loan (which is managed by the Department of Veteran Affairs) is available to members of the military service and their families. An advantage of FHA and VA loans is that they usually require less or no money down.
  • Jumbo loans are loans that are valued at an amount higher than the standard conforming loan limits set by Fannie Mae and Freddie Mac. These loans, due to their higher risk, usually carry a higher interest rate than loans that conform to standard limits. They are generally used to purchase luxury properties.

There are other specialty loans available to certain types of home buyers. Depending on your situation, you may wish to look into a construction loan, a bridge loan, or a reverse mortgage. Your mortgage specialist will have information on specialty loans that he or she can share with you.

Whatever loan you apply for, it is a good idea to get pre-approved by your lender in order to have a sense of likely financial backing when you make an offer on a new home. If you have questions about your eligibility for certain types of loans, an established mortgage broker can help point you in the right direction to obtain the home mortgage that is right for you.

Call Debra for a referral of a Loan Specialist: 480 688-2000.

 

Don’t Make These Common Mortgage Mistakes

Mortgage MistakesMortgage mistakes can be costly.  Keep in mind that a mortgage is a major financial decision and choosing one will have a significant impact on the rest of your life.

Many people go into this decision without understanding all of the essential mortgage information they need to know. This means that they may not make the best choices which could result in paying much more than they need to.

Common Mortgage Mistakes

Trying To Time The Mortgage Interest Rate Market

Many people will wait too long to make a decision to lock in their mortgage rate, trying to wait until they think that the rates have hit bottom. However, unfortunately most of the time this leads them to wait too long and end up with a higher interest rate.

If you are waiting things out, keep a very close eye on the economic indicators. Better yet, your trusted mortgage professional would be a good source of information about the fluctuations of interest rates.

Forgetting About Closing Costs

In addition to saving up a down payment for your mortgage, don’t forget to factor in the closing costs. These can range from two percent all the way up to six percent of the value of your home.

Make sure that you have budgeted for this in advance, so that these fees don’t catch you by surprise.

Not Considering All Loan Options

There are many people out there who haven’t considered certain loan products, such as an adjustable rate mortgage, because they just don’t understand how they work. However, you might be missing out on an option that would really work well for you.

Make sure you do your research and gain an understanding of the loan options available to you.  Ask your loan officer for guidance in this area.

Looking At Just The Mortgage Rate

Remember that the mortgage interest rate is only one factor that you should consider when choosing a mortgage. Don’t forget to also consider the time frame of the mortgage closing, any restrictions on lump sum payments and any other important factors.

Following these steps will help you avoid a few of the common mistakes people make when choosing a mortgage.

For more information about home buying and mortgages,
contact Debra at: (480) 688-2000 for a referral to her Loan Specialist.

Fed Delivers Good News for Mortgage Rates

Federal Reserve Bank There was good news for mortgage rates on Wednesday as the Fed’s Federal Open Market Committee (FOMC) announced that its quantitative easing (QE) program would remain unchanged for the present.

Economists expect the Fed to begin tapering the amount of QE toward the end of the year in accordance with Chairman Ben Bernanke’s previous statements that “tapering” would likely begin near year-end.

No specific date for reducing the QE assets purchases was given.

Chairman Bernanke has previously indicated that the Fed will closely review domestic and global economic developments as part of its decision-making process for changing the QE program. Wednesday’s FOMC statement reaffirmed this plan.

Good News for Mortgage Rates

Fed Cites Economic Expansion and Improving Labor Conditions

The FOMC statement cited modest economic expansion, improving labor markets and continued high unemployment levels as a basis for continuing its current level of QE.

The Fed’s mandate requires it to support price stability and low unemployment; reversals in these or other economic areas could cause the Fed to continue its QE at present levels. At present, economists expect QE to end in mid-2014.

The FOMC statement also indicated that the target federal funds rate will remain between 0.00 and 0.25 percent at least until the national unemployment rate falls to 6.50 percent. Chairman Bernanke did not give a press conference after Wednesday’s statement was released.

Quantitative Easing: Monthly Purchase of MBS, Treasury Securities Intended to Control Mortgage Rates

The Fed currently purchases $40 billion in mortgage-backed securities (MBS) and $45 billion in Treasury securities monthly. These purchases are intended to control long-term interest rates including mortgage rates.

When the Fed begins tapering and eventually concludes these asset purchases, demand for MBS and Treasury securities are expected to fall and their prices will likely fall as well. When prices for bonds include MBS fall, mortgage rates traditionally rise.

With mortgage rates recently moving up, reducing the level of the Fed’s QE asset purchases is cause for concern. Higher mortgage rates make homes less affordable; the combination of rising home prices and mortgage rates presents challenges for first-time home buyers and others without sufficient funds for meeting higher down payments and monthly mortgage payments.

First Time Buyers, Boomerang Buyers would be wise to move up their plans to purchase a home while there is still time to lock in a good mortgage rate.  Don’t take the gamble of waiting only to find out the home you want may not be affordable.

Call Debra Obrock today at (480) 688-2000
for some good solid advice about how to
approach home buying in this Hot Sellers market.

How To Prepare For Your Mortgage Application

Mortgage ApplicationBegin to prepare for your mortgage application by gathering up all of the needed documents in advance before launching your house hunt, as this will make the application process a lot easier.

The housing bust has resulted in much harder lending standards, which means that it could possible take weeks or sometimes even months to secure a loan. Being prepared will help speed up the process and lessen some of the stress that accompanies purchasing a home.

Here are a few important steps to take in preparing for your Mortgage Application

Consider What You Can Really Afford

Before you start the entire house hunting and mortgage application process, you should consider what you can really afford to buy.

It might be tempting to buy a house at the upper end of your price range, but consider the fact that it will be more of a struggle to make your mortgage payments and it will take much longer to pay down the mortgage. Assess your finances and be honest with yourself.

Buying a home that is more comfortably within your price range will ensure that you can easily manage your monthly budget over the years.

Save Up A Down Payment

The bank will want to see that you are able to make a down payment of at least 20% of the value of the home.

In order to save up this amount of money, it will be easier if you start in advance and save a small amount every month. The more you can pay for a down payment, the less your mortgage will be and the more money you will save over the length of the loan.

Do Your Research

Take your time to do lots of research in advance and seek out impartial advice on the mortgage market. There are so many options to choose from and a lot to consider, so the more knowledge you have the more prepared you are to make an informed decision.

Consider Your Credit

Before applying for a mortgage loan, you should take a look at your credit report.

Your lender will look at it when you are making an application and they will use it to consider whether or not to offer you the loan and what type of interest rate to give you. If you spot any errors or issues with the credit report, it is a good idea to get them fixed now before you apply.

These are just a few things to consider before applying for a mortgage application.

Give Debra Obrock a call If you need a recommendation
of a Mortgage Loan specialist
(480) 688-2000

3 Simple Ways To Get Your Home Mortgage Paid Faster

Pay off mortgage Paying off the mortgage on your home faster means that you will not only have the satisfaction of owning your own home sooner, you will also have the benefit of paying much less in interest over the years.

The faster you pay off your mortgage, the more money you can save, so here are some tips to accelerate your payment schedule.

Pay Your Mortgage Every Other Week (Bi-Weekly)

Did you know that if you take your monthly mortgage payment and divide it in half and then pay it every two weeks that you will end up making a full extra month of payments every year? This is called a bi-weekly payment program which has been around for a long time, and it’s still a good idea today!

You likely won’t notice the difference since the extra half payments occur in long months with bigger paychecks, but over the years this will end up saving you thousands of dollars in interest payments.

Make a Bigger Monthly Payment

Similar to the bi-weekly payment plan above, you can accomplish the goal by dividing your principal and interest portion of your payment by 12 and then adding that amount to your regular monthly payment.  You will be paying that extra payment every year, but spacing it out over each monthly payment.

Most homeowners using this tactic can shorten their term by up to seven years.

Put Any Windfall Toward the Mortgage

Was your tax rebate larger than you expected? Have you received an inheritance from your great aunt Thelma? Have you won a cash prize in a contest?

Put any unexpected chunks of cash straight toward your mortgage instead of spending them. This won’t affect your budget at all, because you were never expecting or counting on that money in the first place. But once again, it can make a huge difference in the overall amount of interest that you pay on your mortgage loan.

However, keep in mind your particular situation. Spending every last penny paying off your mortgage as quickly as possible might not be the best option for you if you have no emergency savings fund or if you have a credit card languishing with high interest debt.

It is usually more important to deal with these pressing financial issues before attempting to save money on your mortgage. One great way to start your research on how to pay your home off faster is to talk with your trusted real estate professional.  They can answer your questions and point you in the best direction for your situation.