When you begin your search for a new home, you will also be searching for the best loan program and lender for your specific needs. Knowing the terms and costs for your loan is crucial to making a good financial decision, since fees charged by a lender can affect your monthly mortgage payment.
The whole process can often be a bit overwhelming and leave you wondering whether you were able to negotiate the best long term solution for your finances. One of your best alliances in your financial advisor, so I asked a few questions of a financial advisor I know.
1. How should consumers compare one lender's offer to another?...
After taking out a mortgage loan to purchase a home, you will be provided with a dollar figure that you must pay each month in order to repay your loan. Whether interested in Bethesda condos or a home in Indianapolis, it is helpful to have a clear understanding of what is included in your monthly mortgage payment before you start searching for a home.
This way, there will be no surprises when you sit down with the lender and negotiate a mortgage loan.
A portion of your monthly mortgage payment will go toward paying on the principle amount of your loan. The principle is the amount of money that you originally borrowed. If you make late payments or incur any other additional fees, these amounts will also be added to your principal balance....
If you have turned on the TV lately, glanced at a headline, or heard your co-workers talking at the water cooler, you have no doubt heard about our nation’s debt crisis. The Obama Administration has charged both houses of Congress with coming up with a plan to reduce the national debt.
One of the many suggestions that has surfaced is doing away with the long-standing mortgage interest deduction. Don’t do your own taxes or are not sure what this is? Basically, each year in the US, homeowners are able to take any amount of interest they pay for their mortgage as a deduction on their income taxes.
Touted as a boon by some in Washington, doing away with the mortgage interest deduction has the mortgage industry is up in arms. They claim...
The economy's improving but lending standards are not. Nationally, banks are making mortgage approvals harder to come by. Underwriting guidelines are tightening. The data comes from the Federal Reserve's quarterly survey to its member banks.
The Fed asks senior bank loan officers around the country to report on 'prime' residential mortgage guidelines over the most recent...
The mortgage lending landscape changes a lot. Rates and guidelines are in constant flux, and it creates preparedness challenges for buyers in Indianapolis that aren't paying in cash.
The loan you get today won't always be the loan you get tomorrow. Because of how frequently bank rules are changing, it can be hard for laypersons to distinguish between mortgage fact and fiction of 'what's coming next'.
Recently, we saw this with respect to FHA home loans. January 20, 2010, the FHA issued a press...
Securing an FHA mortgage is about to get more expensive when buying a home in indianapolis. In a statement issued Wednesday, the Federal Housing Authority outlined policy changes to its mortgage assistance program. The shift is meant to both reduce the government group’s portfolio risk while strengthening its overall financials. FHA has announced new guidelines for financing to be in effect this spring. In an effort to beef up the reserves for FHA, new costs will be associated with an FHA loan.
- For homebuyers with a credit score less than 580, the minimum downpayment will be 10%. For credit scores above 580, the downpayment is still 3.5%
- Upfront mortgage insurance premiums will be increased from 1.75% to 2.25% for all FHA borrowers.
- Seller concessions will be capped at 3%, instead of 6%. Withe the premium increasing and seller concessions reduced, buyers will need to bring some money to the closing table....
A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac. Each year, the government sets the maximum allowable loan size for a conforming mortgage, based on 'typical' housing costs nationwide.
Loans in excess of this amount are typically called 'jumbo'. While home prices increased from 1980 to 2006, so did conforming loan limits. Since then, however, as home prices have dipped, the conforming loan limit has held. Now, in 2010, for the 5th consecutive year, the government set $417,000 as the nation's conforming mortgage loan limit. The 2010 conforming loan limits, as released by the government, are:
- 1-unit properties : $417,000
- 2-unit properties : $533,850
- 3-unit properties : $645,300
- 4-unit properties : $801,950
But conforming loan limits don't apply to all U.S. geographies equally. As a result of various economic stimuli since 2008, the government now considers...
Despite the economy's improvement and prodding from Congress, banks don't seem ready to open their purse strings just yet. Nationally, mortgage approval . The data comes from a quarterly survey the Federal Reserve sends to its member banks.
The Fed asks senior bank loan officers around the country whether 'prime' residential mortgage guidelines had tightened in the last 3 months. For the period July-September 2009:
- Roughly 1 in 4 banks said guidelines tightened
- Roughly 3 in 4 banks said guidelines were 'basically unchanged'
Just one bank said its guidelines had loosened. In the third quarter of this year, I have already seen the effects of tighter lending guidelines for Indianapolis home buyers. Combine the Fed's survey with recent underwriting updates from the FHA and from Fannie Mae and it becomes clear that mortgage lenders are much more cautious about their loans than they were, say, 2 years ago.
Home affordability improved this week after the Federal Reserve released its November 3-4, 2009 meeting minutes.
The FOMC Minutes is a companion to the Federal Reserve's post-meeting press release. It's released 3 weeks after the Fed adjourns and details the internal debates that shape our nation's monetary policy.
As compared to the press release, the minutes can be rather lengthy. November's press release featured 428 words, the minutes offered 6531.
However, this extra level of detail shapes markets and mortgage rates. With Wall Street unsure about the economy's path, investors look to our nation's central bankers for guidance.
The Fed has made several points clear:
- The economy shows tell-tale signs of improvement
- Unemployment threatens the recovery
- Inflation pressures are low, for now
Overall, the FOMC Minutes paint...
If you're thinking about buying an Indianapolis home in the next few months, you may want to move your date up. New Fannie Mae guidelines will make getting approved for an Fannie Mae loan more difficult. For the second time in less than 3 months, Fannie Mae announced changes to its mortgage guidelines. In it's announcement, Fannie Mae details the updates, meant to reduce the mortgage firm's overall risk.
The first major change is with respect to credit scoring. All Fannie Mae loans -- whether underwritten electronically or manually -- require a 620 credit score minimum. There are very few exceptions. A second change relates to loans with private mortgage insurance. Homeowners whose loan-to-value exceeds 80 percent now have a choice:
- Accept higher mortgage insurance premiums month-after-month
- Accept a one-time fee paid at closing to compensate for higher risk
When a homeowner sells his home and decides to buy a new one, there are 3 basic options for the residence -- sell it, keep it, or rent it. Unfortunately, no matter which path they choose, move-up home buyers in need of a new conforming mortgage will find qualifying for a home loan to be more difficult this season than in the past. Mortgage guidelines are dramatically tighter for people 'carrying two mortgages'. Among the changes this spring's buyers face:
Selling the primary residence If you plan to close on your new home prior to the closing of your existing home -- even if it's only by a day -- both payments must be listed as monthly debts on your mortgage application. This will disqualify the majority of home buyers.
Converting your residence to a second home If your current home has less than 30 percent equity in it, your mortgage application for the new home will not be approved unless you can show 6 months worth...
In light of the changes in conventional financing guidelines, FHA loans have once again become a popular choice for home buyers. In the good ol days, (heck, that was just a few years ago) almost anyone could get 100% financing on practically any home. Not so, today!
Today’s savvy buyers understand the market leans in their favor. However, financing may not. While showing homes in the last few weeks, buyers who are looking for a deal and most are – find the deals may have faults which prevent traditional financing.
Little faults, like – no kitchens – seriously, a bank owned home with the kitchen stripped. No cabinets, no countertops, no sink – dishwasher, stove -gone! This was a lovely house and a great price, but the average home buyer has no chance of having their loan approved by FHA or conventional, according to my lender. Of course, this buyer was going to go FHA with 3.5% down or conventional with 5% down. In either case, the bank would not approve a loan...
In March 2008, HUD temporarily raised FHA loan limits around the country. Effective January 1, 2009, FHA loan limits revert. FHA home loans are mortgages made by private lenders and insured by the federal government.
Historically, FHA home loans have been 'easier' for which to qualify than their conforming mortgage counterparts and, therefore, tend to be associated with borrowers of tarnished credit quality. Today, that's the not the case.
The FHA home loan underwriting process can be as tough -- or tougher -- than a conforming mortgage underwrite. There is extra documentation required and the home appraisal process is often more thorough. Where FHA home loans shine is in their limited downpayment requirements.
To purchase a home with a FHA-insured mortgage requires a 3 percent downpayment as of today; in January, it moves to 3.5 percent. Versus the typical conforming mortgage requirement of 5 percent or more, FHA serves as somewhat of a home affordability...
More than a handful would-be Indianapolis home buyers stayed on the sidelines this year, waiting for Election Day to pass. The prevailing thought was that once the new President-Elect was identified, credit markets will systemically unfreeze and housing markets will return to normal. If history is a guide, this is an unlikely scenario.
Election Day doesn't figure to alter markets any more in 2008 than it did after the four previous presidential elections. If anything, post-Election Day market reaction has been muted:
- 1992 : Dow closes down 0.9 percent the day after Election Day
- 1996 : Dow closes up 1.6 percent the day after Election Day
- 2000 : Dow closes down 0.4 percent the day after Election Day
- 2004 : Dow closes up 1.0 percent the day after Election Day
But just because the stock market has a history of idling on the day after the election doesn't mean that mortgage rates will rest easy this...
Even as a REALTOR, I wonder, how did the climate of the real estate market change so dramatically in such a short period of time. The simple answer is, supply and demand.
When the supply of 'easy' loans were made available, the demand for such loans increased. As more people qualified, homes were quickly purchased, decreasing the supply of inventory, which increased the demand.
Everyone seemed to jump on the bandwagon and money was easy to get. Although Indianapolis did not have the same appreciation as many of the hotspots around the country, we are, nevertheless, experiencing the effects of the changes. We have our share of foreclosures and short sales, just not on a grandiose scale as some areas.
We have other issues here such as property taxes, which have affected homeowners. Still, the supply of easy money was the beginning.........along with the belief that real estate values would not go down.
Earlier this year -- and for the first time in its history -- the FHA changed its funding fees and mortgage insurance structure. Effective October 1, 2008, it's repealing those changes. Partly to keep FHA home loans affordable, and partly to comply with new laws, the FHA is rolling back its up-front fees and ongoing mortgage insurance requirements and replacing them with new ones. The new up-front FHA fees are as follows:
- 1.750% : All purchase and 'standard' refinances
- 1.500% : All 'streamline' refinances...
When comparing two investments with equal risk, a rational person will choose the investment with a higher rate of return. This behavior is called Risk Aversion and is a basic tenet of personal investing. An off-shoot of Risk Aversion is that a rational person will only invest in an instrument of greater risk if the returns are greater, too. The chart at right illustrates this concept, comparing return rates on two investments:
- U.S. Government bonds
- Mortgage-backed bonds
The difference in investment return rates is sometimes called a 'spread' and the historical spread between government debt and mortgage debt is somewhere near 1.5 percent. ...
As we get closer to Labor Day, volume on Wall Street is dwindling as market players get a head start on their long weekend. Today could be a difficult day to shop for mortgage rates and that can impact home affordabilility. Expect volatility.
This is because mortgage rates are based on the price of mortgage bonds and, on Wall Street, bonds trade a lot like stocks. There has to be a buyer and a seller at a specific price to make a deal. With so many traders on vacation today, though, there are fewer opportunities to match buyers and sellers. This can cause mortgage prices rise or fall faster than on a 'normal' day, directly leading to mortgage rate volatility. Each 0.125% mortgage rate increase is an extra $96 cost per $100,000 borrowed on a principal + interest home loan. For a light-volume trading day, there is a lot of information for markets to digest:
Fannie Mae announced a new risk-based pricing model and additional mortgage delivery fees this week, adding to the cost of buying a home. Risk-based pricing was first introduced by Fannie Mae this past April. It added new, mandatory loan fees for high-risk borrowers while rewarding a small group of low-risk borrowers with fee credits.
In the updated model, even 720 credit scores with a 20 percent downpayment won't protect mortgage applicants from the risk-based fees and they can range as high as 2.750 percent, depending on credit scores and downpayment size.
Fannie Mae will continue the practice of rewarding high-downpayment borrowers with fee credits. Fannie Mae's second pricing change involves the Adverse Market Delivery Charge and it is not risk-based -- it applies to all applicants equally. First introduced in December 2007, Adverse Market Delivery Charges are mandatory surcharges on all conforming...
For the first time in its history, the FHA changed its funding fees and mortgage insurance structure this week. FHA-insured home loans are now subject to a risk-based pricing adjustment. Because of risk-based pricing, FHA home loans are now more expensive for borrowers with less-than-ideal credit profiles, and less expensive borrowers with perfect ones.
Prior to the changes, most FHA borrowers paid an up-front fee of 1.500 percent, plus on-going annual mortgage insurance payments equal to one-half-percent on the amount borrowed.
FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA program guidelines have remained loose.
FHA allows 3 percent downpayments on purchases, for example, and allows 'cash out' refinances to 95 percent....