Real Estate Financing

Indiana Housing has been instrumental in providing no downpayment loan programs for first time home buyers. They now offer a loan program for home buyers who are moving up or buying their next home, aptly named the 'Next Home' program.

Many home sellers today are faced with breaking even after the sell of their home and do not have the additional funds to put a down payment on their next home. The new program from Indiana Housing offers up to 4% toward down payment and closing costs. So a home buyer can buy their next home with no money down.

Highlights...

As lenders tighten mortgage guidelines for Indianapolis home buyers, minimum downpayment requirements are increasing.  Several years ago, you could finance a home with nothing down.

Today, most conventional mortgages require at least 10 percent. Anecdotally, guideline changes have led to an increase in the number of home buyers accepting cash gifts from family.

Gifts are allowed in most cases but the problem is, if you don't accept the gift in a 'lender-friendly' way, the mortgage underwriter could reject it, and negate it. You can't just deposit a cash gift into your bank account. You have to follow a series of steps and keep records.

• Provide an acceptable gift letter signed by all parties
• Provide documentation of the...

As mortgage lenders tighten approval standards   in Indiana and nationwide, the importance of a good credit score is rising.  Credit scores not only make the difference between a mortgage approval and mortgage turn-down, but they also play a large role in determining your actual mortgage note rate.

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that the U.S. economy 'has continued to strengthen', that the jobs markets is getting better, and that financial markets are supportive of growth.

There was no mention of the housing market's strength.  The last 3 statements from the Fed included that specific verbiage.

It’s the fifth straight statement in which the Fed spoke about the economy with optimism.  This should signal to markets that 2008-2009 recession is over and that economic growth is returning to U.S. economy.

The economy isn’t without threats, however, and...

Despite the headlines, it's important to remember that December's jobs report wasn't all bad news. 

Sure, the economy shed 85,000 jobs last month and the Unemployment Rate failed to dip below 10%, but for home buyers and rate shoppers in Indianapolis , the news was just fine.

The soft employment data led mortgage rates lower, making homes more affordable for buyers.

There is two sides to every economic coin.

Since early-2008, the U.S workforce has been closely tied to home financing. As the economy slowed and jobs were lost, Wall Streeters pulled money from the risky stock markets and moved it to of the relative safety of bond markets, instead.

Safe haven...

For many American homeowners, interest paid on a mortgage is tax-deductible in the year in which it was paid. Knowing that, eligible homeowners can increase their 2009 tax deductions just by making their January 2010 mortgage payment before the end of the year.

This time of year, it’s easier for some to postpone their mortgage payment until after the holidays.

By paying in 2009, the mortgage interest paid can be applied against 2009's itemized tax deductions even though the payment isn't technically due until 2010. It can reduce your tax burden come Thursday, April 15, 2010. And lest you think you're paying the mortgage 'in advance', remember that mortgage interest is paid in arrears; a payment due January 1 accounts for interest that accumulated in December 2009...

The new Good Faith Estimate makes its debut January 1, 2010. The new format will make it easier for Indianapolis home buyers to compare loans.

Expanded from 1page to 3, the legislators responsible for the new Good Faith Estimate want it to be simpler for homeowners and home buyers to understand than the former version. By most accounts, Congress will meet this goal.

The new Good Faith Estimate includes plain-English explanations of every fee, charge, and interest payment involved in a purchase or refinance.  It also includes a section called 'The Shopping Cart' in which applicants can compare lenders. The new...

Heres some news which really doesn't surprise me. Earlier this year and under pressure from the government, mortgage lenders made more than 200,000 loan modifications to delinquent homeowners. The modifications came in one of three forms, or a combination:

1. Interest rate reduction
2. Loan term extension
3. Principal forgiveness

But despite the modifications, as of October 1, more than half of the homeowners that received assistance were already two months behind on their modified monthly payments. 

This late-pay statistic was a focal point on Capitol Hill yesterday as the government admitted delinquencies 'were larger than [they] thought they'd be'.  Loan modifications are proving inadequate at slowing foreclosures and yesterday's session opened the door to more effective foreclosure prevention measures. Recent statistics...

Like everything else on Wall Street, mortgage markets are based on supply and demand.  When demand outweighs supply, mortgage rates fall. There is demand this week!

I have received many calls since Tuesday from homebuyers who wonder what the current rate drop may mean to them. Yes, rates are down and if you are considering buying a home, it is a good time to lock in that rate. One of the rate sheets I have from a lender here in Indianapolis shows a 6.0% loan with zero points and no loan originaton fee. For .625%, you can buy down the rate to 5.5%. For a $100,000 loan amount, it equals $625.00. That's a bargain! Of course, all rates are subject to your ability to qualify.

So, Tuesday, when the government unexpectedly announced a $500 billion budget for buying mortgage debt from Fannie Mae and Freddie Mac,...

The Federal Open Market Committee voted to cut the Fed Funds Rate by one-half percent today.  The benchmark rate now stands at 1.000 percent.

In its press release, the Fed wasted no time addressing the key issue at-hand, stating that economic activity has 'slowed markedly', pointing to three main causes:

1. Consumer spending is falling
2. Business equipment spending is falling
3. Slowing foreign economies are hurting U.S. businesses

Furthermore, the voting FOMC members are wary of an 'intensification' of the current financial market turmoil.

The announcement's 4th paragraph is noteworthy, too.  It lists the plethora of growth-stimulating steps that the Fed has taken so far this year and concludes that credit conditions should improve in time.  It does notes, however, that if markets don't improve in good time, the committee...

The Federal Reserve made an 'emergency rate cut' yesterday morning, dropping the Fed Funds Rate by one half-percent to 1.500 percent.

The move is meant to stimulate the U.S. economy.

When the Federal Reserve changes the Fed Funds Rate, it often takes 9 months for the changes to work their way through the economy. 

On a broad scale, therefore, we won't know if the cut truly 'worked' until Summer 2009.

But, as it relates to Americans in general, the rate cut spurred two immediate changes.

First, because Prime Rate is directly tied to the Fed Funds Rate, Prime Rate fell by 0.500 percent today, too.  That means that interest rates on credit card debt and home equity lines of credit are now lower, reducing monthly interest costs for the majority of American households.

The second change is that mortgage rates are rising today.

The Fed's actions today sparked...

Last week, federal regulators seized mortgage lender Washington Mutual.   The Seattle-based thrift became the third 'big name' lender to close its doors since July, joining IndyMac and Lehman Brothers. In 2007, these 3 lenders represented about 10 percent of the mortgage market and their subsequent failures are confusing American homeowners. The most prevalent question:

If my mortgage lender fails, are my payments still due?

And the answer is an unequivocal 'yes'. If a mortgage lender is seized, goes bankrupt, or is otherwise closed, it doesn't change the terms of the bank's mortgages whatsoever -- just maybe the mailing address. This is because a mortgage (and its corresponding note) is a legal contract between the lender and the lendee, signed on the date of closing. It...

On all principal + interest home loans, the first few years of payments include a lot more money going to interest than to principal.  This is because mortgage repayment schedules are front-loaded with interest, meaning large-volume principal reduction won't occur until late in the mortgage's lifecycle. Comparing products at a 6% mortgage rate, did you know that after 15 years:

• A 15-year mortgage will be paid in full
• A 20-year mortgage will have 41.21% of its loan balance remaining
• A 30-year mortgage will have 73.19% of its loan balance remaining

Of course, this doesn't mean that 15-year mortgages are better than their 20-year or 30-year brethren.  It just means that 15-year mortgages pay off faster.  Yet, there are reasons for homeowners to avoid 15-year mortgages.  For example, versus 20-year or 30-year products, 15-year mortgages require the highest monthly payment because the payback period is compressed to a shorter time. 

In addition,...

For the second consecutive meeting, the Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent. In its press release, the Federal Reserve addresses inflation, saying that it 'has been high', fingering energy and commodity costs as culprits. 

The Fed does expects inflation to moderate later this year, however. Regarding recession, the Fed addressed softening labor markets and tightening credit, and said that high energy prices may slow down economic activity in the months ahead. The key comment, repeated from the June statement, was this:

Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Translated, it reads:

The Federal Reserve expects that its policy changes to-date will help the markets find balance...

The phrase 'Consumer Price Index' can be intimidating and unclear to Americans.  It's an economic term, after all, and not a part of everyday American language. It even has its own abbreviation to add to the confusion -- CPI.

So, when a layperson hears that 'CPI is rising', it's not always clear what it means. The tendency, therefore, is to ignore the news. This is one reason CPI is commonly substituted with the more down-home expression of 'Cost of Living'. In contrast to the term 'CPI', the phrase 'Cost of Living' is a lot more clear. 

When people hear that the Cost of Living is rising, instinctively, they get it.  And now they can see how it works in numbers, courtesy of the Bureau of Labor Statistics.

The Inflation Calculator at the government Web site helps a person compare household income to the changing Cost of Living between any two years since 1913.  For example, a ...

A noon-hour, mortgage-bond rally rendered homes more affordable for Americans Tuesday. It was the second straight day on which this happened.  On both days, the action was swift.

The speed at which Monday's and Tuesday's respective rallies tore through mortgage markets illustrates how deep the uncertainty that surrounds the U.S. economy really is. 

One reason why the market swings so quickly is that, lately, traders are tending to follow the herd.

As a mortgage rate shopper, it's outstanding when the herd is moving in your favor.  However, when the herd moves in the opposite direction, the impact on your monthly housing cost can be huge.

Volatility has been the common theme for mortgage rates in 2008 and it's likely to remain a factor until the nation's economic picture gets a little bit more clear. Some experts are saying that may happen in 2009. 

Therefore,...

It's a terrific time to buy  your Indianapolis home, but not because homes happen to be affordable.  It's a terrific time to buy because the variety of mortgage products available to home buyers looks poised to shrink. Monday, Alt-A mortgage lender IndyMac Bank stopped accepting mortgage applications and it's likely that other Alt-A lenders will likely follow suit.    Alt-A loans are ones in which borrowers can't (or won't) verify one of two major underwriting criteria:

• Evidence of income
• Evidence of assets

Since the Credit Crunch began last July, Alt-A mortgages have been a steady source of funds for 'in-between' borrowers -- those that are not quite prime, and not quite sub-prime.  IndyMac was among the largest lenders of its type and had outlasted many of its peers.  Its position as a market leader and subsequent exit from lending means that the...

On the first Friday of each month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report.  More commonly, it's called the 'jobs report'. The jobs report is a sector-by-sector look into the U.S. economy and whether businesses are hiring -- or firing -- workers. 

This is one of the reasons why its release is so hotly anticipated each month -- the jobs report can reveal a lot about the state of the U.S. economy. Last month, the economy shed 62,000 jobs. Now, many people will assume that job losses like this are terrible for the U.S. economy.  Sometimes, that's true. This month, it's not. 

Given the ongoing tug-o-war between inflation and recession, markets are somewhat pleased with the June job loss figures because job losses reduce the likelihood of inflation in the U.S. economy. Inflation is considered by many -- Ben Bernanke included -- to be among the top threats to the U.S. economy -- it devalues...

In the summer of 2005, sub-prime mortgage lending was at its peak.  Rates were relatively low and lending guidelines were relatively loose. At the time, the 'standard' sub-prime mortgage product was the 3/27 ARM. The 3/27 had a few basic traits:

• A fixed, 3-year 'starter rate'
• Every six months thereafter, the mortgage rate changed
• The formula by which it changed was (4.999 percent + 6-month LIBOR rate)

If the loan was interest only, it usually converted to principal + interest at the first adjustment, too. Because the summer of 2005 was the peak of sub-prime lending, it makes sense that the summer of 2008 is the peak of sub-prime adjusting. For Indianapolis homeowners with adjusting sub-prime loans, there is some (relative) good news out there.

Today, the 6-month LIBOR hovers near...

I found this cool calculator just sitting on my desktop and thought I would share it with you. It’s a simple tool for calculating appreciation or equity growth.

Since it is not specific to a neighborhood or area of town, the results may actually be different for your home. Historically, Indianapolis real estate is a slow, steady market with modest appreciation of approximately 3%.

Although, the numbers haven’t held true the last few years, real estate is cyclical.

Click on the graph to compute your estimated appreciation. Insert the number of years the property is owned in place of loan length.