The Best Times to Buy, Sell and Refinance

buy sell refinanceIf you’re at all interested in what’s going on in the housing market, then you’ll likely be considering when to either buy, sell or refinance an existing mortgage. Depending on where mortgage rates are heading, it could either be a good time to buy, sell or refinance.

When to Refinance

The best time to refinance is either when rates are remaining the same or when they are dropping. Depending on when you purchased your home, the interest rate on your mortgage may be higher than the historic lows of the past several years. If that is the case, then there are many strong incentives to refinance.

The general rule of thumb is that if you can shave off at least 1 percentage point on your interest rate with a refinance, then it’s worth it to refinance. Interest rates have been just above 4% on 30-year fixed rate mortgages for a good amount of time.

What’s important to keep in mind also is where rates are likely to be heading. Most mortgage experts expect rates to climb in the second half of the year. The Federal Reserve’s decision to tapper its bond buying program has a lot to with this. This means that in some sense the window of time for many homeowners to refinance is closing.

Another important factor in determining when to refinance is the nature of the interest rate that you have on your loan. Variable interest rates can change with market conditions and therefore can be risky. You should ask yourself whether you will be able to continue making mortgage payments if your rate were to go up significantly. It may be worth your time to switch to a low 30-year fixed interest rate so that even if rates go up in the future your payments won’t be affected.

When to Buy or Sell Your Home

Falling or stagnant interest rates also indicate a good time to sell or buy a new home. A borrower’s buying power has been historically strong at times when rates either remain the same or are dropping. However, this assumes that you have good credit and are therefore able to qualify for a low interest loan.

If, for example, you want to buy a house for $300,000 with a conventional loan at 20% down on a 30-year fixed interest rate at 4% this would cost you %1,145.00 per month. Should you wait for an extended period of time when rates are hovering around 6% then your monthly payments would go up nearly $300. Over the course of one year alone, that’s nearly an extra $3,600.

What you should also consider is where home prices are heading. If you own a home in a large metropolitan area, then chances are you’re in luck if you want to sell. Home prices have been on the rise in many areas of the country. But there are some less densely populated cities where home prices have actually fallen. If you want to know approximately what your home is worth, try to find similar homes where you live and see what they are selling for.

Home Prices up 7.5% for the Year

home prices rising againAccording to a price index by CoreLogic, homes prices are up 7.5% in 2014 for the month ending in June.

However, this is actually a decrease from where prices where one year ago. Last year at this time home prices were at a 7 year high and had advanced 11.4% on a year-over-year basis. The slowdown in home prices is partially due to the sale of homes that are in foreclosure.

Foreclosed homes typically sell for less and thus reduce the average selling price of other homes in a given area. For example, when the sale of distressed properties rose sharply in 2009, home prices fell dramatically.

Good News for Buyers

The slowdown in home prices is good news for news for new buyers looking to enter the market. Last year buyers witness a sharply increase in home prices as well as mortgage rates. This came at the same time that wages remained stagnant for many workers. Paychecks for the average worker rose about 2% per year since the recession ended. This is about the same rate as inflation.
So, if you were one of the millions of people who was priced out last year because home sales were too high, now is an excellent time to reconsider buying a home. If you’re selling your home it may be worth holding onto it for a while longer.

Even if you’ve already purchased your home years ago, the drop in mortgage interest rates can still work in your favor. Refinancing to a new low rate can end up saving you thousands of dollars in interest payments over the life of your loan. Whether you’ve taken out a VA loan, FHA loan or conventional loan, there is likely a way for you to cut down your mortgage interest rate.
Closing costs remain low at many mortgage banks and there are still a number of places that are quoting interest rates in the 3% range. If it’s been a while since you’ve refinanced or you shave off at least 1% point from your interest rate, then it’s absolutely worth looking into a refinance loan.

The good news is that the qualifications for refinancing have gotten lower and lower over the years. If you’re unable to get traditional refinancing currently because the value of your home has declined, then you may be eligible to refinance through programs like the Home Affordable Refinancing Program (HARP).

Of course, if you’re looking to buy a home, not all areas of the country have been affected equally by the general decline in home prices. Some areas have seen the values of the homes actually rise. Areas in the southern part of California have seen an increase in home prices. If you find yourself in this situation, then you may be eligible for more conventional forms of refinancing.
Check with your local mortgage lender to find out how much you could possibly save by refinancing. You may very well lower your payment amount, shorten the duration of your home loan or potentially do both at the same time.  

How to Get the Lowest Rate on Your Home Loan

lowest rate howThe interest rate you get for your home loan will determine how much you pay in interest over the entire life of your loan.

Even small fractions of a percentage can add up thousands of extra dollars in interest payments. Whether you’re applying for an FHA loan, a VA loan or a conventional loan there are steps you can take to get your lender to offer you a lower rate.

One Quick Trick to Get a Better Rate

FHA guidelines require borrowers to have credit scores of at least 500. Mortgage applicants with a credit score of less than 500 will be unable to get an FHA backed mortgage. However, even if you qualify for an FHA loan, a VA loan or a conventional loan backed by Fannie Mae and Freddie Mac this doesn’t mean you’re guaranteed the best rate.

For example, a mortgage applicant looking for an FHA loan whose credit score is 680 will get a much better rate than an applicant with a credit score of 580. In many cases such an applicant could get a rate ½ percentage point lower than the borrower with a lower credit score.

According to the Federal Trade Commission, one out of every four credit reports has errors which may negatively affect the mortgage rate offer they’ve received from a lender. Consequently, millions of borrowers are needlessly paying a higher interest rate than what they deserve.

To get the rate that you deserve it is essential to obtain a copy of credit report and check it for errors. Correcting a mistake on a credit report can raise your credit score by as much as 100 points or more. In fact, many lenders will give you free access to your credit report as part of their rate quoting process.

Getting a Lower Rate with Conventional Loans and VA Loans

It is possible to pay less interest with conventional loans simply by making a larger down payment. For example, if you’re buying a condominium you can gain access to lower mortgage rates simply by paying 25% down instead of the 20% that many buyers put up. This could possibly be an attractive option if you’re able to afford the extra money down.

VA loans are unique in that the rates offered don’t change with high or low credit scores. Veterans are able to save money on their VA loan through VA streamline loans. These are no verification refinance loans which can give the borrower access to better mortgage rates.

With this type of loan the VA wives the typical documentation requirements that most lenders look for when they’re refinancing a home loan. This includes W-2s and bank statements as well as the need for a home appraisal. The only thing that VA requires for getting access to the loan is that it has a tangible benefit for the borrower.

No matter what type of loan you have, there is likely a way that you can save money on your loan by getting a better rate. It’s often simply a matter of finding the right lender who is willing to work with you.

Subprime Lending Moving Back Into the Mainstream

subprime lendingSubprime lending is becoming an option for many homeowners once more several years after an overflow of subprime loans brought the housing market to its knees.

Shortly after the financial crisis in 2008, subprime lending became synonymous with risk and foreclosure. Too many people simply couldn’t afford to keep paying their mortgages as they lost their jobs and the interest rates on their home loans increased.

Banks quickly abandoned these types of loans and tougher underwriting standards began to be put in place with the passage of the Dodd-Frank bill. But as of 2013 and well into this year, a number of banks are beginning to offer subprime loans once more.

What are subprime loans?

A subprime loan is a loan with an interest rate above prime rates for borrowers who are unable to qualify for prime rate mortgages. Subprime borrowers typically don’t have the best credit score and thus pay a premium to be able to borrow. They are statistically more likely than other borrowers to default on their loans.

When it comes to buying a house, a subprime loan can costs tens of thousands of dollars more than a conventional loan in interest payments. They are often used as a last resort after the borrower has tried and failed to qualify for loans that come with better terms.

Subprime loans that are being offered today

Only a handful of banks are currently offering borrowers subprime loans. Those that are offering these types of loans are attaching 8-13% interest rates with them as opposed to the 4% interest rates that borrowers can get with a 30-year fixed rate mortgage.

As underwriting standards have gotten less restrictive borrowers who have gone through financial hardship are finding it easier to qualify for subprime loans. However, these borrowers will have to pay a premium in order to compensate for the riskier nature of their loan. In most conventional loans, the borrower will end up putting somewhere around 10% down. For an FHA loan, the borrower may be able to still purchase a home with as little as 3-4% down.

The borrowers in today’s market who find that subprime loans are their only option will often end up putting at least 35% down. This has given them a rather limited appeal as many buyers simply decide to improve their financial standing than take out a loan with such a high down payment and interest rate.

Some housing market analysts have argued that subprime loans will likely continue to play a more important role as time goes on. It has been estimated that after the financial crisis, around 12.5 million people were shut out of the housing market who previously might have qualified for a home loan. Minority groups have been hit especially hard as the new regulations have made it more difficult to qualify for a loan. Easing these buyers back into the market could give new life to a housing market that’s had many ups and downs over the last several years.

The Difference between How Much You Can Afford and How Much You Should Borrow

afford vs borrowThe housing market continues to pick up steam in 2014 with a number of new buyers entering the market for the first time.

Many if not most of these buyers will not have the cash reserves on hand to pay for a new home all at one time. This is where borrowing comes in. An affordable home loan can make the dream of owning your own home possible.

Depending on your income, credit score etc. the amount of money that you will be approved to borrow is going to vary. And just because you’re approved to borrow a certain amount doesn’t necessarily mean that it’s financially wise to take out a loan for that maximum amount.

Buying a Home

When you begin the process of buying a home for the first time, mortgage companies will examine your debt-to-income ratio to determine how much you can borrow. Mortgage banks look to make sure that no more than 36% of your monthly income is going to pay debts.

In order to calculate your monthly payment threshold you take your annual salary multiply that number by 0.28 and then divide by 12. So, if you make $100,000 a year then you would have a monthly mortgage threshold of $2,333. This is a pretty good rule of thumb that will serve most people well.

Most people most of the time won’t be teetering on the verge of foreclosure. What’s important to consider is what is unique to your own financial situation. Just because you make enough now to be able to afford a home loan at a certain price doesn’t mean that you’ll be able to continue doing this well into the future.

A number of factors could come together that would make paying back a home loan at a certain price prohibitively expensive. If, for example, you take out an adjustable rate mortgage, then your monthly mortgage payment could go up according to market conditions. Inflation is also going to drive up the cost of nearly everything that you purchase on a day to day basis.

Necessities such as food, energy and clothing are all bound to get more expensive the more time goes by. In other words, just getting by with the same amount of money is going to become more difficult. Another important factor to consider is job security. It’s worth considering how likely it is that you’ll be able to do the same job and earn the same wage or higher well into the future. Moreover, how much would you be earning if you had to switch careers in order to adapt to the changing job market?

These are all issues worth considering when deciding how large of a loan you should take out. No one has ever been seriously harmed by being too financially secure and by having too much money stored away in their savings account. Choosing the size of the loan you want to borrow is a combination of understanding what’s unique about your financial situation, planning for the future, living comfortably and taking on risk.

Virginia Passes a First Time Home Buyers Law

virginia first time buyersIn an effort to promote a full housing market recovery, some states are getting creative. Low interest rates have helped but not nearly to the degree that is needed for the housing market to be healthy. The Virginia legislature recently worked with the Virginia Association of Realtors on a new law that would incentivize first time home buyers to save for, and purchase a new home. This new law should help both the local housing market and the local banking industry.

Virginia residents that want to save money to buy a home can now receive additional benefits for doing so. Per the new law, anyone that invests up to $50,000 in a financial institution can call those funds a first-time home buyer savings plan. The term invest is used very loosely as it applies to funds that are put into a savings account, mutual funds, brokerage account, or most other financial accounts including stocks. The funds can then grow tax free, with a cap of $150,000. The funds can then be used for closing cost, lender fees, or anything else that appears on the closing statement. The goal is to make it easier for people to save for a new home and this in essence keeps more money in the hands of buyers, rather than going back to the government in the form of tax payments.

In order to qualify, a Virginia resident needs to be a first time home buyer. If they already own a home, they would not meet the standards necessary for growing the funds tax free. If a buyer was given a home and did not obtain a mortgage for it, they may still be eligible for the program.

This new law also helps first time home buyers that are planning on using gift funds for their down payment. Family members that want to help can put money into a savings or investment account, label it a first-time home buyer savings plan and use the interest or dividends to go towards closing cost and other fees on behalf of the first time home buyer. The caveat is that the funds have to be used for the first time home buyer in the future. This is an excellent way for families to get involved while growing their funds and obtaining tax advantages. By passing a law that encourages individuals and their families to grow funds tax free, Virginia lawmakers are hoping to strengthen the housing market and local mortgage industry. Delegate Tag Greason sponsored the bill saying, “By supporting this plan, Virginia re-enforces the commitment we have to our younger citizens, our families, and the overall recovery of the housing market.”

It will be interesting to watch how well the new program works and how many people use the first-time homebuyer savings plans over the next couple of years. Virginia is one of several states that are trying to strengthen its mortgage industry through creative financing programs, tax breaks, and other government programs. To learn what is available near you, contact your mortgage lender. They are the most knowledgeable resource for local and national mortgage loan programs and can tell you which ones you qualify for.

Preparing to Buy Your First Home

preparing saves moneyHomeownership isn’t always within immediate reach for a number of different people.

But there are steps that a person can take to help make sure that when the time comes, they’ll be better prepared to purchase their first home. Knowing what to work towards can be half of the journey when it comes to owning a house. If you aren’t likely to buy a home this year but are working towards buying a home sometime in the future, here are few things you’ll want to know.

1. Learn How to Budget

Learning how to manage your money is the first step you’ll need to make if you’re thinking about buying a home. Some people can do this very easily. Other people might only learn how to budget after they’ve gotten into financial difficulty. Whether you’re a millionaire or a recent college graduate who just started a new job, having good skills with money is important. Budgeting requires a little bit of knowledge and a good amount of discipline.

Figure out how much you’ll be able to spend on housing after all of your other expenses are taken care of. Also consider any recurring debts that you may have like car payments or student loans. If you’re having a difficult time making enough to support your current financial needs, then homeownership is likely still a ways off. But that doesn’t mean that the same principles won’t apply when you are making more money.

2. Save For A Down Payment

Saving enough money for a down payment is often one of the most difficult parts of owning a home. Even if you are heavily indebted, now is always a good time to start saving. Whether you’re taking out a conventional loan or a loan that’s backed by the federal government, the amount of money necessary for the down payment is likely to be quite large.
Suppose, for example, you’re hoping to own a home one day that’s valued at just $200,000. If you want to be able to able to afford the down payment with an FHA loan, then you’ll need to put around 3.5% down. For a $200,000 loan that’s $7000. With the right budgeting skills and discipline saving up that much money isn’t unrealistic. Of course, how long it will take to save that much will vary from person to person.

3. Monitor Your Credit Score

Your credit score is one of the main determining factors in not only whether you will qualify for a home loan, but also the terms and conditions of the loan that you get. No matter where you are currently with your credit, there’s always room to improve. As long as you’ve got a good budget in place, then you can almost guarantee that your credit will improve with time. Work on paying down the biggest debts that you have and periodically check your credit score for mistake.

So, in summary, learn to how budget and plan how much you can spend on housing. Once you have a budget in place, begin saving for the down payment on the home you want to buy. If you manage to do these three things, then you’ll be well on your way to owning your first home

Home Appreciation Slowed in 2014

home appreciation settlesThe housing market recovery is far from over. The Case-Shiller Index published in June showed that home value appreciation slowed in Q1 of 2014 to a mere 0.02 percent as compared with 1 percent per month in 2013. Home price appreciation has been in the double digits for the past two years which have helped existing homeowners to recover some of their lost equity while simultaneously making it more difficult for first-time home buyers to afford to purchase.

Some major metropolitan areas still saw significant increases in home value appreciation including Dallas, Denver, Chicago, and San Francisco, though still below the levels they were experiencing prior to the housing crisis. The growth in some of the larger cities may be attributed to access to employment. Smaller cities throughout the country have experienced little to no appreciation, with many mortgage professionals believing values peaked in the summer of 2013.

One of the reasons that home values have plateaued or stabilized is that many of the banks have sold off the majority of their foreclosure or REO properties. When there was a high percentage of foreclosures, it made it difficult for families to sell their homes at a competitive price. This inventory had to be flushed in order for home values to reach stabilized levels. As it did, many families were able to start selling their homes last summer for their actual value instead of discounted prices. With the economic growth being poor, income and job levels decreasing, there are fewer buyers with the ability to purchase a home which further contributes to home prices standing still. Without buyers competing for properties, there is no reason for home prices to go up.

Fortunately, those that do want to purchase a home can benefit from low mortgage interest rates and stable home prices. This allows buyers to find a home that is perfect for their needs without having a high mortgage payment. In fact, with home prices stabilizing and 30 year interest rates in the low 4s, many home buyers will pay less after purchasing than they were on their monthly rent payment. This is a fantastic opportunity for people to get out of their rental.

There are a variety of mortgage loan programs that are ideal for buyers with little to no down payment. The VA offers zero down loans for veterans at a competitive interest rate. Additionally, if a veteran is disabled the VA will also waive the funding fee, which reduces the closing cost. The FHA is another option for buyers. They will finance up to 97 percent of the purchase price, requiring a tiny down payment. Depending on the size of the home, the combination of an annual tax return and savings can be enough to get a buyer into a starter home or condo. Gift funds are another option for families that want to take advantage of stable home prices and low interest rates, but simply don’t have the savings for even a small down payment. When a family member steps in to pay the down payment, it is called gift funds. To learn more about this or other options for home buyers, call your local mortgage lender today. Act now, before home values start to rise again.