You’re really doing it! You know what you can afford and you’ve got your pre-approval letter. But before you buy the home of your dreams, you’ve gotta find it first.
Unless you have a boatload of cash under your mattress, buying a home usually costs more money than you currently have. First, you’ll need a competitively-priced loan.
Buying a home is so grown-up and impressive, but there are a few things you should think about before you start telling everyone how grown up and impressive you are.
Maybe the days of rock-bottom mortgage interest rates aren’t numbered, after all.
Rates dropped 0.09 percentage point this week to 4.23% for a 30-year, fixed -rate home loan, according to the latest weekly report from Freddie Mac.
Mortgage rates started the year at 4.53%, and have sunk each week in 2014, falling a total of 0.3 percentage point.
Borrowers with a 4.23% mortgage would pay $982 a month on a $200,000 balance, compared with $1,017 on a 4.53% loan.
Frank Nothaft, Freddie Mac’s chief economist, attributed the move to cooling home sales.
“Mortgage rates fell further this week following the release of weaker housing data,” he said. “The pending home sales index fell 8.7% in December to its lowest level since October 2011.”
The drop in mortgage bond purchases by the Federal Reserve, the so-called taper, that started last month, was expected to push rates gradually higher.
But worrisome economic news and a plunge in stocks has counter balanced the Fed action, according to Keith Gumbinger of HSH.com, a mortgage information company. Anxious investors have scurried to safe havens like treasury bonds and mortgage backed securities.
“Much to the benefit of mortgage shoppers, this move [to bonds] is dragging down yields and mortgage rates,” said Gumbinger. “This is a nice surprise” for people looking to purchase or refinance their homes in a rising rates environment, he said.
Rates may keep dropping, according to Gumbinger.
“The reduction in Fed support, slowing manufacturing activity here and in China, some less-than-stellar figures on consumer spending, housing, and more are causing some concern that the economy has decelerated over the last couple of months,” he said. “The economy doesn’t need to slow very much to put us back into the kind of funk we’ve been hoping to escape since the recovery began several years ago.”
SOURCE: CNN Money
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Private jumbo-mortgage originations are on pace to reach the highest level since 2007, as lenders are offering low down-payment requirements to lure more borrowers, The Wall Street Journal reports.
Many small lenders, such as community banks and credit unions, say they are willing to cover jumbo loans with 5 percent to 10 percent down payments now, according to the Journal.
As home values rise, banks are experimenting with loosening up lending standards by targeting private jumbo loans as a way to increase their business share. In most parts of the country, jumbo loans are those that are $417,000 and higher; in some of the most expensive markets, jumbo loans are $625,500 or more.
But with low down-payment requirements for jumbo loans entering the arena, that means a comeback for the private mortgage insurance industry. The insurance, which protects lenders in case a borrower defaults, is charged to borrowers who usually make less than a 20 percent down payment. Private mortgage insurers are reportedly lowering their costs and increasing the size of mortgages they’ll cover to accommodate jumbo borrowers.
Mortgage Guaranty Insurance Corp. raised the maximum mortgage it will insure from $750,000 to $850,000 last month; Genworth Mortgage Insurance raised its maximum level from $625,500 to $850,000; United Guaranty recently started offering a limited program for loans up to $1 million.
The move by private lenders to increase low-down-payment jumbo loans comes as the Federal Housing Administration started reducing the amount of high-cost mortgages that it will insure in about 650 counties. As of Jan. 1, FHA loans in high-cost areas have been capped at $625,500, reduced from $729,750.
SOURCE: Realtor Magazine
Fannie Mae (FNMA) and Freddie Mac, the U.S.-owned mortgage-finance companies, will raise the fees they charge lenders to guarantee loans as part of an effort to shrink their presence in the mortgage market, the Federal Housing Finance Agency said.
For the first time, the companies also will start charging higher fees in New York, New Jersey,Connecticut and Florida, where long foreclosure timelines make it more expensive for Fannie Mae and Freddie Mac to dispose of properties they take over after borrowers default, the FHFA said yesterday. The agency is also shifting its fee structure so borrowers with poor credit will pay more.
The fee increases, typically passed on to borrowers in the form of higher interest rates, will go into effect in March and April, the agency said in a statement. Fees will rise an average of 14 basis points on typical 30-year fixed-rate mortgages, the FHFA said.
“Today’s price changes improve the relationship between g-fees and risk,” FHFA Acting Director Edward J. DeMarco said in a statement, referring to fees for the guarantees. “The new pricing continues the gradual progression toward more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital.”
Fannie Mae and Freddie Mac (FMCC) purchase loans and package them into securities, guaranteeing payments of principal and interest. They currently back about 60 percent of U.S. home mortgages.
The move to shrink the companies’ footprint by raising prices comes as DeMarco is in his last days heading the agency after spending four years pursuing a program of gradually reducing the companies’ operations and maximizing their returns to taxpayers.
The U.S. Senate plans to vote tomorrow to confirm DeMarco’s successor, Mel Watt, a Democratic congressman from North Carolina. Watt, who has declined to discuss his views on housing policy while his nomination is pending, would have the power to reverse the increases if he disagrees with them.
The FHFA is eliminating a 25 basis-point up-front fee Fannie Mae and Freddie Mac began charging in 2008 to deal with the costs of the adverse housing market, recognizing that the market has improved. The fee will remain in the four high-cost states.
FHFA’s last guarantee-fee increase, of 10 basis points, came in November of 2012. An increase of 10 basis points would cost a borrower with a $200,000 mortgage about $4,000 over a 30-year loan term. The average guarantee fee charged by the two companies rose to 38 basis points in 2012 from 28 basis points in 2011, according to a report FHFA also released yesterday.
Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac have taken almost $187.5 billion in U.S. aid since they were placed under conservatorship in September 2008 after losses on investments in risky loans pushed them to the brink of insolvency. With the rebound in the housing market, the companies have become profitable and will have returned $185.2 billion to taxpayers by the end of 2013.
The Federal Housing Administration will be reducing the amount it’ll insure on high-cost mortgages starting in the new year.
Beginning on Jan. 1, all FHA loans will be capped in high-cost areas at $625,500, reduced from the current cap of $729,750. FHA will keep its current loan limits in place in areas where housing costs are lower than $271,050. The new loan limit for the highest cost areas will affect about 650 counties, according to the Department of Housing and Urban Development. Blaine County will be at the $625,500 limit.
FHA insures loans for buyers with down payments as low as 3.5 percent. The agency raised its limits during the financial crisis to help more home buyers, and the program quadrupled as a result. However, it faced mounting defaults and losses.
“As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play,” says FHA Commissioner Carol Galante. “Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved.”
SOURCE: Realtor News
The second week of the government shutdown is giving consumers and lenders second thoughts about the housing market. Lenders last week were giving assurances that they would use “work-arounds” for tax documentation on mortgage applications, but now the future is not quite as clear.
“As the government shutdown continues, we’ll continue to evaluate the circumstances,” said Tom Goyda, a spokesman for Wells Fargo, the nation’s largest lender.
Goyda said Wells Fargo is following guidance from Fannie Mae and Freddie Mac, which does not require IRS verification unless the borrower is financing multiple properties. If that is the case, the lender can close the deal without the verification but cannot deliver it to Fannie or Freddie without the IRS documents.
Jumbo loans (mortgages with values exceeding $417,000) are getting trickier, however. Some lenders will not do them at all without tax verification from the IRS. Others are delaying the process. They will all have to verify the tax information once the government opens again, and that’s a gamble. These loans are inherently riskier because most are held on bank balance sheets.
Wells Fargo is continuing to originate jumbo loans without tax document verification from the IRS. As for the risk it is taking on in doing so, Goyda said, “I can’t really speculate on that.”
“The industry is doing what it can to make the shutdown as seamless as possible, but some lenders are more conservative about it than others,” said Matthew Graham of Mortgage News Daily.
Loans backed by government insurance from the Federal Housing Administration (FHA) and loans through the Department of Veterans Affairs (VA) are largely not affected, as their processes are mostly automated or lenders have delegated authority to close the loans.
“Bottom line here: Loans that are anywhere close to ‘vanilla’ are moving through the system more or less as normal,” Graham said.
“Vanilla,” however, does not include loans needing flood insurance through FEMA, loans for self-employed borrowers or loans requiring Social Security number verification, he said.
Hardest hit by far is the Department of Agriculture home loan program. USDA loans, which are 30-year fixed with no down payment, make up less than 5 percent of the total mortgage landscape but are a favorite among first-time buyers and builders. As the so-called exurbs expand, more borrowers are qualifying for these loans. USDA is currently closed and not processing any loans.
“Some lenders are using this to advance competitive opportunity, rather than calling for an end to this, by advertising that they can close the loans if others cannot,” wrote David Stevens, CEO of the Mortgage Bankers Association, in an email over the weekend. “This disruption is negative for housing and the consumer and will only get worse as this extends.”
Stevens circulated an online ad sent to him by Premier Nationwide Lending, which touts “Good news for most of your borrowers!” The company said it has revised its policies to allow loans to be funded without IRS tax transcripts.
It noted that its policy is “short-term” and “temporary.” John Hudson, Premier’s vice president in charge of regulatory affairs noting that USDA loans are still shut down, and that one family he’s working with is “homeless” because of the shutdown.
Uncertainty in the mortgage market could not have come at a worse time. After a robust spring and summer sales season, housing was already beginning to slow down this fall, thanks to higher mortgage rates. Now concerns about the shutdown and the potential debt crisis have potential buyers pulling back yet again.
“Our September National Housing Survey results show that the improvements in consumer housing attitudes witnessed in recent months softened ahead of the government shutdown,” said Doug Duncan, chief economist at Fannie Mae. “Americans’ awareness of policy uncertainty leading up to the Oct. 1 shutdown and the pending debt ceiling debate appears to have grown as indicated by an apparent cautionary holding pattern in overall consumer housing and personal finance sentiment.”
Banks are reportedly losing favor of mortgage pre-approvals, which are often viewed as an important first step in the home buying process. Mortgage preapprovals are a written commitment from lenders outlining the loan amount and interest rate that home buyers qualify for.
They give buyers an indication of how much they can afford on their home purchase, as well as show sellers their commitment to purchase. But last year, only 29,912 preapprovals resulted in mortgages from the top 25 mortgage lenders — down from 101,626 in 2007, according to the Federal Financial Institutions Examinations Council.
Preapprovals accounted for 4 percent of the purchase mortgages that lenders originated last year, and preapprovals did not precede any of the mortgages issued to home buyers by 14 of the 25 largest lenders last year, according to the council.
“The popularity of preapprovals is quite low,” says Mike Lyon, vice president of mortgage operations at Quicken Loans. Quicken loans’ preapprovals are down 43 percent from 2007. Why are preapprovals losing favor, particularly as competition has been heating up in many housing markets?
Some banks say that they are holding off on the preapproval until seeing the home appraisal. Until then, they prefer a prequalification, which tells borrowers the average size of loan they can qualify for based on stated income and based on an average of mortgage rates. It’s not as formal of a commitment for a loan.
Preapproval are usually binding for two to three months. Some banks, such as Bank of America and Chase, say they are doing more pre-qualifications than pre-approvals.
Chase, for example, says it gives buyers a “conditional approval” that usually lasts 90 days, but does not provide a written commitment. Chase says it often waits to give a written commitment until after verifying borrowers’ income, employment, and the home’s appraisal.
Bank of America also says it waits to approve a buyer until a home is appraised and the borrowers’ finances are fully reviewed. Some analysts say that while preapprovals are showing signs of losing some favor, the federal data may not be a fully complete picture of how big of a decrease in prequalifications.
The federal data relies on lenders submitting data on their preapprovals, and some lenders say their preapprovals don’t meet the federal government’s formal federal definition.