Bond Yield Plunge is a Boon for Mortgage Borrowers

Post-Brexit uncertainty has meant that global investors are pouring money into so-called safe haven investments, like US government bonds. As prices rise, benchmark 10-year Treasury yields touched an all-time low of 1.344 percent – think about that…if you lend the US government money for ten years, you will only receive just over 1.3 percent interest—and if you lend for 30 years, you will only get about 2.1 percent! That’s terrible news for savers, especially risk-averse ones -- as well as pension funds, which try to provide stable income for retirees. But it's great news for mortgage borrowers. The average contract interest rate for 30-year fixed-rate mortgages for conforming loans ($417,000 or less) has dropped to near all-time lows for those with good credit. There are some lenders going as low as 3.25 percent, the lowest level since May 2013. 15-year loan rates are running at about 2.75 percent. Adding to the good news is that at the same time, home prices have mostly increased and credit scores have improved, which means many people who couldn’t refinance a few years ago, can do so now.

According to Mike Raimi of Luxury Mortgage Corp, “Closing a loan is still labor intensive. Borrowers need patience and perseverance” according to Mike. Mortgages for new home purchases can take about three weeks to close, while refinancing can take longer – “anywhere from 30 to 45 days.”

If you are looking for a 30-year conventional mortgage with 20 percent down, the best rates are available for those with credit scores above 740. For every 20-point drop in score, the mortgage rate jumps by a quarter of a percent. If your credit score is below 620, it’s tough to get a loan closed. (Credit scores do not have nearly as much impact on loans of 15 years and shorter.)

If you are preparing for the mortgage process, here’s what you will need:

• W-2 (2 years)
• Tax Returns (2 years)
• Pay Stubs (2 months)
• Bank statements – all pages (2 months): You may also need to provide the lender with an explanation for any large deposits that have been made into bank accounts. This has more to do with beefed up anti-money laundering efforts than the mortgage process itself.
• 6 months of mortgage payments in cash reserves (sometimes less, but this is a good rule of thumb)
• Investment accounts: If bank accounts do not show adequate assets, lenders may ask for investment account statements.
• Donor letter: If a family member or friend is helping you with your down payment or providing cash for the re-fi, he or she may be required to provide a letter and may also have to present his or her account statements.
• Self-employed applicants: Must have 2 years of proof of self-employment and 2 years of tax returns. Gone are the days when self-employed borrowers can “add-back” tax preference items. While you may have used the tax code to your advantage, the bank will not cut you any slack – the numbers on the return are set in stone.

Home Buying 101: Mistakes to Avoid

After a number of fits and starts over the past 18 months, the housing market is poised to show improvement this spring. The combination of underlying strength in the labor market, affordable mortgage rates and the reduction in FHA borrowing requirements and costs is expected to bring more first time homebuyers into the market. Additionally, many buyers who went through foreclosures, bankruptcies or short sales during the downturn now have repaired their credit enough to qualify to buy a home again. RealtyTrac predicts that about half of the 7.3 million who lost their homes to foreclosure or short sales from 2007 through the end of 2014, will return to the market and buy a house. In this year alone, there could be at least 250,000 of these so-called “Boomerang Buyers”, followed by another million or so in the subsequent seven years.

If you are ready to jump into the market, take care to avoid these common home buying mistakes:

1. Not running the numbers: It’s important to understand how much home you can afford to buy and whether home ownership might preclude you from addressing other important financial issues in your life. Use this great rent vs. buy calculator from the New York Times — renting might still be the better deal in your area. And don’t forget to add in a line item for ongoing upkeep. A good rule of thumb is to include one percent of your purchase price as an annual budget amount for repair and maintenance.

2. Not correcting credit report mistakes: If you have not done so in a while, go to AnnualCreditReport.com and request your free copy. It’s important to correct any errors on the report before you start the mortgage process.

3. Waiting too long to get pre-approved for a mortgage: The mortgage process requires plenty of time (up to 90 days in some cases), patience and follow-through. Start early, compare apples to apples and ask the broker to itemize the total costs that you should expect to pay.

4. Going it alone: As much as everyone complains about realtors, it’s tough to go through the home buying process alone. In some markets, buyers’ brokers are available, but the most important qualities in brokers are: honesty, experience, good connections with other agents; and good referrals from buyers like you. Remember that most agents represent the seller, not the buyer.

5. Getting too attached to a property: As my mother, a realtor, likes to say: “A house is like a man…there’s more than one for you in the world!” Some buyers get so attached to a particular home, that they end up blowing their budget or becoming disheartened if they lose the property. Buck up—there are lots of properties out there!

6. Failing to include a contingency clause in the contract/having too many contingencies. One of the most common contingency clauses is one that is related to securing a mortgage. The clause protects you if the loan falls through or the appraisal price comes in much higher than the purchase price. Should one of these events occur, the seller would refund your down payment. Without the clause, you can lose that money and still be obligated to buy the house. On the other hand, if your offer is loaded up with contingencies, you may spook the seller.

7. Not hiring a real estate attorney: This is a major transaction, so don’t cheap out when it comes to legal fees. Even if your mortgage company provides a lawyer, hire your own to draft all of the necessary documents and to ensure that your interests are being represented at every step of the process.

8. Blowing off the home inspection: Think you’ve found your dream house? Maybe, but unless you have an engineer walk through the premises with you, you might be buying a new roof in a couple of years. Don’t get freaked out if a problem arises during the inspection–remember that it can often be solved with a simple adjustment in price.

9. Assuming foreclosures are great deals: The pace of foreclosure sales is slowing down, but in case you run across what you think is a gem, remember that the property likely has been unoccupied for a while and could need major repairs.

10. Buying a home based on a “The Best/Worst Places to Retire” list: These compilations provide great headlines and may even help guide you, but they can’t possibly take into account the details of your personal situation.

Mortgage Market: What you Need to Know to Close a Loan in 2015

Fears over a global slowdown may have stock investors wishing for the merry go-round instead of the roller coaster, but bond investors have been thrilled. In fact, the recent unrest has meant that investors are pouring money into the US government bond market, which drives prices higher and yields lower. As of this writing, the yield on the 10-year treasury has fallen to 1.85 percent, a far cry from the 3 percent seen just over a year ago. As a result of the bond market rally, the average contract interest rate for 30-year fixed-rate mortgages for conforming loans ($417,000 or less) has dropped to 3.8 percent, the lowest level since May 2013, according to the Mortgage Banker’s Association. A jumbo loan will cost slightly more—3.86 percent and the average rate for a 15-year loan has decreased to 3.1 percent.

Additionally, there is new pricing on FHA loans, which could bring more first time homebuyers into the market this year. With an FHA loan, borrowers need a 3.5 percent down payment and the agency is more flexible when it comes to underwriting, especially for those with credit scores all the way down to 620 and for those carrying student loan debt. This year, FHA loans are cheaper, because the government reduced premiums for FHA mortgage insurance by 0.5 percent – its now 0.85 percent, down from 1.35 percent of a loan's value. The move is expected to save a typical first-time homebuyer about $900 in her annual mortgage payments.

With all of this news, I thought it was time to check in with Mortgage Mike (aka Mike Raimi of PMAC Lending Services) for an update on the 2015 mortgage market.

What do you need to know about attaining a mortgage now? “The process continues to improve, but it is still labor intensive. Borrowers need patience and perseverance” according to Mike. Mortgages for new home purchases can take about three weeks to close, while refinancing can take longer – “anywhere from 30 to 45 days.”

If you are looking for a 30-year conventional mortgage with 20 percent down, the best rates are available for those with credit scores above 740. For every 20-point drop in score, the mortgage rate jumps by a quarter of a percent. If your credit score is below 620, it’s tough to get a loan closed. (Credit scores do not have nearly as much impact on loans of 15 years and shorter.)

If you are preparing for the mortgage process, here’s what you will need:

• W-2 (2 years)
• Tax Returns (2 years)
• Pay Stubs (2 months)
• Bank statements – all pages (2 months): You may also need to provide the lender with an explanation for any large deposits that have been made into bank accounts. This has more to do with beefed up anti-money laundering efforts than the mortgage process itself.
• 6 months of mortgage payments in cash reserves (sometimes less, but this is a good rule of thumb)
• Investment accounts: If bank accounts do not show adequate assets, lenders may ask for investment account statements.
• Donor letter: If a family member or friend is helping you with your down payment or providing cash for the re-fi, he or she may be required to provide a letter and may also have to present his or her account statements.
• Self-employed applicants: Must have 2 years of proof of self-employment and 2 years of tax returns. Gone are the days when self-employed borrowers can “add-back” tax preference items. While you may have used the tax code to your advantage, the bank will not cut you any slack – the numbers on the return are set in stone.

10 Home Buying Mistakes

After that nasty weather in the first quarter of the year, the much hoped for housing recovery never quite took hold during the normally vibrant spring buying/selling season. Despite the Polar Vortex, there were other factors that kept a lid on housing buyers, including the fact that tentative buyers were spooked by rising prices, especially in certain hot housing markets. But after a weaker than expected first half of the year, homebuyers may want to enter the market before the action heats up again. If you are ready to jump into the market, take care to avoid these common home buying mistakes:

1. Not running the numbers: It’s important to understand how much home you can afford to buy and whether home ownership might preclude you from addressing other important financial issues in your life. Use this great rent vs. buy calculator from the New York Times — renting might still be the better deal in your area. And don’t forget to add in a line item for ongoing upkeep. A good rule of thumb is to include one percent of your purchase price as an annual budget amount for repair and maintenance.

2. Not correcting credit report mistakes: If you have not done so in a while, go to AnnualCreditReport.com and request your free copy. It’s important to correct any errors on the report before you start the mortgage process.

3. Waiting too long to get pre-approved for a mortgage: The mortgage process requires plenty of time (up to 90 days in some cases), patience and follow-through. Start early, compare apples to apples and ask the broker to itemize the total costs that you should expect to pay.

4. Going it alone: As much as everyone complains about realtors, it’s tough to go through the home buying process alone. In some markets, buyers’ brokers are available, but the most important qualities in brokers are: honesty, experience, good connections with other agents; and good referrals from buyers like you. Remember that most agents represent the seller, not the buyer.

5. Getting too attached to a property: As my mother, a realtor, likes to say: “A house is like a man…there’s more than one for you in the world!” Some buyers get so attached to a particular home, that they end up blowing their budget or becoming disheartened if they lose the property. Buck up—there are lots of properties out there!

6. Failing to include a contingency clause in the contract/having too many contingencies. One of the most common contingency clauses is one that is related to securing a mortgage. The clause protects you if the loan falls through or the appraisal price comes in much higher than the purchase price. Should one of these events occur, the seller would refund your down payment. Without the clause, you can lose that money and still be obligated to buy the house. On the other hand, if your offer is loaded up with contingencies, you may spook the seller.

7. Not hiring a real estate attorney: This is a major transaction, so don’t cheap out when it comes to legal fees. Even if your mortgage company provides a lawyer, hire your own to draft all of the necessary documents and to ensure that your interests are being represented at every step of the process.

8. Blowing off the home inspection: Think you’ve found your dream house? Maybe, but unless you have an engineer walk through the premises with you, you might be buying a new roof in a couple of years. Don’t get freaked out if a problem arises during the inspection–remember that it can often be solved with a simple adjustment in price.

9. Assuming foreclosures are great deals: The pace of foreclosure sales is slowing down, but in case you run across what you think is a gem, remember that the property likely has been unoccupied for a while and could need major repairs.

10. Buying a home based on a “The Best/Worst Places to Retire” list: These compilations provide great headlines and may even help guide you, but they can’t possibly take into account the details of your personal situation.