The post Mortgage Demand Continues to Decline as Interest Rates Rise appeared first on RealtyHop Mortgage Center.
]]>On an annual basis, mortgage applications dropped 23%, signaling a significant pullback from a growing number of Americans who can no longer afford a home. Home prices are a substantial concern for prospective homebuyers and a clear reason why the demand for mortgages and homebuying is down. Data from the Federal Reserve indicates that national home prices increased from an average of $261,000 to $308,000 between June 2021 and June 2022, around an 18.0% annual increase. In many cities, buyers would have to dedicate over 33% of their annual household income to homeownership costs, making housing unaffordable for most.
High interest rates are another contributor to declining mortgage demand. According to Freddie Mac, the average 30-year fixed-rate mortgage is now back to 5.89%. That means the current interest rate is slightly higher than in June when interest rates peaked. It also represents a significant increase from just a few weeks earlier — on August 18th, the average 30-year fixed-rate was 5.13%. As a result, mortgage demand began tumbling toward the end of August into the beginning of December.
Mike Fratantoni, Senior Vice President and Chief Economist at the Mortgage Bankers Association, explained that interest rates might remain elevated during the near term. “Recent economic data will likely prevent any significant decline in mortgage rates in the near term, but the strong job market depicted in the August data should support housing demand,” Fratantoni said in a statement on the MBA’s press release.
“Mortgage rates moved higher over the course of last week as markets continued to re-assess the prospects for the economy and the path of monetary policy, with expectations for short-term rates to move and stay higher for longer,” Fratantoni continued.
MBA data also shows that interest rates on a 30-year fixed-rate mortgage vary depending on the loan type. According to the MBA, conforming loans (those with $647,200 or less) averaged 5.94%, while jumbo loans (those more than $647,200) averaged 5.46%. 30-year fixed-rate mortgages backed by the FHA averaged 5.61%.
In late August, Moody’s Analytics Chief Economist Mark Zandi told Fortune that Moody’s now predicts that home prices will move between 0% to -5.0% over the coming year. This is a downgrade from their June forecast when Moody’s predicted 0% price movement. However, if a recession hits, home prices could drop 5.0% to 10.0%.
In many cities, asking prices are already going down. In New York City, the median list price for residential homes went down 2.7% last month. Meanwhile, sellers in Austin are adjusting their expectations to meet weakening demand, with the median asking price dropping 2.61% month-over-month, according to RealtyHop.
Moody’s Analytics rates 183 markets as being overvalued by 25%. Some of the most overvalued markets include Boise (72%), Charlotte (66%), and Austin (61%). These 183 markets will experience a drop of 10% to 15% over the next year. If there is a recession, home prices in those markets will decline 15% to 20%.
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]]>The post What is Mortgage Delinquency? appeared first on RealtyHop Mortgage Center.
]]>To prevent massive waves of foreclosures nationwide, the federal government, most states, some localities, and many mortgage lenders put foreclosure moratoriums into effect, allowing homeowners to delay their monthly payments. However, in 2022, most of these moratoriums have expired, and many homeowners find themselves with a delinquent mortgage.
A delinquent mortgage occurs when the homeowner falls behind on one or more mortgage payments. If the property owners are unable to service their loan, the mortgage lender is entitled to start the foreclosure procedure to recoup their losses.
As of the first quarter of 2022, approximately 4.11% of mortgages were delinquent after decreasing for 14 consecutive months from their pandemic peak of 8.22% in the second quarter of 2020. This number includes all delinquent mortgages, including those with only one missed or late payment. Serious delinquency rates, including loans delinquent for 90 days or more, which is typically when most mortgage lenders may start a foreclosure procedure, represent 1.3% of mortgages. However, keep in mind that a delinquent mortgage does not necessarily lead to foreclosure, as most homeowners can eventually catch up on their payments.
Foreclosure rates remain approximately 50% to 75% lower than mortgage delinquency rates. The foreclosure rates have been holding steady in the current real estate market, which suffers from a significant lack of inventory. They remain very low since most distressed homeowners can unload the property before the foreclosure process starts.
Nevertheless, falling behind on payments is a very stressful time for borrowers who find themselves at risk of losing the roof over their heads. If you find yourself in this challenging situation, you are in the right place. This guide will help you better under mortgage delinquency, its short and long-term implications, and how you can avoid it in the future.
So, your mortgage due date has come and gone, and you have not made a payment in time? Your mortgage may be delinquent, but all is not lost. Most mortgage contracts include a grace period, typically 10 to 15 days. You can still make a payment without a late fee during the grace period, and your late payment will not affect your credit score. Your mortgage is not considered delinquent until at least 30 days past the due date.
Once your mortgage is delinquent – 30 days past the due date – the lending institution is required to report your account to the credit bureaus. The longer your account remains outstanding, the harsher its negative impact will be on your credit score. In addition, a late payment can stay on your credit report and impact your score for up to seven years.
A credit score blemish is not the only consequence of mortgage delinquency. You will also need to pay late fees, the amount of which can depend on the lender, as well as the terms of the mortgage, for every payment made after the grace period. Based on your mortgage agreement, some lenders may not charge late fees until 30 days have passed from the due date, but your mortgage will still be considered delinquent.
If you stop paying your mortgage, your lending institution can start a foreclosure process to take possession of the property. However, it is a long and expensive legal process, and most lenders prefer to avoid taking such drastic measures whenever possible. Most lenders will not start a foreclosure until your balance remains unpaid for 3 to 6 months. Therefore, you have a bit of leeway if you find yourself in a difficult situation.
The first step to a foreclosure process is for the mortgage lender to file a notice of default. A default notice is a public notice filed with a court stating that a mortgage borrower has been delinquent on a loan for an extended period of time. However, you will have many opportunities to stop the process if you can meet your mortgage obligations along with any legal fees or property inspection fees made necessary by the foreclosure process.
Bad things happen to good people. Banks prefer to avoid initiating a burdensome eviction process whenever possible, so your best bet is to maintain open lines of communication with them to reach an agreement. If you think you will not be able to meet your mortgage obligations, your first step should be to call your mortgage lender proactively to discuss your options. Keep in mind that your mortgage servicer is the company you make your payment to and may or may not be your original lender. Here are some possible scenarios to avoid a delinquent mortgage, depending on your circumstances.
If you think your financial hardship may be temporary, you may qualify for mortgage forbearance. Mortgage forbearance allows you to temporarily stop your mortgage payments. However, the payments that would have been originally due during the pause have to be paid back, and the forbearance will typically negatively impact your credit. Nevertheless, it is a preferable scenario to losing your home.
If you qualify, you may also request to delay a certain number of payments until you refinance, sell your home or otherwise pay off your mortgage, which may be called a deferral or partial claim, depending on the type of loan.
If you went through a difficult past but have regained your financial stability (if you lost your job but found a new one, for example), you can also negotiate a repayment plan with your lender that allows you to tack the outstanding balance to your regular mortgage payments until your past-due balance is paid off. However, lenders a more likely to agree to short repayment plans (typically one to three months), so your payments will be significantly higher.
If your financial circumstances have changed significantly or if you are consistently behind with your mortgage payments, your lender may offer to modify the original terms of the loan, such as changing your interest rate, the loan term, or the principal amount owed, so your monthly payments are more affordable. For example, if you have an adjustable-rate mortgage and the interest rates are increasing rapidly, you may qualify for a fixed-rate mortgage to avoid further consequences. Although a loan modification will negatively affect your credit score, the impact will be less than foreclosure.
If you can afford to do so, the best-case scenario is to reinstate your mortgage by paying off the total amount past due. If it is not an option, consider keeping your mortgage on its current loan term and interest rate to minimize the impact on your credit score.
Unfortunately, sometimes, keeping your house is no longer an option. If necessary, you may need to negotiate a short sale with your mortgage lender. In this scenario, the lender agrees to let the borrower sell their home for less than the amount they owe on the mortgage. The proceeds go to the lending institution that may either forgive any remaining balance owed or obtains a deficiency judgment, in which case the borrower is legally obliged to pay any remaining amount. The lender can approve or deny all the offers and manages the sale.
A short sale is not an easy decision and will have a lasting impact on the seller’s credit. However, it is not as severe as it would be with foreclosure. In some cases, the borrowers may even qualify for a new loan right away if they have an otherwise excellent mortgage payment history and depending on the new type of loan they are applying for.
Another option to let go of the property while avoiding further trauma is to sign the property over to the lender as long as the house is in good condition and the lender agrees. Some mortgage lenders may also offer cash for the keys to help you get started on the right foot. Despite the blemish borrowers will receive on their credit score, they can qualify for a new loan four years after a deed-in-lieu rather than the seven years necessary after a full foreclosure.
Foreclosure is a long, expensive, and legally and emotionally charged process for both the lender and the borrower. Therefore, it is often a worst-case scenario for all parties involved. Foreclosures will also have a significant impact on your credit score and credit history. A poor credit score may prevent you from finding new accommodations. You will also need to wait up to seven years to qualify for a new loan. If you find yourself at risk of mortgage delinquency, it is best to start negotiating with your lender as soon as possible to avoid this situation.
Mortgage delinquency could have a significant impact on your credit and future financial health. Therefore, you must submit your mortgage payments in a timely fashion. A delinquent mortgage can lead to foreclosure. But remember that it is often the last resort for lenders, and there are ways to avoid foreclosure. If you find yourself in delinquency and don’t have the funds to make payments, contact your mortgage lender right way to discuss potential options, such as forbearance and a repayment plan.
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]]>The post What Are Mortgage Seasoning Requirements? appeared first on RealtyHop Mortgage Center.
]]>Among those demands, most lenders require several months of bank records. They do so to ensure that you have the money on hand to meet payment obligations and that the cash stays in your account for a while as a sign of financial stability. Lenders often provide a set timeframe for you to qualify for their requirements. These requirements are often known as mortgage seasoning requirements.
One of the most common phrases you’d hear relating to mortgage seasoning is “seasoned money.” Seasoned money refers to funds that have been sitting in your established bank account for a while. Usually, the funds would have to be in your account and shown on your bank statements for at least two months.
To secure financing, you will need seasoned money to cover the down payment and closing costs. During the mortgage underwriting process, the underwriter will review everything on your bank statements. If your financial situation is relatively stable and you don’t have lots of funds going in and out of your account, you won’t need to do much. However, you’ll likely need to provide a letter of explanation if they notice any large cash inflows or outflows to your account. Lenders do so to make sure that the money is indeed yours and that you didn’t take out any sort of loan to satisfy the seasoned money requirements.
Lending institutions take on significant risks when approving a loan. Therefore, they want to ensure the borrower can meet the financing obligations in the long term.
Of course, lenders also base their decision on other factors, including your credit score and income. But a borrower who has had large sums of cash for a long time – a.k.a. seasoned money – will be perceived as more trustworthy. Therefore, they are more likely to be approved for a loan with more advantageous terms.
Loan seasoning requirements vary widely depending on your circumstances and the type of loan you are applying for. In addition, each lending institution may have additional guidelines you must satisfy when applying for a mortgage. Some exceptions may be possible, and underwriting teams may be willing to consider your loan application on a case-by-case basis. However, you must be prepared to jump through additional loops and provide detailed paperwork justifying any irregularities or unusual movement.
Below are some common loan seasoning requirements you may encounter when applying for a home loan or refinancing.
You may be excited at the perspective of finally being within arm’s reach of your dream home after receiving a generous donation from a family member. Of course, you’d want to put it towards your homebuying journey to cover the down payment and closing costs. But not so fast! Any sudden changes in your savings will immediately send a red flag to the underwriting team.
One of the seasoning requirements for conventional loans is that no part of the down payment should be borrowed. One of the lenders’ main concerns is loans disguised as gifts, as any loans may affect the borrower’s ability to repay the mortgage. Therefore, the lender may ask that the benefactor provides a signed gift letter clarifying their position. You may also need to verify the gift funds transfer. If you own a vacation rental property, be ready that your underwriter may ask you to explain the rental income.
Most lenders require the funds to be in your account for at least 60 days before being used toward a home purchase with a conventional loan. Because of this, some borrowers may attempt to go around this rule by obtaining supplemental funds several months before applying for a loan, so the extra cash appears as seasoned money. However, the underwriters can quickly discover such deception if they request additional banking statements.
The “no borrowing” rule is also part of the FHA seasoning requirements. FHA loans require borrowers to contribute a minimum 3.5% down payment, plus closing costs. The cash must be sourced and seasoned for at least three months, although gift funds are acceptable.
Other forms of a sudden influx of cash on your bank account will also need to be justified for underwriters to consider it as a source for a down payment. This could include, for example, an inheritance, cashing in a trust fund or saving account, or lottery winnings. Most lenders can be lenient on gifts from uninterested third parties. Still, they will require that any other form of cash input be held in a financial institution for at least two months before being considered a qualifying factor for a home loan. Underwriters may deny cash savings deposits (a.k.a. “mattress money” since their provenance cannot be verified and could be fraudulent.
Bad things happen to good people, but a bankruptcy or a foreclosure will be a red flag for any loan application or refinancing. Mortgage underwriters typically expect would-be borrowers to have been back on their feet for at least several years before qualifying for a home loan. The minimum seasoning guidelines vary widely depending on the loan type, the bankruptcy chapter you filed for, and the presence of any extenuating circumstances that may have changed in the meantime.
The table below outlines the bankruptcy and foreclosure seasoning requirements for different types of loans.
| Conventional Loans | FHA Loans | VA Loans | USDA Loans | |
| Bankruptcy | Up to 4 years | Up to 2 years | Up to 2 years | Up to 3 years |
| Foreclosure | Up to 7 years | Up to 3 years | Up to 2 years | Up to 3 years |
These guidelines may be adjusted based on several factors, such as your credit score before the bankruptcy, credit gained since the event, whether it was a one-time event, and so on. Lending institutions may also consider elements such as on-time rental payments for at least a year, a steady income for two or more years, and a debt-to-income ratio below 43% as proof of financial stability. Therefore, it may be worth inquiring about your lenders’ different rules when applying for a loan.
> Learn more: How to Avoid Foreclosure?
Refinancing is often touted as an opportunity for homeowners to reduce their monthly payments, qualify for a lower interest rate, pay off their property faster, change lenders, or pull out the equity off their home. However, most lending institutions request a seasoning period of at least six to 12 months between the original and second loan and between refinancing.
There may be additional cash-out refinance seasoning requirements depending on the loan program you are applying for. It also matters whether the property was acquired through an arms-length transaction or other circumstances. These include properties acquired through an inheritance, separation, divorce, or dissolution of a domestic partnership. The lenders can also add overlay guidelines with more significant seasoning requirements than the ones provided by Fannie Mae or Freddie Mac.
> Learn more: How Often Can You Refinance?
Mortgage seasoning requirements provide a safety layer for lending institutions to qualify borrowers. However, it is only one of the conditions set up by lenders to determine eligibility for a mortgage or refinancing. Do not hesitate to investigate the lenders’ requirements in detail when shopping for a loan.
In addition, some non-qualified loans and hard-money lenders may have more lenient requirements, which may include mortgage seasoning.
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]]>The post The Impact of the Fed’s Latest Hike on Mortgage Interest Rates appeared first on RealtyHop Mortgage Center.
]]>The Federal Reserve’s hike applies to overnight interest rates, or the interest that banks charge one another for overnight loans. The Fed raised interest rates by 75 basis points in back-to-back months, as there was also an equivalent 75 basis hike in June. There hasn’t been such a quick rate acceleration since the 1980s, making the latest Fed move historic.
When Fed Chair Jerome Powell announced the latest rate hike in a press conference, he said that the United States isn’t in a recession and that his latest decision wouldn’t move the U.S. towards one. The Chairman cited strong employment growth — Burea of Labor Statistics (BLS) data shows that the U.S. has added at least 368,000 jobs per month in 2022.
The Federal Reserve, in an official statement, also defended its latest rate hike “Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low.” They also mentioned that high inflation is evidence of “supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
However, many experts in the private sector aren’t quite as optimistic about the state of the economy. “Whether the economy can smoothly transition from allegro to adagio is very much in doubt and depends both on the current state of the economy and how the Fed conducts policy from here,” David Kelly, chief global strategist at JPMorgan Asset Management, told CNN.
The Federal Reserve’s rate and mortgage interest rates are correlated to a large extent, but there is no evidence that mortgage interest rates will increase based on the latest news from the Fed. While that may not make sense to the casual observer, Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), has a simple explanation.
“The long-term bond market, off of which mortgage rates are generally priced, has mostly priced-in all future actions by the Fed and may have already peaked with the 10-year Treasury shooting up to 3.5% in mid-June,” said Yun.
Yun also said that mortgage interest rates “may be topping or very close to a cyclical high in July” and that “it is possible that the 30-year fixed mortgage rate may settle down at 5.5% to 6% for the remainder of the year.
As of July 28th, interest rates on a 30-year fixed-rate mortgage sit at a national average of 5.30%, according to Freddie Mac.
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]]>The post Buy, Build, or Fix Up: Which One is Right for Me? appeared first on RealtyHop Mortgage Center.
]]>In this article, we will discuss the pros and cons of each to help you decide. We will also cover the different mortgage and loan options you will need for buying, building, and fixing up.
Building your own home will be your best option if you want to call your shots and ensure your home is precisely what you want.
Remember that when you build your home, you don’t need to worry about current market conditions or styles of homes. Usually, home exterior and interior design styles come and go, but when you build your own home, you can make your own style and ensure that it’s the house you dream of.
However, building a home from the ground up is very time-consuming. Not only do you need to find a piece of land first, but you also have to go through the process of drawing, filing permits, getting approved, looking for the right type of builder, and so on. If you need a place right away or don’t have time for new construction, you may want to think twice before getting started.
If you are building a house from the ground up, you should know all the costs before buying. Make sure you are working with certified contractors, zoning officials, and city developers, so you know the full estimates of your home before you begin to build. When you apply for a new construction loan, your lender will likely ask for a breakdown of features and estimated costs. Therefore, you should know the total costs of everything and the project scope before you start.
Construction loans are different from a mortgage. A construction loan is usually a short-term loan that covers the construction cost. A mortgage will be required for the prospective homeowner to take full ownership of the property. There are several types of construction loans available, as listed below.
A construction-only loan, usually with a term of 12 months, covers only the actual construction costs rather than renovations or something else you might add on later. It also may not cover the soft costs associated with the construction, such as architectural fees, filing fees, MEP engineering, structural engineering, etc.
Since most lenders consider this type of loan high-risk, construction-only loans are often harder to qualify for and might have very high interest rates. They are considered higher-risk loans because of uncertainties involved in construction, including getting approvals from local authorities, the cooperation from the builder and their team, and potential supply chain disruptions.
This is a good loan choice for prospective homeowners. With a construction-to-permanent loan, the lender will fund the construction and then convert the loan into a permanent mortgage once the construction is completed.
A construction-to-permanent loan usually comes with one year of interest-only construction period. You will only pay only interest on the funds you have drawn during the 12 months. Once the construction is done, the loan will then be converted into a permanent mortgage.
While construction-to-permanent loans may seem convenient, it’s important to note that these loans can be much more expensive than traditional mortgages. Make sure to shop around and compare rates before you decide who you want to bank with.
> Learn more: How Much Does It Cost to Build a Home?
Whether you are working with a real estate agent or just found a home you love all by yourself, you might be ready to buy a home as-is. Some homes you look at might need repairs, while others might be good just the way they are.
Buying is the most common form of acquiring a home. There are, therefore, many different mortgage loans for buying an existing home or a newly constructed property. Keep in mind, however, that even with a new home, you won’t be able to customize it as much. Additionally, depending on the zoning codes and your homeowner’s association, you might not be able to do renovations or additions to the home afterward.
You can buy a home with most loan products available now. Below are four types of loans you will likely come across.
A conventional loan, or conventional mortgage, is the most common home loan. They can be used for primary homes, vacation homes, and investment properties. These loans aren’t part of any government program and aren’t insured by government entities. They can be lower in cost than FHA loans but more challenging to qualify for. Borrowers are usually required to put down a 20% down payment and have a FICO score of at least 620. Additionally, if you don’t put at least 20% down, you’ll have to pay private mortgage insurance (PMI) every month.
FHA loans are insured by the Federal Housing Administration (FHA) and must be used for purchasing a primary residence. The FHA loan program was created to encourage homeownership. They are the optimal home loan option for first-time homebuyers with little savings or having lower credit scores.
USDA loans are offered through the United States Department of Agriculture (USDA). These loans are zero down mortgage mortgages for low-income people in rural areas. However, USDA loans are often stricter to qualify for, and not every home is eligible.
To apply for a USDA loan, you must be without safe, sanitary housing. You also need to provide that you cannot secure home loans from traditional sources. In terms of income requirements, you need to be below the income threshold for your area.
VA loans are mortgages issued by a traditional lender (such as a bank, credit union, or mortgage company) and backed by the U.S. Department of Veterans Affairs (VA). These loans are for people in the military or their family members. They don’t require a down payment or mortgage insurance. Funding fees are capped and need to be paid by the seller. Usually, a funding fee is charged on VA loans. This is a good option if you’re a veteran, active service member, spouse, or surviving spouse.
If you are always looking for a project to work on, this is perhaps your best option. Fixing up a home can be time-consuming, but it’s really rewarding. Usually, you’d be able to acquire the property at a lower price given its condition. You will then start the renovation after closing. Depending on how much fixing up the home needs, you might be unable to live in it while completing the project. This means that if you are going with a fixer-upper, you may need to have another place to stay while you work on the renovation.
An FHA 203(k) loan, also known as a Rehab Loan or FHA Construction Loan, covers the property’s cost and any improvements needed to make it livable. It’s not uncommon for people to hire your friends or do the renovation themselves. But note that FHA 203(k) requires that you hire a certified and insured contractor for the renovation work. Additionally, the program will not finance your project if it’s going to take longer than six months to complete.
The Fannie Mae HomeStyle Renovation Mortgage is a type of renovation loan. This program allows you to borrow up to 97% of the total renovation cost. The max amount you can borrow is calculated based on the after-renovation value of the home or the total cost of the renovation, whichever is lower. You must put down at least 5% on a HomeStyle loan. However, there’s an exception if you qualify for the HomeReady program, which has a down payment requirement of just 3%.
In terms of the types of renovations the loan covers, the Fannie Mae HomeStyle Renovation Mortgage doesn’t have a lot of restrictions, as long as the work done is permanent and increases the property value.
The CHOICERenovation Mortgage from Freddie Mac allows the borrower to buy and renovate a fixer-upper, all with one loan. The down payment amount could be as low as 3%. The CHOICERenovation Mortgage is just like the Fannie Mae HomeStyle program. Your total loan amount is determined by the after-renovation value of the property or the total renovation cost, whichever is lower. The CHOICERenovation loan is perfect for first-time homebuyers looking for affordable housing options.
> Learn more: Fannie Mae and Freddie Mac: Why Are They Important, and How Do They Differ?
Whether you’re more attracted to a customized home or the convenience of ready-to-move-in homes, the most important thing to consider when choosing to build, buy, or fix up is your financial stability and the amount of time you have on hand.
While building your dream home may sound appealing, this approach comes with strenuous challenges. The extended timeframe with the urgency of getting approvals from the municipality may be more stressful than you think. Meanwhile, as the housing supply hits all-time lows and more homebuyers encounter bidding wars, buying a home may seem more unattainable than ever. If you have the capacity for a renovation project and have found a fixer-upper, that may be the solution that will bring you one step closer to owning your dream home.
No matter what you choose, review all loans available, compare the rates and terms, and carefully estimate your cost before proceeding with a lender.
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]]>The post Mortgage Demand Continues to Drop. Will Home Prices Finally Cool Down? appeared first on RealtyHop Mortgage Center.
]]>Demand for homeownership is still very high, but a growing number of Americans can’t afford to purchase a home due to elevated sales prices, high mortgage interest rates, and inflation that has made everyday necessities more expensive.
Refinancing applications were down 78% annually. This shouldn’t be surprising, given that interest rates are significantly higher now than they were a year ago.
“Rates are still significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed. Purchase activity is hamstrung by ongoing affordability challenges and low inventory, and homeowners still have reduced incentive to apply for a refinance”, said Joel Kan, MBA’s Associate Vice President of Economic and Industry Financing.
In the latest MBA weekly survey, Kan pointed out that “mortgage rates have increased sharply thus far in 2022 but have fallen 24 basis points over the past two weeks, with the 30-year fixed-rate at 5.74%.”
Some homebuyers may have hope that interest rates will fall below 4.0% again, but real estate experts don’t see that happening any time soon. The recent fluctuations do not indicate any trends yet. With the Fed open to raising rates by 75 basis points just in July, potential homebuyers will likely face another wave of mortgage rate hikes.
According to the latest government data from the Federal Housing Finance Agency (FHFA), home prices continued to rise in April, at a clip of 1.6%. Annually, Home prices rose a staggering 18.8% from April 2021 to April 2022. However, there is now increasing evidence that certain markets are cooling down.
For example, the trade association Las Vegas Realtors recently reported that home sales in the Las Vegas region decreased by 0.4% in June. While it is a modest decrease, it is notable for a market that experienced a rapid 21.5% annual price increase from June 2021 to June 2022.
With an unpredictable economy, forecasting the current real estate market is difficult, but Moody’s Analytics chief economist Mark Zandi recently made a bold prediction. He expects home sales to significantly decline as housing inventory increases, leading to 0% national growth over the next year.
With high interest rates and sales prices, potential homebuyers should know which markets are the most and least affordable. This month, according to RealtyHop’s Housing Affordability Index, Miami, Los Angeles, and New York were the top three least affordable cities in the U.S. Meanwhile, Fort Wayne and Wichita are among some of the most affordable housing markets. However, most cities have become less affordable due to higher mortgage rates.
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]]>The post How Often Can You Refinance? appeared first on RealtyHop Mortgage Center.
]]>The good news is that there are no limits to how often homeowners can refinance their property! Therefore, it is not uncommon for owners to refinance their property several times throughout the life of the loan. For example, they may refinance to remove their private mortgage insurance (PMI) a few years after purchasing a property or switch to a lower interest rate to reduce their monthly payments. They may also do a cash-out refinance and use the equity they built in the house to buy a vacation home.
Refinancing involves taking a new loan using the property as collateral with different terms (such as a different type of loan, interest rate, mortgage provider, etc.) and using the fund to pay off the previous mortgage. If the homeowners have enough equity built into the property, they can fund other projects via refinancing, such as a house renovation.
Since refinancing is a mortgage, it is subject to similar rules to primary home loans, including credit score requirements, income, closing costs, and so on. Besides, lenders typically have mortgage refinance requirements you need to meet each time you apply.
Here are some things to consider if you are planning to refinance your property, as well as some common questions homeowners have regarding refinancing their homes.
Have you just bought a house? It is not uncommon for homeowners to want to change their loan terms after closing on a home. Home hunters are encouraged to do their due diligence and shop around to find the best mortgage rate and lender. However, things may not always work out as planned. For instance, the interest rates may drop significantly enough that refinancing would save you thousands of dollars over the life of the loan.
Some mortgages – especially if you are planning on using the same loan provider for refinancing – have a waiting period known as the “seasoning period,” commonly six months to a year. Therefore, it is best to check the tiny writing at the bottom of your loan agreement before making any decision. You could also get around the seasoning period using a different mortgage lender when refinancing.
Home loans may have different waiting requirements depending on the mortgage type. Here is what to expect based on your primary loan.
As long as you are not doing a cash-out refinance and your mortgage lender does not have a seasoning period, you can refinance your conventional loan soon after closing the home or refinancing. In other words, if you are unsatisfied with your current lender or if the interest rates drop, it is never too late to find better options elsewhere. However, in some rare cases, your mortgage lender may have a prepayment penalty fee that you will need to include before moving forward with your refinancing plans. Therefore, it is best to shop for the best rate and check your mortgage agreement prior to closing.
Conventional cash-out refinancing has different rules than traditional loans. These loans allow homeowners to replace their existing home loan with a new, larger mortgage, with the difference being disbursed to you as cash-back at closing. It can be an excellent way for homeowners to obtain large sums of money – up to 80% of the value of their home – for rates significantly lower than those offered by credit cards or consumer loans. However, mortgage lenders tend to have more stringent requirements for cash-out refinancing.
Most mortgage lenders require the homeowners to maintain at least 20% equity in the home for a cash-out refinance loan. So, your equity must increase enough between refinancing – either because the property value has increased significantly or you paid off a large share of your mortgage. Besides, most lenders have a six-month waiting period between cash-out refinancing.
Government-backed loans, such as FHA, USDA, or VA loans, typically offer desirable rates and lower requirements for homebuyers. However, they also have more stringent rules than conventional mortgages. Your government-backed loan may be part of the Streamline refinancing program, such as the FHA Streamline Refinance or VA IRRRL program, which facilitates refinancing by reducing the time and paperwork associated with a refi. However, government-backed loans refinancing typically have waiting requirements: up to 210 days for a VA or FHA Streamline refinancing and between 6 to 12 months for a USDA refinancing.
Although refinancing several times has its advantages, it also comes with some conditions and requirements. Before calling your mortgage lender, you will need to weigh the pros and cons. Here are some of the elements to consider before refinancing.
Refinancing involves taking out a new loan, and, just like your primary mortgage, it does not come for free. You will most likely need to pay some closing costs, such as:
The closing fees may vary depending on your state and the type of loan you are applying for, but they typically represent the equivalent of 2% to 3% of your loan amount. Therefore, make sure that the money you will be saving by refinancing justifies the cost. You may also apply for a no-closing-cost refinance and save some money upfront. However, the closing costs and other borrowers’ expenses will be built into the principal, which means that you will have a bigger loan to repay and a higher interest amount. Some lenders may also offer a higher interest rate for a no-closing-cost refi. Therefore, your monthly payments will likely be higher, and you may lose money in the long run.
In some rare cases, prepayment penalties are another expense you may need to consider before applying for refinancing. Some mortgage lenders penalize homeowners who pay their loan before the end of the term, and you may need to pay a fee to offset the lender’s loss on the interest you did not pay.
Keep in mind that refinancing resets your loan’s term. When you refinance, you replace your existing loan with a new one. For instance, no matter how long you’ve been carrying your current loan, by refinancing with a 30-year fixed-rate mortgage, you will start over and have a new loan term of 30 years.
If reducing the loan term is your priority, consider refinancing with a shorter-term loan, such as a 15-year or 20-year loan.
Mortgage lenders have strict lending criteria for any loans, such as credit score requirements, income, debt-to-income ratio, etc. It is also true of refinancing. If any of these elements changed since you last applied for a mortgage, it might affect your loan approval. For example, if your debt burden has increased, such as taking out a new auto loan, you may not qualify for a refi.
Interest rates have been on everyone’s mind since the Fed started rapidly increasing rates to slow down the galloping inflation. If you are looking to refinance at some point, you should definitely take into consideration the rising interest rates.
Many homebuyers refinanced their homes in 2021 to take advantage of the historically low interest rates and high property values that increased their equity. Today, the interest rates may be on the rise, but property values are still high. With the rising price of goods and services, some consumers are turning to credit card debt to finance their daily expenses. However, despite the higher interest rates, a second mortgage is still significantly more affordable than credit card or consumer loan debt. For property owners who have built a significant amount of equity, tapping into your home equity may be more cost-effective than the alternatives. A cash-out refi, for example, can help bridge some expenses.
Besides, interest rates are still lower than they have been in the past. According to mortgage experts, it is best to refinance when the interest rates are at least 0.75 percentage points lower than your current mortgage. However, smaller reductions may still be worthwhile if they can help you lower your monthly payments and free some of your budget for other increasing expenses.
Interest rates are likely to keep increasing for the foreseeable future. Therefore, if you have been on the fence about refinancing, it may be best to do so now rather than later.
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]]>The post The Fed Raises Interest Rates in Response to High Inflation appeared first on RealtyHop Mortgage Center.
]]>The overall inflation rate was 1.0% in May alone, according to government data released on June 14th. The next day, the Federal Reserve responded with the most aggressive interest rate hike since 1994. The Fed, in an alarming fashion, raised its benchmark interest rate by 0.75 points. Earlier in the year, they increased interest rates by 0.25 points in March and 0.5 points in May.
Many experts thought that the Fed would increase the rates by half a point, but May’s unexpectedly high inflation figures prompted the Fed to go even further. Their move is a clear effort to curb rising consumer prices.
“The bottom line is, it seems like inflation is becoming more entrenched,” said Jay Bryson, chief economist at Wells Fargo. “And for many people, I think that was the game-changer.”
On the cusp of 2022, Fannie Mae forecasted that the average 30-year fixed mortgage rate would climb from 3.1% to 3.3% by the end of the year. The latest interest rates on a 30-year fixed-rate mortgage now sit at 6.03%, beating out Fannie Mae’s prediction by an incredible degree. Skyrocketing interest rates, coupled with high house prices, pushed the cost of purchasing a home up 50% in just six months. Housing affordability across the country is worsening and is forcing more people to rent, further driving up the rental prices in key cities.
The latest move by the Fed to further increase interest rates means that the interest on mortgages could climb even further. Experts agree that rising interest rates should cool down home prices a bit, but there is still a great deal of uncertainty.
Moody’s Analytics chief economist Mark Zandi argues that the United States is about to enter a “housing correction,” with 0% home price growth over the coming year. According to Zandi, certain hot housing markets like Boise or Atlanta could even see a price drop. Many readers may not lend too much credibility to Moody’s predictions since economists were so off the mark before, but Zandi has an explanation.
He argues that economists didn’t correctly predict inflation and interest rates for 2022 because of the unexpected supply-chain and energy disruptions that resulted from the Russian invasion of Ukraine. Zandi estimated that the inflation rate would have been 5.1%, and 30-year fixed-rate mortgages would be at about 3.8% if it weren’t for the war.
Once prospective homebuyers become homeowners, the cost of maintaining their property is also much higher than a year ago. Energy costs are up 34.6%, electricity is up 12.0%, and shelter is up 5.5%.
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]]>The post How Are Expenses Prorated at Closing? appeared first on RealtyHop Mortgage Center.
]]>A home sale rarely happens on the first day of the year – or even the first day of the month. By the time of closing, the original owner has likely paid some homeownership costs, such as taxes and HOA fees, ahead of time. The buyer must take over these expenses when taking possession of the property. Proration allows both parties to only be responsible for property expenses for the days they own the house.
Depending on the expenses, some may be paid in advance (for coverage that has yet to happen) or in arrears (for coverage that has already accrued.) Therefore, they will appear as debits or credits on each party’s closing statement.
Depending on the real estate transaction, several expenses may be prorated during a closing. Some of these costs are split between the buyer and the sellers, and others may be between the bank and the seller. Do not worry if math is not your strong point: your real estate attorney, real estate agent, lender, or escrow and title company do the proration calculations at the closing. They will give you a number before closing so you know exactly how much money to bring to the table. The closing disclosure usually has a detailed breakdown, too.
Property taxes are the most important item typically prorated during a real estate transaction since it is a significant cost of owning a home. When taxes are paid depends widely on the state and municipality: some may be prepaid, others collected in arrears. The time of the year when taxes are collected varies, as well.
The buyer and the seller must pay the appropriate amount of tax for the days they own the property. If the taxes are prepaid, the seller will receive a credit, and the buyer is charged. Taxes are prorated to the closing day since the original homeowner is responsible for paying them until the purchase is final.
It is not always a simple calculation: for example, the seller may qualify for exemptions that do not apply to the buyers, such as senior citizens or veterans. In addition, property taxes for rehab or new construction properties will need to be recalculated, as the original value the taxes are based on no longer applies.
Mortgage interest is due in arrears, and lenders collect interest up to 30 days before the first mortgage payment is due. For instance, if you close on April 5th, your first mortgage payment won’t be due until June 1st, and your lender will want to prorate the mortgage interest to cover the period from April 11th to April 30th. Therefore, most buyers owe mortgage interest at closing. It is also true for sellers who must pay interest when paying off their loans. Here is how to calculate the mortgage interest owed.
Let’s look at an example. Say the annual interest comes out to be $4,800. Your closing date is April 11th, and your first mortgage payment is due on June 1st. To prorate the mortgage interest, you will
Like taxes, the seller is only responsible for the homeowner association fee for the days they own the property. The timing depends on the billing cycle and the date of closing. If the HOA fees have not been paid yet, they will be paid from the seller’s proceeds. Divide the monthly by the number of days to obtain the day fee. In addition, there may also be a one-time HOA transfer fee – typically between $100 and $400 – paid at closing. The seller is usually responsible for this fee.
If the building being transferred is a rental property occupied by tenants, the closing fees may involve prorated rent. If tenants paid their rent at the beginning of the month, the seller owes the buyer any rent amounts that represent the period from closing through the end of the rental period (typically the end of the month.) For example, if tenants pay their rent on the first day of the month and the closing is on the 10th, the daily rental for the 20 remaining days (on a 30-days month) is a “credit” to the buyer and a “debit” to the seller on the closing statement.
Homebuyers typically take on new homeowners insurance and other hazard insurance (such as flood insurance) policies when buying a house. However, in some cases, the buyer may assume the seller’s insurance policy – for example, if the buyer is assuming the seller’s mortgage or buying on a contract for deed (or land contract.) Besides, in most transactions, the seller has likely prepaid for insurance for the entire month. They will receive a credit for any amount they have paid, covering days after closing.
In some rare cases, utilities may be prorated at closing.
In a typical real estate transaction, the seller will stop the property’s utility services before closing so the buyers can start with a clean slate. However, in some states, unpaid utility bills could become a lien on the property and thereby encumber the title. This situation could occur in the case of short sales or foreclosure when a homeowner in financial distress is more likely to fall behind on bill payments.
Besides, in some areas using oil as heating fuel, the sellers may have filled their tank before closing. Since the oil remaining in the oil tank is considered personal property belonging to the original homeowners, the homebuyers are often responsible for paying for any oil remaining in the oil tank at the time of closing and reimbursing the seller for the fair market value of the remaining oil.
Closing costs are a big part of a real estate transaction. By understanding how proration works, you can better prepare for the potential expenses you will incur during a sale so there are no surprises. While proration may seem complicated, the good news is your real estate agent, title or escrow company, and the lender will be able to calculate for you. Be sure to read through your closing statement and verify the numbers.
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]]>The post Everything You Need to Know About Jumbo Loans appeared first on RealtyHop Mortgage Center.
]]>It is common for the government to limit the mortgage amount you can borrow depending on your location. And while average-priced properties may fit within these ranges, certain home purchases may exceed the set limit. Thanks to jumbo loans, you can take out larger loans to finance the purchase of costlier properties.
In this article, you’ll learn the following:
As the name implies, a jumbo loan is designed to cater to home purchases requiring a mortgage that exceeds the maximum conventional conforming loan amount or limits set by the Federal Housing Finance Agency (FHFA).
Jumbo loans come with several benefits, such as no private mortgage insurance requirement and a higher loan amount. However, due to the greater risk to the lender, jumbo loans may come with a stricter loan requirement when compared to conforming loans.
Jumbo loans aren’t much different from a traditional mortgage aside from their size, terms, and features. Payment schedules and types of interest rates are usually more or less the same. You can get a fixed-rate or adjustable-rate jumbo loan with various mortgage term options. If you are looking to finance an investment property or buy homes in high-end real estate markets, a jumbo loan may be an excellent alternative for you.
Each year, the conforming loan limits are usually set by the FHFA, with the 2022 limits on conforming loans set at $647,200 for one-unit properties in most counties, an increase of $98,950 from $548,250 in 2021. In higher-cost areas, where 115 percent of the local median home value exceeds the baseline conforming loan limit, the ceiling is $970,800 for one-unit properties. When your mortgage amount exceeds these figures, you may need to apply for a jumbo loan.
Major metro areas tend to have higher conforming loan limits. So, what may be considered a jumbo loan in one county may fall under conforming loan limits in another. More importantly, jumbo loan limits are determined by the median home values of an area. You can find out your county’s specific conforming loan limits on the FHFA website.
Qualifying for a jumbo loan is one of the biggest challenges for the average loan consumer. Since Fannie Mae and Freddie Mac do not back jumbo loans, lenders are exposed to more lending risks. It is, therefore, common for lenders to tend to impose stricter underwriting requirements.
Like conforming mortgages, jumbo loan approval is also based on the same requirements ─ credit score, debt-to-income ratio, income, down payment, and employment status. Let’s take a deeper look into a typical jumbo loan requirement.
Keep in mind that if your application lacks in one area, you can make up for it in another area. For example, if your credit score is lower than the recommended figure, you may qualify for a jumbo loan by committing to a larger down payment or higher cash reserves.
Jumbo loans do fall under the category of conventional loans. While the term “conventional loans” refers to loans that are not part of a specific government program. Conventional loans are mainly divided into conforming and non-conforming loans.
Conforming loans are guaranteed by Fannie Mae and Freddie Mac and have a maximum loan limit that is set and controlled by the FHFA. The majority of the rules guiding conforming loans are instituted by Fannie Mae and Freddie Mac, two of the leading companies providing backings for conforming loans.
Non-conforming loans, on the other hand, are less regulated and not under the control of either of the government-sponsored enterprises. Rules of eligibility, pricing, and features are determined mainly by lenders. Since jumbo loans are not regulated by any GSEs and offer loan amounts greater than the conforming limits, they can be regarded as a non-conforming conventional loans.
The interest rate for a jumbo loan may be slightly higher compared to conforming mortgage loans. This is to compensate the lender for the greater risks they take on by extending you a larger mortgage amount. However, your credit score, down payment, cash reserve, DTI, and chosen lender play a major role in the interest rate you receive. In fact, there are situations where a jumbo loan may have a lower rate than a conventional mortgage.
As of June 3, 2022, the national average 30-year fixed jumbo mortgage APR is 5.380%. The average 15-year fixed jumbo mortgage APR is 4.960%, according to Bankrate’s latest survey of the nation’s largest mortgage lenders. Typically, the difference between conforming and non-conforming loans hovers from 0.25% to 1%.
Just because you qualify for a jumbo loan doesn’t mean you should take one out. You should only consider taking out a jumbo loan if you fall into the following category:
If you plan to purchase a property with a mortgage that exceeds the conforming limits set by the FHFA, then taking out a jumbo loan is your best bet. While it is safe to say that qualifying for a jumbo loan is more complex than a conforming mortgage, a jumbo loan can be your best option when it comes to expensive home purchases.
Please consult with your tax advisor to determine if a jumbo loan is right for your current mortgage financing needs. Ready to buy your dream home? Check today’s rates and get pre-qualified in less than 2 minutes.
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