by The KCM Crew on January 12, 2015 in First Time Homebuyers, For Buyers, Interest Rates, Pricing
There are many people out there who debated purchasing a home over the course of the last year, but ultimately did not. Whatever their reasons were for delaying, let’s look at whether the decision to wait to buy made sense.
The 30 year fixed rate on January 2, 2014 was 4.53% as reported by Freddie Mac. Looking at the chart below, your monthly mortgage payment with principal and interest for a $250,000 home would have been $1,271.17.
Even though interest rates have dropped below 4% and ended 2014 at 3.87%, home prices appreciated by 4.8 percent over the same time according to the Home Price Expectation Survey.
So that same home appreciated by $12,000 and now costs $262,000. The most recent report by Freddie Mac reports the average 30-year fixed rate is currently 3.73%.
Many may say, “See waiting a year made total sense, I’m saving $60 a month.” And they’d be right, over the course of the year they saved $729.36.
But what they haven’t realized, is that as the price of the home they purchased went up by $12,000, even if they just put a down payment of 5%, they had to come up with an additional $600 at the start of the process. So really they’ve only saved $129.36 in a year.
Is a savings of $11 a month really worth holding off on pursuing a home to call your own after you weigh all the benefits that come along with that?
The experts are predicting that homes will appreciate by another 4% and interest rates will increase by a full percentage point by the end of 2015. If you are in a position to be able to buy a home now before these predictions become reality, contact a local real estate professional and start the process.
FHA TO LOWER MI PREMIUM FROM 1.35% to .85%.
This is a major change for buyers and sellers alike. Here's why......
First of all for example on a $250,000 sales price financed with a 30 year fixed FHA mortgage the monthly mortgage insurance premium would decrease about $100 a month.
So that will increase the buying power as well you might ask and you’d be correct.
Secondly the same buyers who maxed out at $250,000 sales price now can purchase up to $265,000 once these changes are enacted by FHA. That’s an extra $15,000 in sales price just by this one simple change.
It is not clear yet when the change will take effect, but the premium will drop 50 basis points because "Too many creditworthy families who can afford -- and want to purchase -- a home are shut out of homeownership opportunities due to today's tight lending market," (according to the White House).
Please also remember that FHA monthly mortgage insurance premium (MIP) still never drops off for the life of the loan unlike the private mortgage insurance (PMI) on conventional loans.
I will keep you up to date on the changes and how they affect you and your business. As always I am available if you or your clients have questions. I appreciate your referrals and look forward to hearing from you.
Whether GSE reform features in his speech is still up in the air – the White House press office tells HousingWire there’s no preview of the speech available yet – but housing will be the primary focus of Obama’s remarks, and several sources say that the President will likely announced the 0.5% cut to FHA premiums.
Private mortgage insurers such as Radian (RDN), MGIC (MTG), Essent Group (ESNT) and NMI Holdings have over the last couple of years enjoyed an increase in market share following boosts in FHA premiums. Share prices in those firms are sinking today on this news.
Real estate agents, however, are expected to receive the development warmly.
“Realtors are hopeful that during tomorrow’s speech in Phoenix, the President will announce his intention to lower FHA’s costly mortgage insurance premiums that have priced too many potential home owners out of the market. NAR estimates that in 2014, nearly 234,000 creditworthy borrowers were priced out of the housing market because of high FHA insurance premiums,” said National Association of Realtors President Chris Polychron, who will attend tomorrows speech. “By lowering its fees, FHA will provide greater access to homeownership for historically underserved groups. I look forward to attending the speech tomorrow and sharing our views with President Obama.”
The federal government’s home mortgage insurance program is operating in the black, but its insurance premiums remain at record-high levels.
An analysis by the Urban Institute indicates that that FHA can significantly lower premiums — charging current borrowers more appropriately for their risks — while continuing to build the necessary reserves against future losses.
The President's unilateral executive action could be met with fierce opposition in the newly sworn-in, Republican-controlled Congress.
On Nov. 17, the FHA released its actuarial report on the Mutual Mortgage Insurance Fund for single-family programs, and while the health of the regulating agency improved, it still has a way to go with its finances.
The FHA boasted a $21 billion improvement since late 2012, after implementing a series of financing changes. The MMI Fund, which handles single-family programs, gained almost $6 billion in value in the past 12 months, printing now at $4.8 billion. Last year it fell short by more than $1.3 billion.
The report served as a Rorschach test, with those on the left and right, and those in the industry and those advocating for fair housing using it to bolster their disparate agendas.
“Given that the FHA’s flagship fund – the Mutual Mortgage Insurance Fund – is expected to remain below the Congressionally-mandated 2.0% threshold until October 2016, a decision to lower FHA premiums in 2015 would undoubtedly be met by considerable opposition from Congressional Republicans,” said Lauren Burk, analyst with Compass Point Research & Trading.
“Specifically, we believe that House Financial Services Chair (Jeb) Hensarling, R-Texas, and likely Senate Banking Committee Chair (Richard) Shelby, R-Ala., would publicly and aggressively attack a move to lower FHA premiums in advance of the MMIF clearing the 2.0% threshold,” Burk said in November.
FHA to lower cost of mortgage insurance
Diana Olick | @diana_olick
1 Hour AgoCNBC.com
Obama to reduce FHA mortgage premiums. President Obama will announce a reduction in FHA mortgage insurance premiums, reports CNBC Diana Olick.
In a move designed to bring more first-time homebuyers into the housing market, President Barack Obama is expected to announce that the Federal Housing Administration (FHA), the government insurer of home loans, will lower its annual insurance premiums from 1.35 percent to 0.85 percent, according to sources.
The president is scheduled to talk about improvements in the housing market at a speech on Thursday in Phoenix, one of the hardest-hit markets of the housing crash.
Stocks of the nation's home builders rose on the news Wednesday, while those of mortgage insurers fell.
The Department of Housing and Urban Development, which the FHA is part of, declined to comment.
"It couldn't come at a better time, assuming it's true," said David Stevens, CEO of the Mortgage Bankers Association. "February is the beginning of the spring market. I think it will have a definitive impact particularly in the first-time homebuyer market."
For the typical FHA applicant, the reduction in premiums means a savings of about $80 on their monthly payment, according to CoreLogic's chief economist, Sam Khater.
"So it's positive news from a consumer welfare perspective, especially for first-time homebuyers, which account for the majority of FHA's business," he said, adding, "However, I think the marginal impact on sales will be small because potential buyers make the decision to purchase based on trigger events, such as a new job, marriage, kids, etc. Changes in affordability only impact how much home they can buy."
The FHA had been the only low down payment product available, with a minimum 3.5 percent down, but recently Fannie Mae and Freddie Mac announced a new 3 percent down payment product that would require private mortgage insurance. The product would compete directly with the FHA and could have offered some borrowers a cheaper option if they had a good credit score.
Read MoreWeekly mortgage applications fall sharply over holidays
"We believe the cut is strategic. Our view is that FHA was at risk of losing enough market share—especially of higher-quality borrowers—to the GSE 97 percent down mortgage that it could have put at risk the ability of the FHA fund to reach its 200 basis point reserve requirement this year as it had forecast. By cutting the premium, FHA would increase its share of the market and should be back on track to meeting the reserve requirement despite the cut in revenue," wrote Jaret Seiberg, an analyst at Guggenheim Partners.
The reduction will likely come under scrutiny by some on Capitol Hill, as the FHA is still building its capital reserves and is not yet above the mandatory 2 percent minimum. It is back in the black, after having bled cash for two years.
The FHA's volume had soared at the beginning of the housing crash, making up for the lack of credit in the private market, but that came at a price. In order to rebuild its fund, it more than doubled its annual insurance premium and raised average credit scores. That made it harder for borrowers today to afford an FHA loan.
Read MoreFederal Housing Administration back in the black
Lowering the premium will bring volume back to the FHA, but it will also bring back risk.
"That is clearly the tension with any lending program that encourages low down payment," said Stevens. "But we are in a different position. We are clearly in an environment where home prices are very stable with steady growth. You don't have the dynamics to create any type of housing bubble."
Mortgage volume has been lagging, even with interest rates falling to near record lows. The Obama administration is clearly looking for new ways to boost homeownership, as investor activity wanes and the market is left to mortgage-dependent buyers.
"Now that we've made it harder for reckless buyers to buy homes that they can't afford, let's make it a little bit easier for qualified buyers to buy the homes that they can afford," said Obama in an August 2013 speech, also in Phoenix. At the time he did not make mention of the FHA, which was still in the red, but instead touted refinance programs and less red tape for lenders.
Obama is also expected to address the issue of putbacks at the FHA, which is when lenders are forced to buy back bad loans. The regulator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency, has already sought to clarify these rules, which have created huge costs for lenders and consequently higher costs for borrowers.
by The KCM Crew on December 15, 2014 in First Time Homebuyers, For Buyers
The New York Times recently published an editorial entitled, “Homeownership and Wealth Creation.” The housing market has made a strong recovery, not only in sales and prices, but also in the confidence of consumers and experts as an investment.
The article explains:
“Homeownership long has been central to Americans’ ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth.”
Many of the points that were made in the article are on track with the research that the Federal Reserve has also conducted in their Survey of Consumer Finances.
The study found that the average net worth of a homeowner ($194,500) is 36x greater than that of a renter ($5,400).
One reason for this large discrepancy in net worth is the concept of ‘forced savings’ created by having a mortgage payment and was explained by the Times:
“Homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month.”“Even in instances where renters have excess cash, saving a substantial amount is difficult without a near-term goal, like a down payment. It is also difficult to systematically invest each month in stocks, bonds or other assets without being compelled to do so.”
“Homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month.”
“Even in instances where renters have excess cash, saving a substantial amount is difficult without a near-term goal, like a down payment. It is also difficult to systematically invest each month in stocks, bonds or other assets without being compelled to do so.”
“As a means to building wealth, there is no practical substitute for homeownership.” If you are a renter who is considering making a purchase, sit with a local real estate professional who can explain the benefits of signing a contract to purchase over renewing your lease!
by The KCM Crew on December 17, 2014 in First Time Homebuyers, For Buyers
There are many young people debating whether they should renew the lease on their apartment or sign a contract to purchase their first home. Based on a recent study, here are two reasons buying a home might make more sense:
by The KCM Crew on October 27, 2014 in For Buyers
If you are thinking about purchasing a home right now, you are surely getting a lot of advice. Though your friends and family have your best interests at heart, they may not be fully aware of your needs and what is currently happening in real estate. Let’s look at whether or not now is actually a good time for you to buy a home.
There are three questions you should ask before purchasing in today’s market:
This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with finances. A study by the Joint Center for Housing Studies at Harvard University reveals that the four major reasons people buy a home have nothing to do with money:
What non-financial benefits will you and your family derive from owning a home? The answer to that question should be the biggest reason you decide to purchase or not.
When looking at future housing values, Home Price Expectation Survey provides a fair assessment. Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts and investment & market strategists about where prices are headed over the next five years. They then average the projections of all 100+ experts into a single number.
Here is what the experts projected in the latest survey:
A buyer must be concerned about more than just prices. The ‘long term cost’ of a home can be dramatically impacted by an increase in mortgage rates.
The Mortgage Bankers Association (MBA), the National Association of Realtors, Fannie Mae and Freddie Mac have all projected that mortgage interest rates will increase by approximately one full percentage over the next twelve months.
Only you and your family can know for certain the right time to purchase a home. Answering these questions will help you make that decision.
Fall house staging has to be sharp, because your listing has to sell if you want to close the year out on a high note and leave your sellers feeling satisfied.
Here five ways to help your clients make their real estate listing stand out and get their home sold before the holiday season hits!
These days many sellers are selling to move on to another property. Chances are, your listers have a vision for both the property want and the new furnishings to make the new space into their dream. For sellers who have the budget, encourage them to shop ahead. The dream furniture and non-permanent fixtures for their new space may help their current property sell faster.
Before you bring up house repairs, find out what your seller’s always wanted to do with the home and never got around to completing. This, sometimes emotional, trip down missed-out memory lane can help you make the case for improvements you know will make the home move.
Sometimes helping sellers revisit their dreams for a property can unlock easy ways to market it as the dream home for someone else.
Decluttering always sounds good to an agent, but many sellers need incentive to part with their stuff.
Well, little motivation can compete with money in these situations. If you’re asking your sellers to let go of large amounts of stuff, trying selling them on the idea of a big tax credit for donating their extras. Take inventory and tally up the value of the items you think they should part with. Showing them the tax savings using the Salvation Army or Goodwill donation calculators, especially in extreme situations, may be the motivation to help them let go.
For your relocating or downsizing clients, your professional photos can do double duty. To help motivate your clients to stage, agree to help them list the contents they need to get rid of on Craigslist or in yard sale advertising. If they know the photos are going to get a lot of mileage and will end in some easy cash, they may be more apt to clean up for the photo shoot and showings.
Last but not least, the real downside of staging for many is the cost and the effort. You can help clients overcome this hurdle. Search discount sites like Groupon and LivingSocial for deals on the cleaning, painting, and other tedious to-dos to be done. The ability to affordably outsource the un-fun projects may get you closer to showing-ready home a lot faster.
by The KCM Crew on September 23, 2014 in For Buyers
In a recent survey, How America Views Homeownership, it was revealed that 68% of Americans feel that now is a good time to buy a home and 95% said they want to own a home if they don’t already.
Franklin Codel, head of Wells Fargo home mortgage production, explains:
“Although the home buying process has changed in many ways in recent years, our survey found Americans still view homeownership as an achievement to be proud of and many believe that now is a good time to buy a home.”
However, the survey also reported that many are afraid to purchase a home because of uncertainty about “qualifying for a mortgage or navigating the home buying process”. Though 74% said they “know and understand” the financial process involved in buying a home, they also gave answers that suggest otherwise. For example:
In actuality many of these beliefs are unfounded. Let’s look at the question of down payment:
Freddie Mac, in a recent blog post addressing the issue, confirmed that there is misinformation regarding the amount necessary when determining the down payment for a home purchase:
“Did you know 40 percent of today's homebuyers using mortgage financing are making down payments that are less than 10 percent? And how about this: since 2010, the number of people putting down less than 10 percent for conventional loans has grown three fold. So, not only are low down payment options real, they represent a significant portion of today's purchases.”
In a separate Executive Perspectives, Christina Boyle, Freddie Mac’s VP and Head of Single-Family Sales & Relationship Management explained further:
Boyle talked about the importance of educating potential buyers:
“Letting more consumers know how down payments are determined could bring more qualified borrowers off the sidelines. Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 or 10 percent.”
“It is important for prospective homebuyers to feel empowered to ask lenders and real estate agents questions about available options, such as down payment assistance or FHA loan programs or VA loans for veterans.”
If you are saving for either your first home or that perfect move-up dream house, make sure you know all your options. You may be pleasantly surprised.
by The KCM Crew on September 22, 2014 in For Buyers
Over the last six years, homeownership has lost some of its allure as a financial investment. As homeowners suffered through the housing bust, more and more began to question whether owning a home was truly a good way to build wealth.
The Federal Reserve conducts a Survey of Consumer Finances, every three years, and just released their latest edition this past week.
Some of the findings revealed in their report:
The Fed study found that homeownership is still a great way for a family to build wealth in America.