Dennis' Mortgage Blog

Question of the week:  We are spending a lot of money on our child’s dorm room, does it make sense to buy something near campus?

Answer:  It is graduation time and a lot of parents will be sending their kids to college next year, or back to college.   With dorm rents at $1,000 per month or higher for half a two hundred square foot room with a bathroom down the hall, many parents may find purchasing a small house or condominium unit near campus is a better value, and environment, for their kids in college.

There are two approaches to purchasing off campus housing for your kids.  One is to put a large down payment and purchase as an investment property using non-owner occupied financing.  The other, very popular method is to use FHA financing.  FHA has the advantage of a smaller down payment requirement and that if you put your child on the loan and title it qualifies as an owner-occupied mortgage. 

Below is a link that is a rent versus own analysis of purchasing your son or daughter’s dorm room by buying a home or condominium using FHA or investment financing.  Not included in the scenarios are additional rents that you may collect, probably collect, by having one or more of your child’s classmates renting to live there instead of the dorms.

I have assumed $1000 per month for the dorm rent and for prices a $400,000 home near campus or a $300,000 condominium—prices I used as I know there are properties in these price ranges available near the Cal State Long Beach campus.

This scenario is not right for every family, but it is very right for many, especially those with more than one child attending the same college over a period of years.

If you have a son or daughter going to college and you are tired of paying rent to the college for a loud dorm with communal bathrooms contact me and we can explore other housing options for your children and family.

Here is the link that compares renting a dorm room versus purchasing off site housing for your college student(s):  http://mcedge.tv/169uop

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This week’s blog postings:

Europe Hurts Your 401(k) Helps Your Mortgage  A look at happenings in Spanish politics and credit rating markets that drove stocks and mortgage rates on Monday and Tuesday

Mortgage Fraud Task Force  California Attorney General Kamala Harris forms a task force to go after mortgage fraud.  Too little too late, or just what is needed?  Can it be successful where other states and the federal government have not been?

Yesterday the first revision of 1^st Quarter GDP came out and there was essentially no revision, which was disappointing as the consensus was for GDP to be revised up to 2.2% growth in the quarter, instead it was stuck at 1.8%.  What was revised was the amount of consumption in the quarter, it appears the growth in GDP was not due to you buying more but rather companies buying more and increasing inventories.

Unemployment claims climbed for the week to 424,000. With several weeks in a row showing initial unemployment claims over 400,000 it appears the weeks where claims were below 400,000 in March were probably an anomaly. 

Putt-putt-putt, that is not only what I did on the third green in my most recent golf match but also the sound of our economy as indicated by how you and your neighbors are behaving.  Consumer spending increased 0.4% in April, which isn’t terrible, but when you take out inflation that created higher costs for energy and food items spending only increased 0.1%.  This means you are not buying more items, just spending more for some of them.  Based on no increase in disposable income in April it does not appear that spending will increase sharply in coming months.

Pending home sales in April, these are home sales under contract but not yet closed, dropped over 10% from March, that is a large decrease.  This portends another drop in existing home sales in May unless there were a lot of escrows that are less than 30 days this month.

As one commentator said today, gas and oil are up, food costs are up, gold is up, stocks are up, but housing is down, why?  My opinion, until the housing sector builds any kind of momentum neither will our economy.  With over 400,000 individuals filing for unemployment each week, with personal income flat, with consumption flat and with housing stagnant I see no reason for rates to rise in the future extant the higher rates, cities, counties, states and foreign nations will be having to pay to borrow against their deficits that force up other bond rates, like mortgages.  That said, I will reiterate my blog post from early April that should municipalities come calling to the bond markets driving up rates, investors looking for good returns on safe investments will find Mortgage Backed Securities which will help keep rates low.

Rates for Friday May 27, 2011: Mortgage Backed Securities have seen prices climbing most of the week, until some sell off today as investors took profits.  Despite the positive price improvements lenders have thus far passed very little along to borrowers on the rate sheets.  We are suspecting in large part this is due to the new originator compensation rules imposed by the Fed that took place in early April.  The industry is just starting to see the impacts of the new rules and have yet to adjust pricing to match the new compensation models, as a result lenders are being conservative in pricing until they know if they have room to reduce the gap between their prices for origination and prices they are getting on the secondary markets for selling the mortgages.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS*

30 year conforming                               4.375%             Down 0.125%

30 year high-balance conforming           4.625%             Flat

30 year FHA                                         4.160%             Down 0.040%

30 year FHA jumbo                              4.221%             Down 0.029%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

*With new Fed regulations in place cost increase has been added to weekly rate quote.  Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

I usually use this space to share something personal about our family or something of personal interest.  This week I want to highlight some items that will not leave you with an upbeat type feeling.

First, Memorial Day is on Monday and too often we spend the day as a holiday playing golf or swimming with the kids and enjoying a barbecue.  Our family has been extremely fortunate to be able to enjoy these pursuits, as well as the engage in free speech and religious, the opportunity to purchase our homes and enjoy the pursuit of careers of our choosing; we have done so without knowing the pain and anguish of having lost a family member to war or military action.  We cannot possible be grateful enough to those who lost their lives, and their families, so that we may enjoy the liberty and freedom of our everyday lives.  On Monday when I look at the flag flying in front of our home, the flags throughout our neighborhood, I will give thanks and a prayer to those who fell representing that flag.

Second, we are a very generous nation, the most generous on earth.  Whenever tragedy and natural disasters occur anywhere in the world we are the first to respond with aid and personnel.  Americans generously donate to organizations providing assistance and relief to people in Japan, Haiti, Indonesia, Chile and even Iran.  It is my hope that we respond equally to help our fellow Americans in Joplin, the Mississippi watershed and other areas that have been devastated the last few weeks with tornados and floods.  If everyone who receives this weekly update donates just $10 to the American Red Cross we can provide tens of thousands of ounces of baby formula, or clean water, or hot meals, or blankets to those in need.

Remember the sacrifice of those who preserved our liberty and freedom this weekend, honor them by making a small donation to help other Americans who need our help this Memorial Day Weekend.

Have a great week,

Dennis