Question of the week: Most of your questions are directed to people buying homes, how about one this week for those of us who already own our homes?
Answer: My apologies for seemingly ignoring you with my weekly Q&A! Here is something for homeowners: Take advantage of the weather in the coming weeks to prepare you home for fall and winter, and in California our rainy season. While in Southern California we are finally experiencing summer heat with triple digit temperatures in most areas that may cause some to eschew any hard labor, there are plenty of weekends left before late October and the on-set of fall. Keep in mind many are predicting an El Nino phenomenon this winter, which as residents know will bring high volumes of rain. So be prepared!
Clean gutters Make sure your gutters are clean and flow freely. While being mindful of the various water regulations in the region, run some water through your gutters to make sure the water gets through and also check where it drains. Extend your downspouts so they drain away from your foundation and water does not collect in pools against your home or in areas it can seep under walls.
Scrape and Paint Trim Exposed wood on trim around your home is susceptible to retaining and wicking moisture. This can lead to wood rot and damage. Scrape your exposed wood, peeling paint, put on some Kilz or other undercoating and then apply outdoor paint. This is a good chore to accomplish with a small cooler following you around the house!
Gardens and walkways Again with the water! Check where water pools in your flower beds and walkways near your home, if they puddle with just your sprinklers you know they will overflow with El Nino rains. See if you can create easy drains or outlets for the water to flow away from your home.
Chimney Sweeps If you have not had your chimney cleaned in several years, and use your fireplace regularly in the winter, have it looked at and cleaned to prevent any fires.
Seal it! Are the seals on your door bottoms (I’m sure there is a technical term I am unaware of, I will ask my friend and inspector extraordinaire George Harper) adequate? How about on your garage door? Windows?
Closets All the fun is not outside the home. If your family is like ours the hall closet tends to collect a lot of things besides coats through the year. Are your closets ready for wet coats, umbrellas and boots? With the on set of winter many homeless and charity organizations will be in need of coats and sweaters so those less fortunate can stay warm—do you have any you can donate?
Cupboards Finally, make sure you have room in your cupboards for marshmallows, cocoa, cookies and other morsels that make cuddling with the kids under blankets on the couch while watching “Mary Poppins” or sitting fireside with your spouse just listening to the pop and crackle that much more homey as you enjoy your beautiful home!
I will keep this link on my “Question of the Week” section to assist new homeowners:
IRS Form 5405 for First Time Buyer Tax Credit for those eligible for the up to $8000 credit. Note credit only for those who close escrow before November 30, 2009 under current legislation.
Have a question for me? Ask me!
Our Mortgage Market had a lot of activity this week with most days slightly positive. Every day we have seen big swings in the mortgage backed securities markets with an end result of very little change from beginning to the end of the day.
What moved the rate markets this week? Overall nothing much, but this is what usually would have moved the markets:
Fed Governor said that he does not think the Fed will fill its entire commitment to purchase $1.5 trillion in mortgage securities. This should have had a strong impact in lower bond prices and raising rates, market somewhat shrugged this off.
Stocks are on a roll heading into today stocks have closed positive for eight straight days, the longest consecutive day streak since April 2007. As I write this between 10-11:00 PST stocks or slightly down and in danger of stopping the streak. This should move bond prices lower—and did with last Friday’s big stock rally—but again bond markets sort of shrugged this off with positive closings every day this week.
Tame inflation numbers should definitely have moved the needle on bonds to the better, however when the number came out flat bond prices barely moved—in the past this type of number would have pushed prices higher and rates lower.
Consumer data came in positive with consumer spending up for the 3rd month in a row and consumer confidence higher than expected. This news strengthens the argument for the economic recovery being underway and should have the impact of lower bond prices—market gave little reaction.
Employment data came in mixed with initial jobless claims higher than expected following several weeks of declining numbers, should be good for bonds. At the same time consumer income was flat, an improvement over lower personal income, this should be not so good for bonds. Cancel, cancel bonds did not really react to this news either.
Durable goods orders increased almost 5% for July, up over 6% from last year and way above expectations. This number definitely should move the market and increase the yields on bonds and mortgages—not so much as prices climbed and yields dropped on the day of this announcement.
New home sales “surged” in July up almost 10% from last year and way above expectations. This number is based on units and not prices so it probably reflects low rates and builders lowering asking prices, however still very positive economic news that briefly affected mortgage backed securities to the negative as expected, but they rallied back to positive before the end of the day.
Gross Domestic Product was the elephant for me this week. The number came in with GDP shrinking 1% in the 2nd quarter, it was estimated to shrink by 1.4% so the economy shrank about 30% less than “experts” estimates. This is positive news for the economy being in position to start growing, and bonds went, “Eh, okay. So what?” and ended that day just positive.
Everyone of these announcements carries significance to investors, economists and members of the media who make a living telling us what they want to say, and combined they should have moved bond prices higher and interest rates lower—with the exception of the flat inflation numbers. They all add up to an economic recovery. Manufacturers are buying more supplies (Durable goods), employers are paying more overtime (personal income up) which is prelude to higher, consumer confidence and spending rose (75% of the economy is consumer spending), stocks are rising (investor confidence and predicting of economic recovery), the Fed sees mortgage markets stabilizing and no need to spend billions on supporting the market.
It appears that the rate increases that should have occurred this week did not. Why? Also this week the Treasury again auctioned off billions of dollars of U.S. debt and the markets responded somewhat favorably. Most responsive were the usual cast of foreign investors who now hold over $3.4 trillion of our debt (while the Chinese get most of the attention by holding $776 billion, Japan is right on their heels at $711 billion). It appears those with cash are betting on our economic recovery and the ability of Uncle Sam to pay back his mortgages via the Treasury.
Rates for Friday August 28th:
FIXED RATE MORTGAGES AT COST OF 1 POINT*
30 year conventional 4.875% Unchanged
30 year conforming-jumbo 5.25% Down 0.125%
30 year FHA 5.00% Unchanged
30 year FHA jumbo 5.25% Down 0.125%
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).
Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment 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.
Well for those who were complaining about our cool summer I hope you are happy with our current weather in Southern California! It is a good weekend to move slow, sip something cool and shade hop in your travels.
I am not yet certain but next Friday could be the first Friday in quite a while that I will not send my weekly rate and market update. Leslie and I will be getting away for a long weekend to celebrate our 15th Anniversary and the decision has not been made yet as to whether the laptop goes or stays. If you don’t get your update next week you’ll know why!
Have a great weekend,
Dennis
Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries.
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Question of the week: What should I look for in a mortgage broker?
Answer: This is a question that I am asked four to five times a year, usually from friends in other parts of the country who are buying a home. This is also a question I try to answer for every client I meet. As we have seen in the past few years too many borrowers did not ask this question, instead they asked “who is showing me the lowest rate or monthly payment?” Or “who, with the lowest rate or lowest monthly payment, will help me buy that home?” Too many of these questions were answered by individuals who are no longer in the mortgage business, and too many of those who asked these questions are no longer home owners.
Trust: How do you know you can trust your mortgage professional? The best way to find someone you can work with that you trust is to ask friends, family, co-workers, your real estate agent (who I trust you trust) for referrals. Then interview the individual(s), see what their experience is, check out their website, ask for references. When asked “why should I work with you?” is there answer only about having the “best” rates? Do you get the sense that the individual is concerned about your becoming a homeowner or you getting “a great deal?”
Homework: Do some homework on someone before you begin working with them. Are they licensed by the California Department of Real Estate (check here for DRE license—anyone licensed should have number readily available)? If you Google them do any complaints or negative information show? Can they explain those complaints in a way you feel comfortable? Do they have a website that is informative and shows they are transparent in their business, rates, fees, etc? How long have they been in the industry?
Knowledge: This is a hard area to research, however remember that every situation is different and while most people fit into only a few mortgage programs, your mortgage professional should know the ins and outs of conventional, FHA, VA, programs, costs and risks of different types of mortgages such as fixed rates and yes even some adjustable programs. How up to date is s/he on new government and Fannie/Freddie policies such as MDIA and HVCC?
Technical Skill: Is the mortgage advisor only concerned about your current income, your current debt, your current assets? Or are you being asked about your future plans? Children? Will one spouse be leaving the work force to care for kids? Bonus and overtime? Continuing? Guaranteed? Are you secure in depending on it for future payments? Car payment in the future? Are you looking at two bedroom homes but plan on 3 children in the next 5-6 years? All these factors and more matter when discussing options today for a home that you will own for several years or longer. It is easy to train someone to punch numbers into a software program and have it spit out a mortgage amount and sales price. But beyond the technical skill of entering the numbers, how do they relate to your current and long term financial and family situations? What options do you need to explore and think about?
Rate/Price: Clichés are clichés for a reason, they generally have a lot of truth, “if it looks too good to be true it probably is.” If someone has a rate that is significantly lower than anything else being quoted or published something is up. In the past I have had clients I was quoting 6% for a 30 year fixed tell me that some other guy is telling them 5% at the same 1 point fee; turns out the loan was for 30 years but the rate was fixed for only 3 or 5 years, or the cost was 1 point in fee but had about 2 more points in origination, discount and other fees, or it was just flat out not true. I often tell clients when discussing rates that they are very easy to lie to at the early stages of the process because they want to believe they are getting a great deal. Usually those who end up with a disaster at closing because the program was not what they thought it was, or fees are higher than they were told, or the rate is different, usually those people were looking for the best deal and fell for the person telling them they had it. Look for a mortgage professional who is transparent about their rates and fees, always quoting the same time frames for locks, has past clients who can testify to his/her closing what was quoted, is very much in the market with other mortgage companies. It is no deal if you can’t close your loan, and it is no deal if your loan is not what you thought you applied for.
Service: Perhaps the most important factor separating mortgage professionals. While the top mortgage professionals are all very close in rates and fees, service is a huge separator. Dig around a bit and see if your mortgage advisor has a reputation for closing loans on time, that while there is always some additional information required through underwriting, is the process fairly easy and efficient for the borrowers, agents and escrow company? Is the process from application to closing made clear to you and also what is expected of you, your agent, the escrow company and the mortgage company known and discussed?
Communication: Nothing is more critical to the process than timely communication. If you get a referral that says, “He had a really good rate but we had a really hard time getting in touch with him.” Or, “he got us our loan but once we started we only heard from his assistant.” If you are okay with not knowing what is happening during a transaction which if successful will put you several hundred thousand dollars in debt and obligate you to thousands of dollars a year in monthly payments then that person is for you. If however you would like to know that your mortgage is proceeding as expected, or even more important if something is amiss like a low appraisal or underwriting question income or funds for closing, you better find someone who communicates clearly and often.
My Pitch: I think if my past clients and agents I work with currently and in the past were to chime in on this subject they would say that I was open and honest with them from the beginning to the end of the process. When I quote rates I close the rates I quote, when I say we are locked at a certain rate, price and term that lock is valid. My communication is constant and pertinent keeping borrowers, agents and escrow teams informed of progress and what is needed for closing. When it comes to rates I know I am not the lowest in town when it comes to quotes, but our rates are always very competitive and when priced out for all fees, costs and rates we are as good as anyone reputable. As evidence of my openness I offer this weekly update where I publish our rates for every Friday, I post it on the internet and all week long I Tweet what is happening in the mortgage market advising on locking or floating and letting clients and agents know where rates are headed—I can’t tell you on Thursday when we go to lock that rates have suddenly gone up when the previous three days and that morning I have been Tweeting on how rates have improved.
My pitch is over, it is my hope to be your mortgage professional of choice, for many receiving this I already am and I thank you. However should you choose to use the services of another mortgage professional it my hope that they meet the criteria I have described, the outcomes of the wrong choice are very harmful to all involved not only for financial costs involved but lost opportunities and the emotional stress.
Finding the right mortgage broker to assist you with the planning of your mortgage and home purchase is no guarantee you will have your home forever, life happens as do pink slips, accidents and other emergencies that are unplanned. However, with the right mortgage plan and a realistic meeting of expectations and capability, chances are you will be able to enjoy your home based on your financial circumstances. Ask the questions, do the research…and call me to help you with your mortgage needs!
Foreclosures and Delinquencies headline the Los Angeles Times and other papers across the country today as the numbers continue to climb. Much of the reporting I have read is fairly good with a glaring omission. Due to rising unemployment across the country is it not unexpected that mortgage delinquencies will rise as people with little to no income are unable to make monthly payments. What is missing from the reporting however is a factor in delinquencies that many of us in the mortgage industry have seen are the purposeful missed payments. Many homeowners looking for loan modifications to lower their interest rates and payments are being told by lenders that no modifications will even be discussed while the mortgage is current. So the borrowers miss two or three months of payments and then the lender will discuss, and possibly (not probably but possibly) modify the terms of the loan.
It is very difficult to gauge the number of mortgage delinquencies are the result of the intentionally missed payments to get lenders to negotiate, but from my experience the number is not insignificant. I caution anyone going this route to make sure they put any payments missed into an account and do not touch the funds in case the lender rejects their modification application.
ATTENTION! BIG NEWS! One of our premier lending partners has come back into the market with very decent Jumbo financing. Current pricing is right around 6 – 6.25% depending on loan amount, ltv, credit score and other factors. Need a loan to $1.5 million with 30% down? Call me!
Unemployment higher, so are home sales economy continues to push and pull, grow and shrink, sending positive reports in one sector and negative in another within moments of each other. Stocks reach high levels and then sell off the next day. Up down, down up. As I mentioned when the economy was making the transition from growth to recession that contradicting information is the sign of a changing economy—that is where we are today and will be for another quarter before the positive news is greater than the negative news.
Looking ahead on what impacts rates the Treasury is auctioning another $100 billion or so in notes and bills next week—the last auction was very well received, meaning high prices and low yields. Basic economics says increase supply should lower prices, and increase yields/rates, but the last few auctions defied the basic premise. Also impacting rates will be when the Fed stops buying mortgage backed securities. Currently ending later this year after spending almost $1 trillion purchasing the bonds, that is a lot of support that will be missing.
As we start the school year and near the end of the third quarter in 40 days, keep in mind that demand for first time homes will increase as November 30th approaches and the end of the first time buyer credits—we could see pipelines stressed with an influx of buyers. With prices in many areas stabilizing, rates continuing to float between just below and just above 5% for conventional mortgages, we should see continued strength in the housing markets….provided employment roles can sustain enough workers to purchase homes.
Through the news this week as I write this mortgage backed securities are at the same prices as they were Monday when the markets opened. Prices dived mid-morning today leading many lenders to re-price for the worse mid-morning so the rates below are after such a reprice.
Rates for Friday August 21st:
30 year conforming-jumbo 5.375% Unchanged
30 year FHA jumbo 5.625% Unchanged
Looking forward to meeting new friends at a barbecue this weekend. I am reminded of one of the songs that played seemingly every car ride with the kids when they were teeny-tiny, “Make new friends and keep the old, one is silver and the other gold.” Truly the richness of our lives, the silver and gold of friends new and old.
Speaking of songs, “What A Wonderful World” by Louis Armstrong was one of my Mom’s favorite songs. By now everyone has received numerous Power Point presentations with beautiful and heart warming pictures with Satchmo’s song playing accompaniment; the link above is Louis live singing the song with his wonder voice and facial expressions—take 2:19 and give it a watch, you will be glad you did.
Happy Birthday Mom.
Question of the week: We are considering retirement in five to ten years, when should we think about purchasing our retirement home?
Answer: Just as many first time buyers are entering the market to take advantage of low rates and prices, those in position to purchase a retirement home now may want to do so for the same reasons. You may want to be in the market to Pre-Buy your retirement home.
Many couples once they retire sell the family homestead and use the net equity to purchase a home debt free that is smaller and more suited to their new lifestyle with no work. Locking into lower housing costs at a time when they transition from salaried employment to fixed income retirement. Traditionally this exchange occurs after the last day of employment and the couple sells their home at market price and purchases their new home at market price.
If you are considering undergoing such a transaction in five to ten years also consider what will the relative prices be of my current home and the home I wish to purchase for my retirement? Chances are they will both have higher prices than they do today, no guarantees for home prices as we have seen the past few years, however since the market has undergone drops in values all over the country the probability is in five to ten years there will be price increases off the floors of the current market. So if you are able to purchase your next home at what amounts to a discount and then sell your current home at a premium to today’s market why not do it and benefit from the market? Pre-Buy today for retirement in the future.
The obvious and biggest disadvantage to such a transaction is carrying two mortgages during the period until retirement, presuming your current home has one. This can be off-set through renting the new purchase until you are ready to move in full time. If you are not comfortable being a landlord you can either hire a property management firm to handle tenants and rent collection, or you this plan may not be for you.
If you are able to accommodate two mortgages, again provided your current home has one, then there are several benefits to “pre-buying” your retirement home. Just like you have been putting a little money away every paycheck into your 401(k) or retirement plan you can put funds away every month into your retirement home for when you are ready to use it. Some families I have worked with diverted some of their retirement contributions to assist with a second mortgage payment, their consideration being that the rising home equity values in the future would make up for, or exceed, their return on the funds had they continued to put them into the standard options of their retirement accounts—which have shrunk as well.
Other options with the retirement accounts are the possibility of using some of the funds for purchasing the new home. Converting the retirement asset that is invested in the financial markets for a retirement asset that is invested in real estate diversifies the retirement investments.
One of the benefits of Pre-Buying your retirement home is that you have an opportunity to test-drive the home and the location. Some of our clients who have gone through this process have used the new property as their second home if they have purchased it in another area and have stayed in it for long weekends or vacations. Doing so has allowed them to slowly furnish the home to their taste, experience the day-to-day aspects of the neighborhood and area and determine if they wish to keep the property for full time living. Over the years a few of them have determined they did not wish to live in the home full time upon retirement and have either rented it out, or kept it for a current second home knowing they will be selling it in the future to purchase another property for retirement.
Perhaps the biggest potential advantage of Pre-Buying a retirement home is locking in the value for the new home at today’s depressed prices and selling your current home in the future at a greater value than you can today—probably. With an increased spread between the acquisition and sales price of the two properties it will increase the net equity for your bank accounts after you pay off the mortgage used when you went through the Pre-Buying process.
This suggestion is not for everyone, but there are thousands of couples in the local area for whom this concept of Pre-Buying a retirement home makes plenty of sense. Perhaps they want to move close to their children and grandchildren, or they want to live closer to the water, or nearer where other families have retired. Whatever their intentions may be, looking at the logistics and financial opportunities of undergoing the transaction today rather than in five to ten years is worth a conversation.
If you are interested in exploring your options and opportunities to possibly Pre-Buy your retirement home in the near future instead of the far future, please give me a call, I am happy to go through your current financial situation and the options that may be available to you. The more options you are aware of today the better you can plan for tomorrow.
REMINDER ALERT! For those who are eligible for the first time buyer tax credit, it is set to expire at the end of November. Let’s look at that time line. November 30th is the Monday after Thanksgiving, so I Los Angeles County your loan must fund on Friday 11/27/09—however many lenders will be closed for the long weekend so if you go to the limit you would have to fund on Wednesday 11/25/09 and pay interest for five days you do not own a home, so it makes most sense to fund on Tuesday 11/24/09. Docs will have to be signed and back to your lender with all conditions by Tuesday in order to fund so realistically you will need to have loan documents on Friday 11/20/09, since there will be a full pipeline at all lenders because of the expiring tax credit to be safe all prior to doc conditions must be in and doc order complete by Tuesday 11/17/09. Again with the pipelines underwriters will be working with that means loan approval must be given by Friday 11/13/09 and therefore a full loan package submitted by Tuesday 11/ 10/09. With time lags from having an offer accepted, new TIL disclosure rules, ordering and receiving appraisal through HVCC process, possible appraisal appeal if value is low, plus the added volume because of the tax credit expiring that will slow down all the processes, figure 20 or so days, so your offer needs to be accepted around October 20th. If a short-sale or foreclosure with a bank making a decision add two weeks for having offer accepted after submitting the offer and that puts you at writing your offer the first weekend of October. Now add time for getting pre-approved, working on any credit issues, funds for closing, etc that may come up, time for looking for the right home for your family, time for writing offers and having them accepted (one agent announced on Facebook this week he is writing his 8th offer on a condo for a client due to multiple offers on units she is interested in—that is about a month or more of looking and writing offers) and you are into early September.
It is now mid-August. If your plan is to purchase a home this year and get the first time buyer tax credit of up to $8000 if qualified your plan should be to get started now on buying a new home. While some of the dates on this are padded a bit, the timeline is very realistic, those who wait until the last day will stress considerably over the November 30th closing date and greatly risk missing it—as there will be thousands of others who also waited clogging the pipelines throughout the process. Do not wait.
Call me today, this weekend, next week….let’s get you pre-approved and ready to buy your new home so you do not miss the opportunity for an $8000 tax credit. 562-243-6912 will always reach me.
Mortgage Backed Securities had a positive week over all with Monday and today providing most of the lift. With some technicals and stock trading factored in to limit greater gains in the bond markets we still have a positive for the week.
Economic data was a bit mixed but enough of a mix to lead bonds higher. Confidence and CPI both were weaker than expected, new unemployment filings were higher than expected and the Fed held firm on rates and said they expect to be flat for a while, all these benefited rates. France and Germany showed positive economic growth in the 2nd quarter and China continues its positive direction which put a damper on rates.
Rates stay within range that we have seen for the past couple of months. We can expect them to go between just below 5% to close to 5.5% for conforming for the next several weeks. But…. Rates have been supported by the Fed injecting almost a trillion dollars into purchasing mortgage backed securities and purchasing an almost equal amount of treasury bills. This activity has kept demand artificially inflated, increasing prices (which we know means lower rates). The Fed is scheduled to stop buying Treasuries in October and mortgage backed securities in December. Then what?
A good week for rates. With some pull back today ahead of the weekend and some profit taking we still are at a nice dip and a big drop from last Friday. Looking at the chart we are about 1.5% in rate below last August. You can also see the volatility week to week the past month, at some point that volatility ceases and dips stop. Take advantage of this rate market while you can.
Rates for Friday August 14th:
30 year conventional 4.875% Down 0.5%
30 year conforming-jumbo 5.375% Down 0.375%
30 year FHA 5.00% Down 0.375%
30 year FHA jumbo 5.625% Down 0.375%
Last day of 49er Camp today—Demo Day! I will be spending much of the afternoon watching the dances the girls have been working on, archery, swimming, soccer and I think softball. What a great experience for all the kids, Cal State Long Beach does a great job year after year with the camp and exposing kids to a multitude of sports and activities—while keeping them out of mom and dad’s hair every afternoon!
Tomorrow we go visit one of my closest friends and freshman roommate and his family. It was 29 years ago next week that Steve and I met, he and one or two relationships from my years at school have meant a lot more to me than anything I learned from a professor. Before summer ends reach out to one or two of your old friends and get together, we are all too busy all the time, but let’s make time for what really matters in our lives. Call that friend now and see what they are doing this weekend.
Question of the week: What should we know about mortgages to purchase investment properties, or purchase a new home and convert our current residence to an investment property?
Answer: As you can imagine a significant portion of the mortgages that have gone through foreclosure in the current economic cycle were non-owner occupied ( Non-Occ) property owners, i.e. investors. Because of the losses taken on their Non-Occ portfolios Fannie Mae, Freddie Mac and lenders have tightened up considerably on the underwriting guidelines for investors.
Particularly more stringent is the underwriting for those converting their current primary residence to a rental property and purchasing a new primary residence. While the new mortgage will be for an owner occupied residence, the nature of the transaction creates a situation where the borrower will become an investor in rental property putting that mortgage at greater risk. To protect themselves and the overall market, underwriting guidelines across the industry will not consider any potential rent on the existing property for qualifying—if the rent was not listed on the previous year’s federal income tax return then the underwriters will not use it in most cases. Some lenders and programs will allow for consideration of the rent on the current residence to offset the property’s expenses of principal, interest, taxes and insurance (PITI), however for this to occur the borrower must have at least 30% equity in the property and significant reserves following the purchase of the new home. Example: John and Mary own home on Main Street and wish to keep the property and rent it and purchase a home on Elm Street. The Main Street property can rent for $1000 per month and has a current PITI payment of $800, the property value is $400,000 and their mortgage is $200,000—they have 50% equity so a portion of the $1000 can be used for qualifying. The PITI on the new Elm Street property will be $2500 per month. If after purchasing Elm Street John and Mary will have 6 months of the total PITI for both properties ($3300 per month) they appear to be eligible—so if they have greater than 30% equity in Main Street (check) and almost $20,000 in the bank after closing they are eligible under the guidelines. If they do not have 30% equity, say the value is $250,000 and they owe $200,000 on Main Street, then they must still have the six months PITI ($20,000) after closing and must qualify for the mortgage to purchase Elm Street without using any rental income from Main Street to qualify. Note that many 30 year fixed rate programs or lenders will not approve a new mortgage in this scenario without significant equity in the current residence. If this is scenario is one you are considering please call me to go through your specific situation.
More straightforward is someone keeping their existing primary residence and purchasing a property for investment. The new purchase may be a condo, single family residence or multi-unit property up to four units. In this scenario most lenders funding with Fannie Mae or Freddie Mac programs will not use any of the rental property being purchased to offset the PITI of the new purchase—the borrower must qualify with 100% of the current residence payment and the new purchase payment being counted as debt. There are a few programs, not 30 year fixed rates, which will count a portion of the market rents as set on an appraisal for qualifying the new purchase mortgage. Again contact me and we can go through the scenarios for you.
Regarding purchasing condominiums as investment property, this has become quite popular in some complexes throughout Southern California with the declining property values; in particular we have heard of many scenarios where investors are purchasing condo units with all cash. Guidelines are generally much more rigid for most lenders on non-owner occupied loans for condos. One major issue that the trend of purchasing condo units for investment is creating is decreased salability of those units and others in the complex in the future. Before approving a mortgage in a condominium complex lenders look to see what percentage of the units are owner occupied and how many are rental units. The higher the percentage of rentals the higher the risk for the lender. By over-buying units in a complex for investment and skewing the percentage of rental units in a complex, investors are inhibiting the ability of future buyers to purchase the units they are buying, thereby deflating the value of their investment and the value of the other units in the complex.
There are many values, whether real or perceived, that are opportunities for those so inclined to purchase rental property. In the current loan environment the opportunities are somewhat dampened by the increased financing difficulty for investment property. If you have been considering such a transaction please call me to discuss your scenario and options.
Last week I commented on the green staircase, every day the bond charts had big green steps tracking bond prices up (prices up, interest rates down), this week the green has been replaced by red and the steps lead down, down, down. As I write this just before noon on Friday mortgage backed securities are at their lowest prices since mid-June.
The sell off began on Monday following some positive economic news out of China (they are facing a real estate bubble) and former Fed Chairman Alan Greenspan saying the end of the recession is nearing. With the strong gains the prior week many investors took to opportunity to sell off in bonds, take profits and invest in stocks. The fall continued for the rest with job loss numbers being less negative than expectations.
Today mortgage backed securities were in freefall early, pushed by unemployment number coming in at 9.4% instead of 9.6% and fewer jobs being shed by employers in July (247,000) which was lower than expectations (328,000) and about half the monthly average from November through April (645,000 jobs lost per month). Such is the economic cycle we are in where a quarter million Americans losing their jobs in one month is considered good news.
It is an interesting spin, or commentary, when job losses are considered good news. However you cannot go from shedding 600,000 jobs a month to seeing no job loss, or increased hiring, until the rate of job loss per month slows down. So while the job loss number is bad news for 247,000 Americans, the fact that is was “only” 247,000 and not 300-600,000 is relatively good news. The shrinking numbers of lost jobs indicates more and more companies have reached the end of their lay off cycles, or fewer companies are closing. Which also is a signal that companies and the economy as a whole is contracting at a slower pace, which signals the end of the recession is getting nearer. (Someone please mention that Dennis was writing back in January/February that the recession would most likely end in Fall of 2009).
Those who follow me on Twitter have watched the bond prices deteriorate and rates rise all week. These same followers have seen me calling for anyone in position to lock in the rate and terms of a mortgage application should have locked as soon as they had the chance, advice I also gave last Friday when rates were at their recent bottom.
Our industry has quite a bit of uncertainty, from rates bouncing up and down, regulations coming in that affect closings, to major companies closing—as one did this week with thousands of borrowers in the pipeline awaiting funding of their mortgages. To hedge against the uncertainty borrowers and real estate professionals should be working with an experience mortgage professional who is has up to the minute information, provides constant communication on market conditions and has the ability to maneuver through the changing regulatory environment—call me to assist you and your clients with your mortgage needs.
Rates had a big week again, this time big negative. Conforming rates have their biggest one week jump since early October when the Wall Street bailouts, excuse me TARP, occurred. On the bright side, technically we could be in a position for a rally next week to pare losses—I would not be my mortgage payment on it though.
30 year conventional 5.375% Up 0.5%
30 year conforming-jumbo 5.875% Up 0.5%
30 year FHA 5.375% Up 0.375%
30 year FHA jumbo 5.75% Up 0.125%
Playing with sprinklers, soaker hoses, drip thingy-mabobs and moving plants to take corrective action on area where landscape irrigation is doing some foundation damage. Other than that looking forward to a great weekend, how about you?
Dennis C. Smith, California Dept. of Real Estate Broker #00966315 Stratis Financial Corporation, California Dept. of Real Estate Broker #01269597
Dennis C. Smith, California Dept. of Real Estate Broker #00966315
Stratis Financial Corporation, California Dept. of Real Estate Broker #01269597
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