Weekly Rate & Market Update 1-13-17
Question: How different is your job when helping a client with a refinance versus a purchase?
Answer: This question came up in conversation with some real estate agents who find themselves subject to greatly increased solicitation from lender representatives in the past several weeks looking for referrals.
Why the increase in solicitations? Because interest rates have increased slowing down the volume of mortgage refinance applications causing many lenders who have been answering phones taking refinances having phones that are not ringing. A great source of business for mortgage originators is real estate agents, the foundation for my business as well as many other “old timers,” so with a drop in refinance business….
Back to our question, how different is my job when working with a client refinancing a current home as opposed to working with a client purchasing a home?
Very different. Very, very, very different.
At the basics there is little difference. Collect personal and financial information on client, make sure the guidelines are met, process, submit, approve and fund the mortgage.
Where the differences start to appear however is all the variables that have to be considered, managed and solved for when working with a client purchasing a property.
Before you purchase a home we will want to make sure you can afford it and be able to successfully close the transaction. Are there items on your credit report that will require additional work that may delay an escrow? Are you funds for down payment and closing costs available and in the bank? Did you have large non-work related deposit(s) we need to account for? Is your income verifiable and eligible for consideration, especially if self-employed or have significant overtime or bonuses? Do you own a home now? Does it have to be sold for you to purchase your new home? This is part of what gets us through the pre-approval process.
The pre-approval information and any challenges we will be keeping an eye on must be communicated to your real estate agent so s/he will be aware and we can properly strategize not only price and loan amount but also timing.
When you find a home you wish to buy you will write an offer and naturally want it accepted. This will require a strong pre-approval package and the ability to communicate to the agent representing the seller (the listing agent) confidence in our ability to close your mortgage and therefore a successful close to escrow.
Once your offer is accepted we now have a firm deadline to meet which means managing timing for appraisal, loan processing, submission and approval. Coordinating final conditions and communicating timing to the agents, escrow and title companies to name just a few.
This is all if everything goes well. What if the seller has an issue on the home they are buying and we face a possible delay in closing? The appraiser discovers a problem with the property that will need to be repaired before we close? Could this have been prevented with proper questioning of the agents before we order the appraisal and corrective measures taken? What if there is language in the offer or counter-offer that could trigger more conditions from an underwriter? What if your buyer falls out of escrow delaying your closing? What if a tax lien pops up through title during escrow?
There are hundreds of “what-if” scenarios that can come up during a purchase transaction, many we have not yet seen but most we have seen and successfully handled through the years based on thousands and thousands of purchase transactions.
At the foundation for the differences between a refinance and purchase transaction is the communication. For starters we go from communicating primarily with our client and escrow to adding at a minimum two real estate agents, possibly more if there are other homes up or down stream from our transaction. That may not seem like much, however the communication between ourselves and the agents is critical to a smooth transaction and ability to solve problems that may pop up later in escrow as everyone has built a level of trust and confidence.
On paper it may not seem like there is a lot of difference, but experienced agents will let you know there is a tremendous difference in working with a lender who has experience with purchase mortgage transactions versus one who does not.
Whenever we get a call from a buyer in escrow who is having challenges closing their transaction with their lender it pains me that they have gone through the process and expense and not being able to get to closing. Had they called us before they started they could have avoided the headaches, frustration, stress and potential costs.
Buying a home is not the time to “try him out,” there is too much at stake for you and the seller. Make a call to someone who has experience and proven ability to assist you with your purchase transactions. (By the way, coming up on my 30th anniversary being licensed I have just a bit of that experience!)
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
The big news in residential real estate this week was the reduction of the annual Mortgage Insurance Premium (MIP) for FHA mortgages that close on or after January 27, 2017. The MIP for loans under $625,500 with minimum down has dropped from 0.85 points (0.85% or 85 basis points) to 0.55 points (on $400,000 FHA loan the monthly payment drops from $283 per month to $183 per month, $100 per month or $1200 per year). For loans over $625,500 the MIP drops from 1.05 points to 0.60 points ($500,000 the monthly MIP drops from $438 to $250, a savings of $188 per month, or about $2250 per year). The Upfront Mortgage Insurance Premium remains at 1.75% of the loan amount that is usually financed and added to the loan amount (for $400,000 this amount is $7000, for $500,000 it is $8750).
The final data for Producer Prices in 2016 were released this week and the news is mixed. Prices for wholesalers rose 0.3% from November and were up 1.6% from December 2015. Both numbers fairly benign and below what the Fed would like to see for economic growth. Food and energy were both very volatile in 2015. Food prices increased 0.7% in December but were down 1.1% from the prior year. Energy prices overall were up 2.6% in December, led by a 7.8% spike in gasoline, year over year energy prices climbed 5.9%. With overall prices under 2% growth the data is neutral for mortgage rates and gives little support to inflation in the near future.
How was your holiday shopping season? If you were a national retailer it wasn’t very great. Retail sales in December were a pretty decent 0.6% gain from November’s sales, however…take out auto sales and December holiday sales were only 0.2% above November’s take away autos and gas and there was no increase. This news is somewhat friendly for mortgage rates as it shows a slow-down in expected consumer spending (accounts for approximately 65-70% of economy) for what should be the busiest retails sales month of the year.
Rates for Friday January 13, 2017: Let’s hear it for stability! After a bit of a dip earlier in the week and rebound yesterday rates end the week at the same place they did on the last Friday of 2016. After the run up from the election to mid-December a few weeks of no change is quite welcome. Looking ahead we should stay in a tight range around the current rates for the near term.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 4.00% Flat
30 year high-balance conforming 4.125% Flat
30 year FHA 3.50% Flat
30 year FHA high-balance 4.00% Flat
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. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages.
An interesting week coming up. On Monday we celebrate Martin Luther King’s birthday and his contributions to our nation, on Friday we celebrate the peaceful transition of power for the 45th time in our nation’s history. After a contentious, ugly, divisive atmosphere in the media, on social media and at many family dinner tables perhaps everyone can take this week to reflect on Dr. King’s message and from where our nation has come from his historic speech on The Mall in Washington D.C. in August 1963.
As I do every year on the Friday Weekly Rate & Market Update before Martin Luther King Day I encourage everyone to take about twenty minutes out of your schedule to watch Dr. King’s most famous speech. Watch as he goes from somewhat hesitant and stilted into a beautiful oratory rhythm that has moved millions since that hot summer day.
Click here for “I Have A Dream” and please share with other.
Have a great week,
Dennis
