Weekly Rate & Market Update 6-3-16
Question of the week: How much down payment do we need, can we borrow it?
Answer: Depends and depends.
The amount of down payment you need to purchase your new home depends on many factors, what type of loan you are using, what is the price of the home you are buying, what is the amount of loan you qualify for versus the price of the property you wish to purchase.
If you are a veteran and eligible for VA financing then you probably will not need any down payment. There is a formula used to determine the amount of down payment required for VA loans, but often we see no down payment required for very high (think over $700,000) loan amounts for qualified veterans.
Fannie Mae will finance loans up to 97% of the purchase price (i.e. 3% down payment) for loan amounts to $417,000 or up to 95% for high balance loans to the maximum loan limit in your county (for LA and Orange Counties up to $625,500.
FHA will accept down payments as low as 3.5% for mortgages up to $625,500.
If you are putting the minimum down payment into the purchase for these programs there is some form of mortgage insurance that you will need to pay. This can be avoided on conventional programs (Fannie Mae and Freddie Mac) by having your primary mortgage have a loan to value of 80% or less, it cannot be avoided on FHA or VA mortgages.
The second part of the question: can the down payment, or part of it be borrowed?
If the funds provided are secured by an asset then yes you can borrow funds for closing, if the funds are borrowed and are unsecured then the funds will not be accepted by underwriting as part of the total needed for closing.
Unsecured funds are signatory loan, promise to pay, funds from a credit card or unsecured line of credit.
Secured funds may be from real estate, securities, retirement accounts, autos—anything of value that will support a loan. Depending on the source of the borrowed funds then the payments on the loan may be counted as a liability for loan qualifying.
The most common borrowed funds that we see are loans against 401(k) accounts. Most 401(k) programs allow you to borrow up to half the amount in the account and offer very generous repayment terms since you are repaying yourself.
Before borrowing funds for down payment contact me to ensure we have the proper paper trail and meet the requirements for borrowed funds. Not infrequently we get borrowers who have put money in their accounts before checking with us to ensure proper documentation and the result is a delay in the transaction, or being able to write their offer, until the funds become seasoned and acceptable.
Before looking for your new home please contact me so we can pre-approve you for a mortgage by ensuring your income and funds for closing are acceptable and approvable.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Interesting week of data with great and bad economic news released. The week started with a fantastic report on consumer spending in April, jumping 1% from March. Led by auto says the one month increase in spending was the largest in almost seven years. Also in the report was data showing an increase of 0.4% in personal income for the month of April. Though consumers hit savings accounts to push their buying binge in April the personal savings rate remains strong at 5.4%. The only not positive news in the report was the price index which was stagnant at 1.6% year over year, below the Fed’s target rate of 2.0% inflation. The huge jump in personal consumption puts upward pressure on mortgage rates.
The euphoria around the spending report vanished this morning when the Labor Department released the jobs report for May. Only 38,000 jobs were added to the economy last month, the lowest amount since 2010. The new job total well, well below the consensus estimate of 158,000 new jobs. Not only were new jobs scarce in May, but the prior two months estimates for new jobs were revised down by 59,000 jobs. Construction, manufacturing and mining all saw steep drops in payrolls, while government and retail both saw gains of 13,000 and 11,000 respectively. The participation rate dropped to 62.6% of eligible workers in the workforce. If you see anyone touting a drop in the unemployment rate dropping to 4.7% do not be fooled, the rate dropped not because of job gains but because of a reduction in people actively looking for employment. This report is very positive for lower rates and pretty much shuts the door on a Fed rate increase later this month.
Rates for Friday June 3, 2016: Consumers may of spent in April but the lack of hiring in May was what moved investors as they poured into the Mortgage Back Securities market today pushing down rates. This may be a short term drop as the technicals are well outside the trading ranges which may result in sell offs early next week reversing today’s rate dip.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.375% Down 0.125%
30 year high-balance conforming 3.50% Down 0.125%
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** 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. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits
How is the summer fever in your house? It is at the stage in our place where kids are glad that they pretty much have no work left at school and are a bit miffed they have to go to school to perform so little work. I have to side with them, as the last few weeks of school play out every year with so little instruction going on I wonder how much savings we’d have if they just shut down early. Or they could continue to teach and have finals on the last day….back when we were kids…
Have a great week,
