Monthly Archives: July 2011
Poor GDP and Consumer Sentiment Data Translates Into Low Mortgage Rates
| July 29, 2011 | Posted by Tammy under Mortgage News |
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U.S. Treasuries prices rose this morning (good for lower mortgage rates) as news the U.S. economy grew at an even slower pace in the first half of the year than was previously estimated, raised yet more fears the economy was at a real risk for recession. Gross domestic product, a measure of all goods and services produced within the United States, shows that output increased at a 1.3 percent annual pace in the second quarter. According to Commerce Department data, the economy advanced just 0.4 percent in the first three months of the year, which is significantly lower than the previously reported 1.9 percent gain.
Mortgage rates eased slightly lower this morning on the GDP data. Negative data is bad for the economy as a whole, but good for mortgage rates, which move lower when investors move into the safety of bonds.
‘Economic growth … was much weaker than the government had previously estimated and this opens the door for potentially another round of quantitative easing from the Federal Reserve,” said Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis. “Therefore, the bond market responded positively to the weak GDP number while the dollar weakened.”
Debt Ceiling Fears Linger
Also continuing to weigh on the markets is the uncertainty around a resolution to the debt ceiling debate in Congress. The continued uncertainty has helped suppress mortgage rates, keeping them at extremely low levels.
Consumer Sentiment Index Reaches Lowest Level Since 2009
All of the negative economic data is not only being felt by consumers but showing in consume sentiment numbers released today. The Thomson Reuters / University of Michigan’s index of consumer sentiment came in at 63.7, down from 71.5 in June, the lowest reading since March 2009.
While the economic outlook and data of late is not great, this means that now is an outstanding time to make sure you are saving as much money with your mortgage as possible. Since mortgage rates will not stay are their current low levels for long, now is the time to ask us how we can help you lower your existing rate or get the lowest rate on your new home purchase loan.
Increasing Your Home’s Value With the Right Contractor
| July 27, 2011 | Posted by Tammy under Home Equity |
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With the current state of the real estate market, remodeling or completing renovations on your home is a great way to begin putting value back into your property. However, it is a big investment and when you are hiring a contractor to complete the work, you need to be certain that they are reputable and that they will get the job done right.
There are unlicensed contractors operating that may not have the same standards as those that are licensed, and they may try to cut corners on the job in ways that will cost you money and cost you the structure of your home.
To avoid contractor problems like the ones above (and more), there are a number of things that you can do.
How to Choose the Right Contractor
- Check Qualifications – Don’t be afraid to ask contractors to show you proof that they are licensed and registered as required in your jurisdiction. If you want a testament to someone’s skills, consider selecting someone referred to you by someone whose opinion you trust.
- Don’t Choose Based on Money Alone – The person with the lowest bid may seem appealing, but it is important to recognize that with cost comes value. You do not necessarily need to choose a contractor that quotes the higher price either; just be skeptical of those that seem too good to be true.
- Ensure They Get Your Vision – When you communicate your needs to the contractor, make sure that before they start the job, they are able to communicate their understanding.
- Do Your Research – Not only should you do your research with regards to each contractor you interview, know what the job you want done requires. If you know in advance what part of the project will require permits, for example, you can be skeptical about a contractor that says the job can be done without them.
Whether you are planning to remodel your home in preparation to sell, to increase the value of your home, or for your own enjoyment, finding the right contractor is essential.
Mortgage Outlook for Week of July 25, 2011
| July 25, 2011 | Posted by Tammy under Mortgage News |
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Mortgage rates worsened this morning, led in part by “positive” data from the the National Association of Home Builders/Wells Fargo sentiment index. The index climbed to 15 this month from 13 in June, which was higher than forecast. While the index is still at very low levels, positive surprises such as this one carry more weight in the bond markets than they might normally, given the slew of negative data that has been released in the past weeks.
“It’s still at a very low level,” Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York, said about the homebuilders’ measure. “In order to see a brighter future for housing, we need to see a stronger economy.”
Builders are facing a backlog of discounted, distressed properties that remain in the foreclosure pipeline and are hesitant to start new projects. Rising unemployment and depressed home values may keep housing one of the weakest parts of the recovery.
Economic Calendar for Week of July 25, 2011
- Tuesday – Consumer Confidence, New Home Sales
- Wednesday – Durable Orders, Fed’s Beige Book
- Thursday – Initial Claims, Pending Home Sales
- Friday – Michigan Sentiment
Moving forward, mortgage rates will be highly reactive to news relating to Congress’s debt ceiling dialogue and debate. Since the debt ceiling is expected to be reached in early August and the outcome of the debates can have a significant affect on markets worldwide, the next week will be critical in assuring anxious markets or driving them into a deeper state of agitation. Rates can and will react at a moments notice when positive or negative news comes out regarding a debt ceiling agreement or lack thereof. Holding off on locking in the current low levels that rates are at is a gamble as rates may move significantly higher depending on how the debt ceiling talks go. We can help you decide if locking in a low rate is the best move for your existing mortgage or a new purchase you might be contemplating.
Lawmakers Introduce Bill to Extend Higher Conforming Loan Limits
| July 22, 2011 | Posted by Tammy under Mortgage News |
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As part of the economic stimulus package in 2008, temporary loan limits were enacted to help homeowners in high-cost areas that were unable to get loans for more than $417,000 under the standard conforming loan limits regardless of their payment history, credit and income. Homeowners in areas such San Francisco, New York and Los Angeles routinely faced higher priced homes, which meant they were required to bring in substantially larger down payments when purchasing their home.
Representatives John Campbell, a California Republican, and Gary Ackerman, a New York Democrat, introduced a bi-partisan bill, H.R. 2508, the Conforming Loan Limits Extension Act, that would extend the 2008 loan levels for Fannie Mae, Freddie Mac and the Federal Housing Administration for an additional two years. Without this bill, the higher loan limits are scheduled to expire on September 30,2011.
For loans originated on or before September 30, 2011, the “temporary” high-cost area loan limits will apply and will be the same as the 2010 high-cost area loan limits, up to a maximum of $729,750 for a 1-unit property in the continental U.S. Loans originated on or after October 1, 2011, will use the “permanent” high-cost area loan limits established by FHFA under a formula of 115% of the 2010 median home price, up to a maximum of $625,500 for a 1-unit property in the continental U.S.
These temporary conforming loan limits are set to expire on September 30, 2011 if the bill extension is not passed. Upon expiration, these high-cost areas will be subject to standard conforming borrowing loan limits as shown below.
| Standard Maximum Conforming Loan Limits for 2011 | ||||
|---|---|---|---|---|
| Units | Contiguous States | Alaska, Guam, Hawaii, and the U.S. Virgin Islands | ||
| 1 | $417,000 | $625,500 | ||
| 2 | $533,850 | $800,775 | ||
| 3 | $645,300 | $967,950 | ||
| 4 | $801,950 | $1,202,925 | ||
If you live in a high-cost area, remember that regardless of where rates are, you may have trouble getting the loan size you need. Be sure to speak with us regarding your options as far in advance of the expiration as possible as H.R. 2508 has only been proposed, it has not passed and may not pass. We can help you understand the options you have so that you can make an informed decision before these higher loan amounts are no longer available.
Applying for a Mortgage: How Much Can You Afford?
| July 20, 2011 | Posted by Tammy under Home Purchase |
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Whether you’re applying for a mortgage for the first time or are looking at purchasing a new home and will be increasing your mortgage amount, it’s essential to understand how much you can afford. You may think that any number that fits within your monthly budget is comfortable and sustainable, but your mortgage lender may say otherwise. In order to determine what you can truly afford, there are some guidelines that mortgage lenders insist you abide by and they can ensure that you don’t get in over your head with your home purchase.
How Mortgage Debt Ratios Determine Affordability
You might think that if you make $4,000 per month that $2,000 per month to carry your mortgage is quite affordable but it’s not quite as simple as that to a mortgage lender. What they look at is a few essential debt ratios that ensure you’re taking on a mortgage well within your means with consideration to your other debts and expenses.
Gross Debt Service Ratio (GDS)
The gross debt service ratio looks specifically at the affordability of your housing costs, and it requires that they are not higher than a fixed percentage of your household income, which can vary by program and lender.
The way the GDS is determined is by calculating the monthly mortgage amount + property taxes + condo fees, and then that sum is divided by monthly income. In the case of the $4,000 income and the $2,000 mortgage payment, with this equation, that is not an amount that a mortgage lender would provide a borrower as the ratio is far too high without even considering the other housing costs.
Total Debt Service Ratio (TDS)
Your total debt service ratio is also considered to ensure that you get a mortgage amount that is easily affordable. The same calculation for the TDS applies, but with this debt ratio, all debt obligations are considered whether it’s a car loan, student loan or minimum credit card payments for outstanding balances as well as your housing expenses. This debt ratio can be no higher than 40%-42% on some programs, but this number can vary by program and lender.
Ensuring Your Mortgage is Always Affordable
While it may seem as though the mortgage amount that you’re approved for based on the debt ratios is much lower than what you believe fits into your budget, this is a realistic amount for a number of reasons:
- As a general rule, having your total debt expenses total no more than 40% ensures you have enough cashflow for savings, investments, household repairs, day-to-day living expenses and more.
- When you take on a fixed rate mortgage for 2 or more years, there’s potential that in that time period your situation or income could change. With a GDS of 32% or under, it’s more realistic to expect that if that happens, it’s more likely you’ll be able to continue to pay your bills.
- You never want to become house poor or you’ll begin to resent your investment. When you don’t over-spend on your home, you’ll still have opportunity to live your life.
- When you first buy your home, you may have fewer expenses than you would if your life changes. For example, when you make your purchase you may only be a couple and if later you have children, your variable expenses may change greatly.
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