All you wanted to know about mortgages and then some
Although all real estate is local, this Bloomberg Report with Jeff Taylor, Managing Partner of Digital Risk, sums up the overall U.S. new housing numbers, current mortgage rates and lending practices, and provides a glimpse of mortgage lending criteria in the near future.
FHA loans are the largest source of low-down payment mortgages. A buyer with less than stellar credit can purchase a property with as little as 3.5% down. Starting April 1st, the FHA will institute it’s third increase since 2011 when it raises it’s premiums by 1/10 of a percent, or 10 basis points.
Then, on June 3, FHa loans will be harder to qualify for whenthe debt to income ratio is is increased to 43% for individuals with a credit score of 620 or less. In addition, a minimum of 5% down will be required on loans over $625,000 and borrowers will no longer be able to eliminate the PMI insurance when the balance reaches 78% of the loan value. Instead, an FHA borrower will pay PMI over the entire life of the loan. A recent analysis of the upcoming changes was conducted by Steven R. Maizes, with Mortgage Capital Partners Inc. in Los Angeles. He concluded that an FHA applicant with a 720 FICO score and 3.5% down payment would pay $144.66 more per month on a $250,000 fixed rate 30 year mortgage than if he took out a conventional mortgage with 5% down and paid PMI.
If you are a buyer with a lower credit store and a low down payment, you may want to jump into the market before April 1. And this isn’t an April Fools joke.
Current consideration of phasing out Fannie Mae and Freddie Mac over the next 5-7 years has everyone in the real estate and mortgage markets speculating as to the effect it will have. Created after the depression to help people buy homes, these two entities and FHA, now buy or insure 97% of home loans.
Some of the effects include:
Two articles in last week’s New York Time online, Without Loan Giants, 30-Year Mortgage May Fade Away and A Plan to Phase Out Fannie Mae and Freddie Mac do a great job of providing looking at the pros and cons of these programs and examining possible outcomes of phasing them out.
Whatever happens, it is another sign that housing will likely never be as cheap as it is now.
Since before I owned or started selling real estate, the mortgage interest deduction has existed and been one of the main benefits espoused for buying a home. In addition to building up equity, it has been argued that this is one of the deductions that is helpful for lowering taxes due, especially for individuals and couples with few other tax deductions.
The mortgage interest deduction was one of the items recommended be trimmed, to help control the national debt, by President Obama’s deficit-reduction commission last December. The panel addressed the interest deduction for first and second mortgages and equity lines of credit. Other real estate targets included in the were tax write-offs for property taxes paid and the capital gains exclusions ($250,000 and $500,000) for individual and married taxpayers who make a profit when they sell their residence.
As a homeowner, Realtor, and real estate investor, I want to keep all of these deductions. However, there are some I would be willing to live without in exchange for decreasing the national debt. I would be willing to forgo the mortgage interest on second homes and on equity lines of credit to keep the deduction on primary home interest, capital gains exclusion and property tax write off? What do you think? Are there any you would be willing to give up? If so, which ones?
This table from the KCM post “The Cost of Waiting for Prices to Fall” is a great visual to update my post from yesterday regarding mortgage rates hitting the 5% mark
Mortgage rates are inching up, currently hovering around 5%. According to a CNNmoney.com report, interest rates at 5% don’t affect home buyers. While 5% is still low, and would only add slightly to a monthly mortgage, a continued increase in rates will affect the amount of home a buyer can purchase.
Other posts that discuss mortgage rates include:
Starting in March 1 for Freddie Mac and April 1 for Fannie Mae interest rates for loans over 15 years could almost double, even if you have perfect credit.
Remember, if you are a buyer the cost of owning a home is more important than the price of the home. Obviously you don’t want to overpay for a home, but by waiting for prices to “bottom out” you may be overlooking the most important part of purchasing a property or home – interest rates. Trying to time the real estate market perfectly is like trying to time the stock market.
You Have Heard It But Do You Believe It
With prices still on a downward slide in South Florida, the number of sales are up as buyers realize the buying opportunity these price decreases represent. And although 30-year mortgage rates inched up slightly this week, they are still under 5% and near historic lows.
These interest rates will help first time buyers, but may not play much of a difference in Miami’s high end market: 2 out of 3 sales in the $1,000,000 and over market are cash sales.
According to the Mortgage Bankers Association, new record low mortgage rates caused refinancing activity to increase by 21% last week. Applications for new mortgages were down 8.5%, mainly due to the more stringent requirements for FHA mortgages that took effect on October 4.