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.
Tom Kelly addressed the issue of the mortgage interest deduction going away. Many argue that it is one way of raising taxes and decreasing the bulging federal deficit. What do you think?
Related blog:
Mortgage Interest Deduction: Should It Be Phased Out?
Well disappointingly, but not suprisingly, the Congressional “Super Committee” failed to come up with a plan to reduce the Federal deficit.
The fact that the deficit needs to be reduced and there were no new proposals on the table of how to go about doing so, got me to thinking about some of the original recommendations from the Simpson-Bowles plan. One of their recommendations was to eliminate certain mortgage interest rate deductions, namely on second homes, equity lines of credit, and mortgages over $500,000.
Costco addressed the phasing out the mortgage interest deduction completely in their November edition of The Costco Connection.
If it were phased out completely would that change your plans to buy? Would it speed up your plans to sell? What if only the Simpson-Bowles recommendation were implemented? Would that change your plans to buy or sell?
Are you ready to get off the fence and jump into the real estate market? Good for you…there is still a decent, though starting to dwindle inventory, and interest rates are still at historic lows.
There is a lot of competition out there, especially from cash buyers, so be prepared befor you start looking at houses. Get prequalified for a mortgage. It is pretty easy to do. To get a really good idea of how much property you can comfortably afford, provide your mortgage broker with copies of your last two years 1040s and W2s, recent payslips, and bank statements.
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?
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
The main reason the current mortgage market is like the diamond trade is because the Fed’s current policy has been to create the market for mortgage backed securities. The Fed agreed to spend $ 1.25 trillion through the first quarter of 2010 to purchase mortgage bonds, thereby keeping interest rates low and stimulating the housing market.
The video below, How Interest Rates Move, does a great job of explaining interest rates in general and how the Fed’s policy has affected the housing market the up until now.
[youtube]http://www.youtube.com/watch?v=F8mXNBDFCck[/youtube]
The first and most important step in buying a home is to get pre-approved by a lender for a mortgage. This can be directly from a bank or credit union you do business with or through a mortgage broker. Getting pre-approved will let you know how much house you can afford or, better yet, how much of a house you feel comfortable with. The lender or mortgage broker will give you an idea of what your monthly costs will be and will give you a TRID form, which gives you an idea of closing costs to let you know how much money you will need to bring to the closing table to finalize your purchase.
[youtube]http://www.youtube.com/watch?v=w_4nCXAzQzM[/youtube]