Home Sales Continue to Climb

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Benjamin.Klar@usmortgage.com

Direct (207) 514-0753

       Home sales continue to climb, rising to 476,000 completed transactions in May, according to government data. When evaluating single-family homes specifically, sales inched up 2.1% in May, above the revised April rate of 466,000 units. Last month’s sales are 29% above the May 2012 estimate of 369,000 sales, the Census Bureau and the Department of Housing and Urban Development noted in a report released June 25. "The housing market is without question surging. Last week's report on existing home sales was very strong as is today's report for new home sales which came in at a stronger-than-expected annual rate of 476,000 in May," noted analysts at Econoday. At the end of May, the number of new homes for sale increased to 161,000 units, compared to 156,000 units in April. This represents a 4.1-month supply of homes at today’s sales pace, up slightly from April’s 4-month supply. Supply is moving higher as builders pick up the pace, noted analysts at Econoday. "Rising supply will help boost sales in the months ahead." They added, "The housing sector is now the bread-and-butter strength of the economy." Also pending home sales rose in May to the highest level since late 2006, implying a possible spark as rates began to rise, according to the National Association of Realtors®. The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 6.7 percent to 112.3 in May from a downwardly revised 105.2 in April, and is 12.1 percent above May 2012 when it was 100.2. Contract activity is at its strongest pace since December 2006, when it reached 112.8. Also, pending sales have been above year-ago levels for the past 25 months. Lawrence Yun, NAR chief economist, said there may be a fence-jumping effect. “Even with limited choices, it appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before rates move higher,” he said. Source: HousingWire and NAR

       Inventories of for-sale homes are increasing as more owners see rising home prices and faster sales as a reason to try to sell now, according to industry reports. In April, the number of listings was higher than the level of homes that were under contract in that month, according to a study by the real estate brokerage ZipRealty, which measured listings in 24 major metro markets. “It’s less of an indication of buyer momentum flagging and more of seller momentum picking up, finally,” says Lanny Baker, the company’s chief executive. The reports find that homes are selling faster—on average, within 32 days of being listed. In April 2012, that average stood at 48 days for homes to sell. “A market in which the sale prices are happening very close to the list prices, a market in which the list prices seem to be moving sequentially higher, and a market in which any of those houses are selling speedily is one that is bringing sellers back,” Baker says. “That makes it feel to a seller that this isn’t going to be a long passive despair that I tried three years ago.” Source: The Wall Street Journal

       A rebound in homebuilding after a six-year slump should generate as many as 500,000 jobs in 2013 and 700,000 in 2014 including related services, estimates Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit and the top forecaster of employment for the past two years, according to data compiled by Bloomberg. "Housing is like a coiled spring" driven by "a lot of pent-up demand," said Glenn Hubbard, dean of Columbia University's business school in New York, who was chairman of the White House Council of Economic Advisers under President George W. Bush. "It is a real source of strength in the economy — from construction jobs and all the vendors who play into it." About half the jobs created by homebuilding are outside of construction, estimates the National Association of Home Builders, a Washington-based trade group. More than three jobs are created for each single-family home built, including related work, a 2008 study by the group estimates. "A revival in new home construction will have a huge stimulative effect on the larger economy," said Brad Hunter, Palm Beach Gardens, Fla.-based chief economist for housing research firm Metrostudy. "When home construction goes up, so does demand for furniture, tile, lumber, concrete, draperies, paint, and appliances of all sorts." The increase in construction jobs so far has lagged new activity because workers have had their hours increased, said David Crowe, NAHB chief economist in Washington. Weekly hours have risen to an average of 36.8 the past year, the highest since December 2006. "We have seen increasing hours, but there is a limit to that," he said. "I'm expecting to see a more direct correlation between increases in housing starts and increases in construction employment." Source: Bloomberg

Home Prices Continue to Rise

Benjamin Klar NMLS #937765

Benjamin.Klar@usmortgage.com

Direct 207-514-0753

www.KlarMortgage.com 

Why Are Home Prices Rising-

Statistics released this spring show that both new and existing home prices have risen significantly over the past twelve months. For example, the census bureau has indicated that the median price of a new home sold in April was $271,600, which was 8.3 percent higher than the previous month and 13.1 percent higher than one year ago. This is interesting news not only because it affects those in the market to purchase a home, but the economy in general. Wealth is created through rising home prices and this wealth has the potential to increase consumer confidence and thus consumer spending. Two questions arise from here--why are home prices rising and will they continue to do so? They are very interesting questions because just a few years back many were predicting that home prices would not recover for decades. In our opinion, it is also no coincidence that rates are rising at a time when home prices are rising and the real estate market gets stronger.

       

There are four reasons that home prices are increasing. For one, home prices dove down too low during the slump. In many areas the price of homes was below the replacement cost of purchasing a home. With so many foreclosures on the market, there was too much downward pressure on home prices. In addition, the cost of owning came in significantly below the cost of renting --especially when record low rates were factored into the equation. Investors across the nation recognized these economics and came in to purchase excess inventory to lessen the foreclosure issue and the equation quickly reversed. This caused the second reason for higher home prices--a tightening of inventory caused the price of homes being "bid up" in many cases. Across the nation, we have seen evidence of multiple bids on properties up for sale--especially at the lower or middle end of the market. This has created the opposite situation with regard to why home prices dove due to bank sales. In essence, reasons one and two have created a bounce in the market. The last two reasons? The economy and demographics. We will discuss these in part two of this series, as well as the future outlook for home prices.

Get in touch with me for a prequal or to ask questions you may have!

Benjamin Klar NMLS #937765

Benjamin.Klar@usmortgage.com

Direct 207-514-0753

www.KlarMortgage.com 

Can You Qualify for a Mortgage? And what rate can you expect?

This is the first, and biggest question. If you can’t comfortably manage the monthly mortgage payments, there’s no point in going any further. Notice we said comfortably – if you have to stretch to fit a mortgage in your budget, buying a home isn't for you, at least not yet. At the very least, you might consider a less-expensive property that won’t stretch your budget as far.

In evaluating a mortgage application, lenders look at two budget numbers. First, they’ll usually want to see that your monthly mortgage payment won’t exceed 28 percent of your gross monthly income. That includes the mortgage itself, along with taxes, homeowner’s insurance, mortgage insurance and any other fees that are billed along with the mortgage. Your gross income is your income before taxes and other deductions.

On top of that, they want to see that your other monthly debt payments – for car payments, credit cards, child support and any other long-term debt – do not exceed 36 percent of your gross monthly income if you’re applying for a standard mortgage.

These limits are for conventional mortgages. If you’re thinking about an FHA, USDA or VA mortgage, total debt can go above 40 percent, and up to about 31 percent for the mortgage payment.

You also need to take into account the down payment, which typically ranges from 3.5 percent to 20 percent of the home purchase price. But before we talk about that, you first have to consider your credit score.

Credit scores get a lot of attention, but many people worry about them too much. The fact is, only about one-third of U.S. consumers have a FICO credit score below 650, according to the company. Over half have scores over 700, generally considered the mark of good credit.

If you have at least three lines of credit – credit cards, auto loans or any other kind of loan-based debt – and have kept up with your payments, you’re probably in good shape. You can even have missed a payment or two and still have decent credit, provided you didn't go more than 30 days past due.

If you've got a credit score of 700 or better, you should be able to qualify for a mortgage, provided you meet the other requirements. However, the lower your score, the higher interest rate you’ll end up paying.

The best rates go to borrowers with scores of 740-760 and above. If you’re around 720, expect to pay about a quarter-percent more; perhaps a half percentage point higher if you’re at 700. You can still qualify for a mortgage with a credit score in the upper 600s, but be aware that interest rates increase fairly quickly once you get into that range.

Know your credit score and what makes your credit score

Benjamin.Klar@usmortgage.com

www.KlarMortgage.com

Direct (207) 514-0753

How Your Credit Score is Compiled
Most people know that they have a credit score and that they can even get theirs for free. However, many people don't know how their credit score is compiled. Knowing this will help you decide the best ways to manage your financial affairs while focusing on having strong credit and a strong credit score.

What is FICO?

The FICO score is the most widely used credit score model in the country. It is named after Fair Isaac Corporation, who devised this statistical model to help inform lenders. Your FICO score helps financial institutions decide your credit worthiness and can affect everything from your ability to secure a loan to the rate of interest you will pay upon qualifying for that loan.

The three major credit bureaus each have their own version of credit scoring, which means that you actually have not one, but three FICO scores. While your score will vary based on how the bureaus compile their data, the five major components that make up your score are consistent. Here is a typical weighting of those components for the population at large.

Here is the breakdown

35% Payment History
The good news: Paying bills on time is good. The bad news: Missing payments can really sting. If you tend to miss payments, you may want to consider signing up for automatic bill pay to ensure payments are made in a timely fashion.

30% Amounts Owed
An assessment of how much you owe (on mortgages, equity loans, credit cards, car loans, etc.) and how much credit you have available. For example, if you have five credit cards and each has a $20,000 limit, you have $100,000 in available credit. The bureaus are looking for a responsible and low % use of that available credit.

15% Length of Credit History
The longer you've had credit, the better your score will be. If you've had credit with the same issuers for lengthy periods, even better. Jumping around from card to card is not good for your score.

10% New Credit Accumulation
The credit bureaus look at the number of accounts you've opened recently, the number of credit inquiries made about you by creditors and the time that has elapsed since those inquiries.

10% Types of Credit Used
This is the mix of the types of credit you have. Typically, a mix of revolving credit (credit cards) and installment loans (mortgages, car loans etc.) indicates that you know how to manage your financial affairs.

7 Obstacles and credit considerations that could prevent you from getting the best mortgage interest rates.

Benjamin.Klar@usmortgage.com

www.KlarMortgage.com

Direct 207-514-0753

7 Obstacles that could prevent YOU from getting the BEST mortgage rates and programs.

Homes are bottoming out in many markets (according to Zillow’s forecast, which tracks the value of more than 100 million U.S. homes) -- meaning that now should be the time for buyers to think about getting into or re-entering the market and for owners to consider refinancing to a lower mortgage rate. When shopping for a mortgage everyone wants the best available terms because this is typically the largest purchase in any person's life.

So, what are the obstacles that could be keeping you from receiving the best mortgage rates?

1. Self-Employment

Due to the irresponsible lending practices that took place some years ago, lenders now expect borrowers to be able to fully document everything, starting with assets and income. This is not a problem for salaried employees, as they can easily produce W-2 earnings statements. However, this is slightly more difficult for self-employed individuals.

The solution: Gather together your annual and quarterly federal income-tax returns from the past two or three years to prove your Schedule C earnings. Wage earners should produce several years of tax returns if they have a recent employment gap. Investment statements, bank savings accounts, property deeds, and appraisals are all additional ways to document your assets.

2. A credit score below 740

Most lenders require a minimum FICO score of 680 to obtain a mortgage loan, but 740 is the recommended FICO score for obtaining the best possible rate.

The solution: Look through your credit reports from the three main credit-reporting bureaus – Equifax, Experian, and TransUnion – to search for errors that unfairly hurt your score. Also look for black marks such as paid-off loans not reported as such, low credit limits, collection items, and any unfamiliar accounts or derogatory items resulting from identity theft. Dispute and fix anything that does not look right to you. Your credit score will improve once the credit bureaus clean up and correct any of this information.

3. Carrying too much debt

Typically, lending criteria limit the size of your monthly mortgage payment to 28% of your monthly gross income. Your total household debt payments should not be more than 36%. The lowest rates are saved for borrowers who come in below those targets.

The solution: Find a solution to boost your income to pay off your debt quicker. For example, a spouse who is not working could take a part-time job or turn a special skills hobby into income. Moreover, avoid taking out any new loans or opening up a new credit card account. Steer clear of big purchases such as cars, electronics, or appliances. Apply your new extra income to your existing debt, which will then give your balance sheet a double kick.

4. Putting less than 20% down

The old rules are back; this refers to the traditional, pre-bubble mortgage standards known as the four C’s: credit, collateral, capacity, and capital. A down payment is the cash amount of collateral that you put at risk, along with the property’s appraised value, which the lender can take if you stop making payments on your mortgage.

The solution: Find ways to increase your down payment. If you can, sell less-liquid assets and keep more-liquid assets to meet lenders’ high cash-reserve requirements. You could also borrow from your 401(k). If you do access your 401(k) you will have to report it on your application. The payback amount becomes a commitment against your available monthly income in calculating how much you can afford for mortgage payments.

5. An existing mortgage that is under water

If you would like to make your home payments more manageable but your current mortgage is bigger than your home’s market value, you may be hindered by problems #3 and #4.

The solution: The Home Affordable Refinance Program (HARP) could be considered if your mortgage was sold before June 2009 to the Federal National Mortgage Association (Fannie Mae). If your loan is not owned by Fannie Mae or Freddie Mac, you do not qualify for HARP. You could qualify for other assistance programs though.

6. Being denied by one or two lenders

Mortgage standards can be the same across the marketplace and from one lender to another. But don’t let it upset you if the first couple of lenders reject you or offer you rates that are much higher than you’d like.

The solution: You should still shop around. Lenders write a certain percentage of mortgages to have in their own portfolios with no intention of ever selling them to Fannie or Freddie. Try to figure out what went wrong and fix it promptly. Try shopping at banks, savings and loans, and your credit union.

7. Having low cash reserves after closing

Certain lenders require you to have cash reserves and/or easily liquidated property or investments equal to six months’ carrying cost – up from two – after the purchase is closed, in case you suffer from future financial problems.

The solution: Lenders want easily liquidated assets and cash on hand. These include bank deposits and CDs, mutual funds, and the cash value of your current life insurance. Up to 70% of your retirement savings can count as well. Keep in mind that any type of loans from your plan count against lose assets.

Tags - Mortgage Rate, Interest Rate, Best Mortgage, Credit, Mortgage Program

How to get a Mortgage when you have Student Loans

Benjamin.Klar@usmortgage.com

www.KlarMortgage.com 

Direct # (207) 514-0753

How to get a Mortgage when you have Student Loans

For borrowers attempting to qualify for a home loan, debt matters. Student loans, however, may deserve special consideration.

For many recent graduates, student loans can be a major roadblock to the home purchase process. An August 2012 study, ‘’Denied? The Impact of Student Debt on the Ability to Buy A House’ was released by Young Invincibles, a policy research organization that focuses on young adults. The study found that student loans were a limiting factor for many would-be mortgage borrowers.

However, some lenders say student loans no different than any other type of debt and don’t raise any red flags on mortgage applications.

Student loans are “just another debt obligation that’s very common these days,” said Justin Lopatin, a private mortgage banker at PERL Mortgage in Chicago.

The facts about student loan debt aren’t pretty.

Student loan debt is growing at a rapid rate. Between 2007 and 2010, student loan debt increased almost all demographics and economic categories. In 2010, a record-breaking 40 percent of household heads age 35 or younger owed money on student loans. 

Meanwhile, credit bureau TransUnion reported that the average student debt per individual increased 30 percent, from $18,379 in 2007 to $23,829 in 2012.

Calculating your Debt-To-Income Ratio

When determining whether you qualify for a mortgage loan, lenders focus on your debt-to-income ratio (DTI), or total monthly debt payments relative to income.

Typically, a lender will examine a prospective borrower’s monthly housing expenses, student loan payments, minimum credit card payments, auto loan payments and other debts owed.

The threshold DTI is typically 43 percent; those who fall below this figure are considered qualified to borrow, while those above it are considered a default risk.

However, the FHA offers more lenient requirements for mortgage loans and may exclude student loan payments which are deferred until at least a year after the expected closing date when calculating DTI.

So what’s the solution for individuals who still owe money on student loans? Increase your income or pay down debt before you attempt to apply for a mortgage. Once you apply, any debt you pay down doesn’t count towards lowering your DTI.

Consider adding a co-signer, such as a parent, to improve your chances of being approved on a loan.

Watch out for CAIVRS

If your student loan is in default, avoid applying for an FHA, VA or USDA mortgage loan. As part of the approval process, your lender is required to check the status of the applicant’s other government-backed loans. The Credit Alert Verification Reporting System (CAIVRS) will alert the lender to any student loan defaults hiding in your past.

In addition, individuals who are still in school or going back to school should avoid shopping for a student loan during the mortgage application process. Before closing, the lender will review a copy of the applicant’s credit report; any new inquiries (such as those triggered by an application for more student loans) could seriously undermine the borrower’s chances of qualifying for a mortgage.

Why Buying a Home is Smarter Than Renting

Benjamin.Klar@usmortgage.com

www.KlarMortgage.com

Direct (207) 514-0753

1. Homeowners are their own landlord

Renters could become subjected to an unexpected eviction notice if their landlord decides to sell the home, rent the home to someone else, or otherwise end the lease. In contrast, homeowners are their own landlord; they decide what changes and repairs to make and who can live in the home.

In particular, home ownership is recommended for older people if they do not have a steady income or significant savings to draw on in the case of a sudden eviction. 

2. Homeowners can customize their own space

Whether you would like to install wood floors or remodel your kitchen, owning the space you live in means you have the freedom to do so, without worrying about losing your security deposit. Whether customizing your home is as simple as painting the walls in cheerful colors or as major as adding on a second story, the design choices are yours to make.

3. Owning a home forces you to save money

Since homeowners must pay their mortgage each month, they are required to make periodic payments that build equity in the home. Paying a mortgage is a long term investment that can take the place of spending money on luxuries such as expensive meals or shopping trips. Even if the homeowner decides to sell the home after the mortgage is paid off, there is a good chance they will walk away with a payoff, even after subtracting the costs of ownership.

4.  A fixed mortgage can't go up, unlike rent

Fixed mortgage rates cannot go up, even if the cost of everything else goes up. Homeowners who wish to protect themselves from market fluctuation or rising housing costs should protect their future by  taking out a 30-year fixed rate mortgage loan to lock in today's low rates.

5. Buying a home now equals low interest rates and home prices

Interest rates are at their lowest at the moment, and at the same time, home prices in many areas have stayed the same. In suburban areas, deals on homes are plentiful compared with the high cost of living in many cities.  Asking prices on homes went down by 0.7 percent over the last year, whereas rents went up by 5 percent (Capital Economics). Take advantage of favorable market conditions and take the plunge into home ownership.

6. Homeowners can save on monthly energy bills by making energy efficient improvements

Making energy-efficient improvements to a home such as adding insulation or upgrading an air conditioning unit can greatly reduce the monthly utility bills. Renters can still make energy-conscious choices of their own (such as turning unused lights off), but homeowners have the advantage of being able to make major structural changes, such as adding solar panels or even installing a roof made from energy efficient materials such as foam, metal or tile.