Hovnanian: Higher Mortgage Rates Will Just Lead to Smaller Homes

Posted on July 2nd, 2013

During an interview with CNBC this morning, Ara Hovnanian of K. Hovnanian Homes expressed that he’s not worried about higher mortgage rates hurting the housing market.

In fact, the mega home builder’s CEO actually thinks we’re in the “early innings” of the housing recovery, noting that housing starts are still way below the expected average for this decade.

He said we’re currently at a pace of around 900,000 annual starts, up from 500,000 just two years ago, but nowhere close to the 1.5-1.6 million expected.

At the same time, mortgage rates are still insanely cheap, as I pointed out yesterday.

Hovnanian recalled conditions back in 1983, when mortgage rates averaged 13.4% and housing starts were at a staggering 1.7 million.

So if you look at things from a mortgage rate point of view, there’s not enough supply to keep up with demand.

That would explain some of the recent home price gains, which are slated to keep increasing at a steady clip.

All in all, he didn’t seem too concerned about mortgage rates rising, so long as they don’t rise by some obscene amount in a short period of time.

Funnily enough, he actually called for 3% mortgage rates back in 2008 to solve the problem of supply and demand. Looks like he got his wish…

Customers Want Bigger Homes While Rates Are Cheap

At the moment, Hovnanian says customers have been buying the largest of their offerings, perhaps because housing is so affordable.

In fact, they’ve had to design larger homes to add to their lineup to keep up with that trend.

In Houston, customers can buy a 4,000 square foot home for $250,000, which is pretty darn huge (and cheap).

Seeing that rates on the 30-year fixed are averaging close to 4.5%, you’d be looking at a monthly mortgage payment of just over $1,000 if you put 20% down.

So it’s no wonder people will go bigger if they can. But if rates rise to say 5.5%, Hovnanian said the same customer might go with a 3,000 square feet house. If rates really shoot up, he said customers could even settle for a townhouse instead.

In other words, he doesn’t think higher mortgage rates will cool the housing market per se, they will just dictate what prospective buyers can afford.

[Check out my mortgage payment graphs to assess affordability.]

People Need Shelter…

Hovnanian seems to believe that the need for shelter is what’s driving the market recovery, though you have to wonder if it’s just that pesky bubble mentality creeping back in, what with home prices still “on sale” and rates so attractive.

Of course, inventory constraints seem to be the real issue, and Hovnanian is clearly pleased that the private equity funds are buying up scores of single-family homes throughout the United States.

Thanks to the likes of Blackstone and Colony American Homes, demand for his company’s homes is probably that much higher.

And he doesn’t think they’ll flip the homes they buy – conversely, he sees them holding and renting for years to come, and slowly unloading as prices rise.

However, he does think managing such a large number of homes will be challenging.

Finally, Hovnanian weighed in on potential winning real estate markets throughout the country, naming both Northern and Southern California, along with Phoenix and “many of the land-constrained Florida markets.”

Other winners in his eyes included Washington D.C., New Jersey, and suburban New York.

Of course, this should all be taken with a grain of salt, seeing that he’s the head of a major home building company. But he does have some decent points about rates and supply.

Maybe there is a lot more upside ahead, so long as the distressed inventory doesn’t rear its ugly head.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Redfin Compete Score: How Hard Is It to Win That Home?

Redfin just launched its so-called “Compete Score,” a tool designed to help prospective home buyers determine how hard it’ll be to “win a home” in a particular city or neighborhood.

Is this the beginning of the end? The late stages of a housing market rally that began nearly six years ago depending on the region of the country?

It feels a little ominous, but let’s learn more about this new tool for home buyers and sellers that complements their existing Redfin Estimate.

What Is Redfin Compete Score?

Compete Score

  • A new housing market competition tool from Redfin
  • That measures now competitive a city or neighborhood is
  • Based on things like average number of offers received
  • Along with sale-to-list price ratio and days on market

At the moment, Compete Score is available in some 8,200 cities and 13,000 neighborhoods across the United States.

In short, it measures how many offers a home typically receives in a certain region, along with what price a home tends to sell for relative to its list price.

Additionally, days on market and number of waived contingencies is calculated.

This results in a Compete Score ranging from 0 to 100, with the higher numbers representing more competition and the lower numbers signifying less interest.

When you browse a specific listing on Redfin’s website or app, you’ll see a section about market competition under the neighborhood tab.

You can also see a Compete Score for an entire city or neighborhood on the new “Home Values” tab when searching in a particular zip code.

How You Can Use Compete Score to Your Advantage

Santa Monica competition

  • Quickly find out how hot or cold a certain market is
  • To better align your expectations with reality
  • Use data to guide the listing of your property or the bidding process
  • But remember no two homes are completely alike so don’t solely rely on it

Now let’s discuss how you can use Redfin Compete Score to perhaps make a better offer, or to list your home for an appropriate price.

The red-hot Santa Monica, California housing market is currently listed as a 91 out of 100, giving it the distinction of “most competitive.”

Homes there typically receive five offers, go pending in just 20 days, and sell for roughly 2% above list price. That probably doesn’t come as a great shock to anyone familiar with the area.

If it happens to be a Hot Home in an equally hot hood like Santa Monica, the property might go under contract in just 12 days and sell for 8% above asking.

On an individual property listing page, this section includes “what it takes to win an offer” with comments from Redfin real estate agents in the immediate area sharing their thoughts on local competition.

For example, you might see a bunch of comments from Redfin agents that made winning bids under ask, or a bunch that were rejected for going under ask.

If the neighborhood is particularly hot, you might see a bunch of over ask offers that failed to win.

Assuming there’s enough data, you could see a trend over time, where offers went from over asking to under and turned from losing bids to winning bids.

This could help you put together a winning bid with your real estate agent, though I should point out that every home is different, and just because properties are nearby one another they aren’t necessarily the same. Or even close to the same.

In an effort to ensure the Compete Score is accurate, it’s limited to areas where at least 25 homes have sold in the past 12 months.

Each month, the Compete Score is updated for a given area to reflect the most recent home sales data.

So it’s possible for an area to become hotter or colder depending on what transpired the month before.

Desirability vs. Competitiveness

  • Desirability and competition don’t necessarily go hand in hand
  • If a highly desirable market gets too expensive
  • Competition may decline as a result of affordability issues
  • This could signal a topping out and potential trouble ahead for that specific market

Redfin points out that desirability and competitiveness are two different things.

For example, an extremely desirable area may actually see competition wane as home prices climb further and further out of reach.

This could be a sign that a particular housing market is beginning to top out, despite being immensely popular.

We keep hearing about the possibility of that happening in places like Seattle and the Bay Area, but the buyers keep on coming, for now.

The Redfin Compete Score may also lead to fewer surprises for home buyers vying for a certain property, who might be disappointed, even when bidding well above asking.

It could also save a home buyer some bucks if the listing agent is making the property/area out to be hotter than it actually is.

Or as I pointed out, quantifiable trends may develop that can aid in making a more conservative winning offer.

Does This All Portend Another Bubble?

  • While it’s understandable that more data will yield more tools like this
  • It seems to have a bubbly nature about it
  • And reflects the current lack of inventory affecting many regions across the U.S.
  • But at a certain point the supply and demand imbalance will shift

At first glance, the new Redfin Compete Score felt like another bubbleworthy addition to the current housing market we’re experiencing.

After all, you’re trying to “win a home” as opposed to making a thoughtful financial decision.

No longer is simply making an offer on a property good enough. One must be ready to make a bid above asking, and/or waive important contingencies to get the deal done.

Or perhaps you have to pen a letter to the sellers, effectively begging for their property, while promising to keep it in its original state.

Because after all, it is perfect, and it should be maintained as such for generations to come, regardless of your own taste and preferences.

For me, it signals a little more craziness in a housing market that has been crazy for some time now.

Sure, it’s also just a sign that there’s more data available than ever before, but its mere existence might give a discerning home buyer pause.

Not that I think this housing market is going to crash just yet.

Source: thetruthaboutmortgage.com

Bank of America Has a Waiting List to Refinance

Last updated on February 2nd, 2018

If you’re interested in refinancing your mortgage with Bank of America, you may be in for a big surprise.

Per Bloomberg, the mega bank has been unable to keep up with demand, thanks in part to HARP Phase II, which is beginning to roll out.

The program, which allows pretty much anyone to refinance, regardless of how deeply underwater they are, has led to everyone and their mother inquiring about a possible refi.

And we all know that the biggest names in the finance world will experience the biggest windfall.

Unfortunately, Bank of America has been making steady moves to get out of the mortgage world in recent times.

In fact, their share of the mortgage market has dwindled to little more than five percent, which is less than it held before it acquired Countrywide.

This is largely because they exited both the wholesale and correspondent mortgage businesses to focus on building relationships at the retail level.

90-Day Wait to Refinance

I hope you’re patient, because Bank of America is telling some customers who call during high volume periods of the day to make a reservation.

And once they do that, it could take anywhere from 60 to 90 days just to hear back. Even then, it’s unclear how much longer it will take to apply for a refinance, get the loan underwritten, and finally get it funded.

By then mortgage rates could rise, though that’s probably not too much of a concern. But in the mean time you’d still be stuck making higher monthly mortgage payments, which is clearly no good.

[Are mortgage rates going to stay low?]

If you do manage to “get in the door,” note that Bank of America also stopped offering cash out refinances last month.

So if you’re looking to tap your home equity, you’ll either have to try a HELOC or go elsewhere.

BofA Customers Don’t Need to Wait

That said, one of Bloomberg’s sources said those with Bank of America checking accounts, along with those who go to the bank in person, do not need to wait.

Still, you have to wonder about the bank’s urgency in getting your refinance application to the closing department.

If they’re overloaded, the turn times will surely be extremely high, which could put your time-sensitive mortgage application in danger.

This is all the more reason to shop around for your mortgage, as opposed to just going with the bank you know and “trust.”

If you’re only getting one mortgage quote, you’re doing yourself an injustice.

Be sure to contact several banks, along with a few mortgage brokers, to see what kind of mortgage rate you can get your hands on.

And don’t forget to compare fees and closing costs to ensure you receive the best deal on your refinance.

Tip: How to find the best mortgage rates.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Home Buyers Are More Worried About Rising Mortgage Rates than Prices

Posted on July 10th, 2013

A new survey from Trulia revealed that rising mortgage rates are the chief concern among those who plan to buy a home sometime in the future.

The company polled 2,000 people in late June after the uptick in mortgage rates, and found that 41% said their biggest worry was mortgage rates rising before they closed on their home purchase.

Amazingly, it beat out of the next biggest concern, which was rising home prices. Only 37% of respondents listed that as their number one issue, which tells you how important low mortgage rates are to consumers these days.

The third biggest concern for prospective buyers was simply finding a suitable property to purchase, seeing that inventory is so poor at the moment.

13% Believe a Mortgage Rate at 4% Is Already Too Expensive

Perhaps the Fed went too far in its quest to push mortgage rates lower, as it seems to have led to a major distortion of reality.

In fact, 13% of those surveyed by Trulia indicated that a 4% mortgage rate was enough to discourage a home purchase. Talk about being bearish on housing…

For the record, mortgage rates on the 30-year fixed are already around 4.5% or higher, so we know some would-be buyers are apparently out already.

And another fifth of respondents said a 5% mortgage rate would push them out of the game, or at least discourage them.

If rates were to rise to 6%, another 22% said they’d be discouraged to buy a home.

Taken together, more than half of those surveyed (56%) would be lukewarm about a home purchase if rates shot up to 6%, which is a historically low rate and more than realistic over the next several years.

After all, rates hovered around that level for much of the 2000s, so returning to 6% wouldn’t be all that unheard of.

For renters who plan to buy a home eventually, 62% said they’d be discouraged if rates hit 6%.

Talk about spoiling consumers with super low mortgage rates.

[Check out mortgage payments at different rates.]

Did the Low Mortgage Rates Create a False Recovery?

As far as I’m concerned, this calls into question the validity of the supposed housing recovery we’ve all been so convinced about lately.

Yes, housing has improved on a number of fronts, with both distressed and non-distressed inventory down considerably, and mortgage delinquencies lower.

But do we only have the artificially low mortgage rates to thank for that? Did the low rates alone convince more homeowners to stay put, as opposed to walk away? And did they push more would-be buyers to scoop up homes when housing was completely unfashionable?

I hate to say it, but without mortgage rates on the clearance rack, this housing recovery may have never taken flight.

As others have noted, home prices relative to income are still historically high, meaning it is only the low mortgage rates that making housing affordable today.

And if rates rise back to historical norms, monthly mortgage payments wouldn’t be cheap compared to renting in many markets.

Sure, they’d have to rise to 7% to make the median home unaffordable, per Freddie Mac, but that doesn’t mean it would make sense to buy a home. And most hot markets are already unaffordable, even with the low rates.

Unfortunately, home prices have already shot back to recent highs in a lot of markets, so if rates also continue to rise, things won’t be so rosy anymore.

Perhaps we’re looking at a major housing cool-down over the next few years, now that the low rate party is over, and prices aren’t nearly as cheap as they once were.

So if you can come to terms with less-than-stellar home price appreciation, maybe that new home is for you. Just don’t buy with the sole expectation of exponential home price gains. They may have already come and gone.

Read more: Home prices vs. mortgage rates

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Redfin Launches the Owner Estimate to Give Homeowners Control

Posted on September 26th, 2018

Are you sick and tired of your Redfin Estimate or Zillow Zestimate being too low? Do you feel your property is worth much, much more than they say it is?

Well, I’ve got great news for you! Redfin has introduced the “Owner Estimate,” a new tool that gives the appraiser reigns to the homeowners themselves.

Instead of letting that pesky algorithm scare off potential buyers, you can get your hands dirty and tell the company (or its computer) why your property is actually worth a whole lot more than the “most accurate online estimate for on-market homes,” per an independent study by SSRS.

Of course, it’ll still rely on some “core machine-learning” to get the job done, but there’s a chance you can generate a higher value than what the company yields on its own.

And best of all, you can feature the Owner Estimate on your property page for all to see, right above the Redfin Estimate (which you can incidentally hide).

Even better, you don’t have to make the Owner Estimate publicly visible if you don’t like what it comes up with, so it’s basically a win-win.

How to Generate a Redfin Owner Estimate

redfin create

It’s a pretty simple and straightforward process. Once logged in at Redfin, you begin by searching for your property on their website.

This will populate a Redfin Estimate for said property, along with some public facts like square footage and number of bedrooms and bathrooms.

Simply click on “Create an Owner Estimate” to get started. You can edit home facts if you feel they aren’t accurate, or add photos to your listing.

Then you’ll need to select comparable sales, like a real estate appraiser would, to come up with a more reflective value for your own property.

choose homes

As you select homes from the list, you can actually see your Owner Estimate go up and down in value. So to some degree it seems you can game the estimate a bit, though it doesn’t move the dial very much.

My assumption is most people will pick the most expensive comps, but there certainly could be a legitimate reason for doing so.

For example, if your property is located in a city that is close to a less desirable one, and a bunch of comps are being used from that other city, you can choose only comps in the actual city it’s located in.

This could mean completely different school districts, zoning rules, and an entirely different feel to the neighborhood.

The same goes for certain streets and blocks. If a comp is being used on an adjacent street, but it’s a through street and/or located next to something funky, it shouldn’t be treated the same.

Save Your Owner Estimate and Make Public (Or Don’t)

save estimate

Anyway, once you select your comps (there doesn’t seem to be a limit, though you can only choose from what they have listed), you can hit “save” and proceed to make your Owner Estimate public.

Or keep it private, but saved nonetheless.

You also have the option to update your Owner Estimate whenever you choose. So if new homes sell nearby, you can make necessary changes in the future.

Ultimately, in my brief experience tinkering with it, the Owner Estimate only diverged from the official Redfin Estimate by about $10,000, or ~2%.

In other words, it’s probably not going to be very meaningful for most folks, especially since prospective buyers will see that it’s your estimate, which isn’t all that objective.

But there might be situations where the Redfin computer completely gets it wrong, in which case this free tool could prove to be quite helpful if/when you list your property for sale.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Do I Qualify for the National Mortgage Settlement?

Last updated on February 10th, 2012

In case you haven’t heard by now, the so-called “National Mortgage Settlement” was finalized today.

It’s the largest multi-state settlement since the Tobacco Settlement back in 1998, related to robosigning allegations that took place over the past several years.

Essentially, some of the nation’s largest loan servicers routinely signed off on foreclosure documents without doing their due diligence, and/or without the presence of a notary.

It will provide more than $25 billion in assistance to homeowners, participating states and the federal government.

For the record, all 50 states participated except for lonely old Oklahoma.

The offending parties in the National Mortgage Settlement include:

– Ally/GMAC
– Bank of America
– Citi
– JPMorgan Chase
– Wells Fargo

These are the nation’s five largest mortgage loan servicers.

Benefits will be provided to both borrowers whose loans are owned by the settling banks as well as to borrowers whose loans they service.

In other words, your mortgage may have been originated by another company and sold to one of these companies to be serviced. So be sure to check your loan documents if you think you may be eligible.

Where the Settlement Money Will Go

The bulk of the money, at least $10 billion, will go toward principal balance reductions. In other words, those who hold underwater mortgages will see their balances drop to get them above water.

But the assistance will only be directed toward those who are either delinquent or at imminent risk of default as of the date of the settlement.

The principal reduction will likely be facilitated via a loan modification, so borrowers will ideally end up with a smaller loan balance and a lower mortgage rate, which will certainly make mortgage payments much more affordable.

State attorneys general believe principal reductions will prove beneficial, and as a result, will be employed by other mortgage lenders not involved in the settlement.

Another $7 billion or more will be used for short sales and transitional services, forbearance of principal for unemployed borrowers, anti-blight programs, and benefits for service members forced to sell their homes at a loss as a result of a “Permanent Change in Station” order.

Loan servicers will also have at least another $3 billion at their fingertips to provide refinancing to borrowers who are current, but underwater on their mortgages.

These homeowners will be able to take advantage of the record low mortgage rates that were previously out of reach due to loan-to-value ratio restraints.

Additionally, $1.5 billion will be distributed to roughly 750,000 borrowers who have already lost their homes to foreclosure.

The states involved will also receive immediate payments of roughly $3.5 billion to help fund consumer protection and state foreclosure protection programs.

How and When Can You Get Help?

If you think you qualify for assistance, you can contact the offending mortgage servicer directly, although they should be contacting you…

For borrowers who lost their homes between January 1, 2008 and December 31, 2011, a claim form should be sent to you for one of those shiny checks.

You can also contact your individual Attorney General’s office to check eligibility, or to provide a current address assuming you moved and/or have been foreclosed on.

Unfortunately, relief won’t be immediate under the settlement. Over the next 30-60 days, settlement negotiators will be selecting an administrator to oversee the program.

And over the next six to nine months, this administrator will work with attorneys general and loan servicers to identify relief recipients.

It is expected to take three years to execute the entire settlement, so patience is a virtue here.

Who is Left Out of the National Mortgage Settlement?

Borrowers with Fannie Mae and Freddie Mac owned mortgages. And those with FHA loans.

This is more than half of the homeowners with mortgages in the United States.

So quite a few borrowers are missing out. But they can still get assistance via HARP 2.0, even if they are severely underwater. Or via the Broad Based Refinancing Plan currently in the works.

Additionally, those that have positive home equity likely won’t see any relief from this settlement.

Essentially, those that paid down their mortgages, or came up with a reasonable down payment, won’t qualify for assistance under this settlement.

While it seems like they’re losing out, they aren’t. This settlement is about shoddy foreclosure practices, so those that weren’t affected obviously wouldn’t receive any benefit.

However, they may receive the indirect benefit of a healthier housing market and higher home prices if the settlement works as it should.

It’s worth noting that the banks involved are still accountable for claims that may arise out of any other wrongdoings committed during the lead up to the mortgage crisis.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Prospective Buyers Are Beginning to Walk Away from Home Purchases

Last updated on August 29th, 2018

Over the past few years, the term “walking away” was synonymous with strategic default. In short, homeowners who were underwater on their mortgages had very little hope of turning things around.

As a result, they would simply walk away from the property (and the mortgage), accepting whatever consequences came with that. Typically, a big fat credit hit and the need to find a new place to dwell.

Interestingly, some of these same borrowers now qualify for mortgages again because so many years have passed since that phenomenon began.

And those able to prove extenuating circumstances, such as a temporary job loss that led to a short sale or foreclosure (or even bankruptcy) can now get an FHA loan just one year later.

So despite many calling the mortgage market too conservative, there are ample opportunities for those with checkered pasts to obtain financing.

The New Walk Away Is an Affordability Thing

I cautioned a while back that affordability was set to fall off a cliff, given the dramatic rise in mortgage rates, coupled with higher asking prices.

And now it’s causing would-be home buyers to walk away from deals. A new Bloomberg report cites several examples where prospective buyers are backing out because of affordability concerns.

One couple in Seattle thought they could afford a $400,000 home because that’s what the math told them back in February when their home search began.

Today, their housing payment is roughly $300 higher than it would have been had they closed before rates surged. As a result, they’re looking at a smaller home instead.

Another family in Portland tried to back out of a home purchase because rates have both increased their proposed housing payment and made it more difficult to sell their existing home. Talk about a double whammy.

This is apparently a trend, according to a Redfin economist cited in the article, who said a lot of agents are dealing with buyers who were in escrow that can no longer afford to buy. All the more reason to make sure your buyer is qualified, even if rates go up.

One Redfin agent said his client is waiting to buy in fall once competition dies down, though there’s the risk that interest rates could be even higher then. And prices.

[First Sign of Mortgage Rate Impact as New Home Sales Disappoint]

Just How Bad Are the Higher Mortgage Rates?

You’d think that a couple hundred dollars wouldn’t derail someone’s ability to qualify for a loan, but apparently it does.

When it comes down to it, DTI ratios limit how much a prospective homeowner can afford, so those on the cusp can easily run into trouble if they don’t lock their rate at the outset when they may have been originally pre-approved.

I created some mortgage payment charts to quickly eyeball interest rate changes and their impact on monthly payments.

For smaller loan amounts, the difference in payment is still pretty minimal. On a $200,000 loan amount, the monthly mortgage payment on a 30-year fixed at 4.5% versus 3.5% is only about $115 more.

On a $500,000 loan, the difference jumps to nearly $300, which is a bit more devastating to the old wallet.

This probably explains why homeowners are either looking for smaller and/or cheaper homes, or considering the use of hybrid ARMs, such as the 5/1 or 10/1 to keep payments at bay.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

2019 Conforming Loan Limit Will Be $484,350 for Mortgages Backed by Fannie and Freddie

Last updated on December 27th, 2018

As expected, the conforming loan limit for 2019 has increased thanks to an ongoing rise in property values, according to a news bulletin released by the Federal Housing Finance Agency (FHFA) this morning.

Beginning in 2019, the maximum loan amount for a one-unit property will be $484,350, a $31,250 increase from the current $453,100 limit.

Per the FHFA’s seasonally adjusted, expanded-data home price index (HPI), property values increased 6.9% between the third quarters of 2017 and 2018.

As a result, the conforming loan limit in 2019 will rise by the same percentage.

For reference, home prices rose by 6.8% in the same period a year earlier. So despite some negative press regarding the housing market recently, it’s still humming along just fine.

Higher 2019 Conforming Limit May Help Homeowners Secure Lower Mortgage Rates

  • Home prices increased 6.9% between Q3 2017 and 2018
  • As a result the conforming limit will rise by same percentage
  • This could benefit new and existing homeowners
  • Since conforming loans are generally priced lower and easier to qualify for

This so-called “baseline conforming limit” is the maximum loan amount acceptable for residential mortgages eligible for purchase by Fannie Mae and Freddie Mac.

It also applies to VA home loans, which are offered to active duty military and veterans.

Generally, conforming mortgages price cheaper than non-conforming ones, such as jumbo loans. However, this isn’t always the case.

Still, if you can keep your loan amount at or below the conforming limit, you should have the widest array of loan options available to you and the best pricing.

To give you an example, someone purchasing a $605,000 home this year and putting down 20% would exceed the conforming loan limit, currently set at $453,100.

This might make financing more complicated or difficult to find, not to mention the higher mortgage rate that could apply.

Come 2019, they’d be able to buy the $605,000 home with 20% down and stay just below the conforming limit, thereby improving their chances of securing a low mortgage rate with just about any lender out there.

They may also enjoy a lower mortgage rate thanks to a favorable forecast for 2019.

2019 High-Cost Loan Limit Will Rise to an Even Higher $726,525

  • In the most expensive regions of the country
  • Along with Alaska, Hawaii, Guam, and the U.S. Virgin Islands
  • The max loan limit will increase to $726,525
  • Which is 150% of the standard conforming limit

Of course, there are high-cost loan limits as well, which will also increase in 2019.

The new “ceiling” for one-unit properties in the most expensive areas of the country will be $726,525, or 150% of $484,350.

Borrowers in places like Los Angeles, San Francisco, Washington D.C., NYC, and other high-priced cities will be able to take out even larger mortgages backed by Fannie and Freddie.

Additionally, home buyers in Alaska, Hawaii, Guam, and the U.S. Virgin Islands will enjoy the same increased loan limit.

For example, a $900,000 home purchase with 20% down will fall under this new ceiling, which should cover most of the home buying population in the United States.

However, mortgage rate pricing is often slightly higher for these hybrid conforming-jumbo loans.

Overall, the maximum conforming loan limit will be higher in all but 47 counties (or county equivalents) in the nation come next year, which could make life a little easier for home buyers facing higher interest rates and asking prices.

Read more: Jumbo loans vs. conforming loans.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Pros and Cons of Refinancing Your Mortgage Right Now

Since April 1, 2009, roughly 16.2 million American homeowners have refinanced their mortgages, according to the latest Housing Scorecard released by HUD.

But as you may or may not know, there are still millions of homeowners who have not, for one reason or another.

Some may not be eligible, while others may be going through foreclosure or have simply given up on making payments.

[Reasons why you can’t refinance.]

And hey, some just may have procrastinated, or simply aren’t that interested in their mortgage.

For example, Obama hasn’t refinanced his mortgage in seven years, but Bernanke has been all about it in recent years.

If you look at the chart below, you’ll notice that refinancing has been pretty steady since the lull in 2008 (when lending came to a standstill), but it’s still nowhere close to that seen in 2003 when things were bubbling up toward implosion.

refinanced

Yet, mortgage rates are at all time lows, and continue to fall seemingly every week, month, etc., not that anyone seems to care.

So if you’re on the fence about refinancing, let’s look at a few pros and cons of refinancing now vs. later.

Con: Home Prices Rising

Home prices have been on the rise for a while now, and are expected to keep climbing nationwide.

The Housing Scorecard also noted that rising property values have brought homeowner equity to its highest point since the third quarter of 2008.

That pushed 1.3 million homeowners out of an underwater position. That’s great for those looking to refinance, as it should make it easier.

equity

But higher home prices also make refinancing even more attractive to those with equity because their loan-to-value ratio may fall to a lower threshold, pushing their qualifying mortgage rate even lower.

So for those who believe their home value will keep increasing, pumping the brakes on refinancing might be a good move, especially if you’re right on the cusp of a LTV threshold such as 80%, where you can ditch mortgage insurance.

Pro: Record Low Rates

On the flip side of that argument, one could argue that mortgage rates are at unprecedented levels, and you’d be a fool not to refinance now.

After all, what if mortgage rates tick higher and you “miss your chance” at snagging a 30-year fixed near 3%?

You might kick yourself a few times for missing the boat. And how low can mortgage rates really fall?

Con: Even Lower Rates

Well, the housing pundits have said that month after month, and week after week, only to grab their erasers and pretend they didn’t call a mortgage rate bottom.

I’ll admit that I’ve been one of those people.

Yes, rates are absurdly low, but no, they probably haven’t bottomed. There is still so much uncertainty out there that can push rates even lower.

Europe is still unraveling, and whether there has been much improvement locally is still a big question mark.

With the Fed pledging to buy mortgage securities until the cows come home, waiting could pay off.

Pro: Lower Payments Today

But, the longer you wait to refinance, the more you’ll pay each month in the form of a higher interest rate.

So if you keep riding it out, waiting for that perfect time to refinance, you’re essentially missing out on a lower payment during those months (or years).

Make sure you factor in all that money once you finally make the decision to refinance. The savings could be skewed as a result.

Con: Big Picture Savings

Of course, you might just say, “hey, I might be spending more each month now, but once I get a 2.50% 30-year fixed, I’ll be ahead in no time.”

That could be true, and someone who waits a bit longer could wind up with an even better rate and a lower monthly payment, which could spell bigger savings over the years ahead.

[Locking vs. floating]

After all, refinancing costs money (unless it’s a no cost loan), and serially refinancing isn’t always possible (nor fun), especially if your credit takes a hit or something else makes you ineligible.

Pro: You’re Eligible Now

Speaking of, if you’re eligible now, and the interest rate is dynamite, letting it ride might not be the best move.

What if something does bar your eligibility, such as unemployment, a mindless missed payment that leads to a lower credit score, or simple program changes?

There’s been talk about all types of stuff on the horizon, like a qualified mortgage, which Romney mentioned in the first presidential debate.

You wouldn’t want to be caught out by a future change or misstep, would you?

In summary, you can’t really go wrong by refinancing right now, assuming it saves you money, but yes, waiting could prove to be better.

In any case, take the time to really think it over!

Source: thetruthaboutmortgage.com

Mortgage Rate History: Check Out These Charts from the Early 1900s

Last updated on February 5th, 2019

Today we’ll take a brief look at some mortgage rate history to gain a little context. It’s always helpful to know what came before so you can better guess what might come after.

Just about everyone knows that mortgage rates hit all-time record lows over the past year. But do you know what mortgage rates were like in the 1900s?

The 30-year fixed averaged 3.31% during the week ending November 21, 2012, its lowest point in history.

Later, the 15-year fixed hit the lowest point ever, sinking to 2.56% during the week ending May 2, 2013.

Freddie Mac’s Mortgage Rate Statistics Started in 1971

historic mortgage rates

  • Most mortgage rate statistics are tied to Freddie Mac’s archive
  • Unfortunately, it only goes back to the year 1971
  • I wanted to drill down a bit deeper to see what things were like
  • Prior to the 70s and earlier on the century to gain more perspective

Both figures above come from Freddie Mac’s Primary Mortgage Market Survey, which only dates back to 1971.

For the record, back in April of 1971, the first month they began tracking 30-year fixed mortgage rates, the national average was 7.31%.

It went as high as 18.45% in October 1981 and as low as 3.31% in November 2012. That’s quite a range.

Note that the graph above charts rates based on their January average of each year, so it appears they don’t exceed 18%.

The 15-year fixed has only been tracked by Freddie Mac since September 1991, when rates averaged 8.69%.  In that same month the 30-year fixed averaged 9.01%.

Anyway, I remember a while back when fixed rates were in the low 4% range that the media was going on about how rates hadn’t been this low since the 1950s.

I never really took the time to see how low rates were back then, but I finally decided to do some digging to get a little more information.

A Little Bit of Mortgage Rate History

  • Mortgage rate history stretches back nearly a century
  • But the best records only go back to the early 1970s
  • The 30-year fixed gained in popularity around the 1950s
  • And rates reached a low around 1945 before hitting new lows in 2012

That brought me to several out-of-print volumes from the National Bureau of Economic Research, which seems to have the best records out there.

Unfortunately, the details are still quite murky at best. You see, back then there were different types of mortgages, not like the ones used today.

While I don’t know when the very first 30-year fixed mortgage was created and issued (someone please tell me), they were believed to become widespread in the 1950s, which is why media references that decade.

Before that time, it was common for entities like commercial banks and life insurance companies to issue short-term balloon mortgages, often with terms as short as three to five years, which would be continually refinanced and never paid off.

These loans were also underwritten at LTV ratios around 50%, meaning it was pretty difficult to get a home loan.

Later, once the Great Depression struck, home prices nosedived and scores of foreclosures flooded the housing market because no one could afford to make large payments on their mortgages, especially if they didn’t have jobs.

Then came FDR’s New Deal, which included the Home Owners’ Loan Corporation (HOLC) and the National Housing Act of 1934, both of which aimed to make housing more affordable.

The HOLC, established in 1933, could explain why long-term fixed-rate mortgages are in existence today.

The purpose of the HOLC was to refinance those old balloon mortgages into long-term, fully amortized loans, with terms typically ranging from 20 to 25 years.

Rates Came Down as Loan Terms and LTVs Increased

  • Homeownership became more affordable over time
  • Thanks to lower interest rates
  • Longer loan terms
  • And higher LTVs (lower down payments)

A year later, the FHA and the Federal Savings and Loan Insurance Corporation were created, and in 1938, Fannie Mae was born. All of these entities essentially expanded credit availability and led to more liberal lending standards.

Over time, mortgage interest rates came down while LTV ratios and loan terms increased, as you can see from the charts below.

Historical Mortgage Rates

early 1900s lending

While it’s hard to get an apples-to-apples comparison of mortgage rates before the advent of the 30-year fixed, the National Bureau of Economic Research does have a chart detailing rates from 1920 to 1956.

From about 1920 until 1934, conventional mortgage rates averaged close to 6%, and then began to decline to a low point of just under 4.5%. This is probably the reference point the media uses when they say rates haven’t been this low in 60 years.

Mortgage Rates in the 1920s to 1950s

  • We see a steady drop in interest rates
  • From around 1935 to 1945
  • Before rates began their ascent
  • Perhaps as the result of World War II ending

early 1900s mortgage rates

However, it’s unclear what types of mortgages these were over this extensive time period, and when the 30-year fixed actually became the standard. But it does provide for a little bit of context.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com