Realtors and Homebuyers: A Major Market Shift is Happening – Be Prepared!

We always hear about buyers' markets and sellers' markets in real estate – but do you know which one we are in right now?  Well, this may depend on where you are buying or selling, but my experience over the last few months is that we are in the middle of a BIG TIME shift that we have been awaiting for eight years.  Now if you are in the market to buy a home this year, don’t let this scare you.  In fact, it may be the most opportunistic time to buy in years! 

Let’s explore this first with a few simple observations…..

• There is a shortage of inventory on the market right now.  Although the number of homes for sale fluctuates by area and neighborhood, there are 5 buyers for every 2 houses on the market right now.  Naturally by supply and demand, this creates competition and drives prices up.  The good news is that with the spring market comes a lot of new inventory, so buyers who are prepared will be in the driver’s seat.
• There are more cash buyers in the market this year, which also drives up prices, without the appraisal contingencies to worry about.
• Interest rates on the rise – The Fed has tapered its stimulus from $85 billion to $65 billion in monthly purchasing of mortgage backed securities. This has resulted in higher rates, as we saw last fall when rates went from the 3’s to the 4’s overnight.  As we see the economy improve coupled with further Fed tapering, rates will continue to go up, creating more urgency from buyers.

OK – So Why is this Good News for Everyone? 

 

For buyers, the cost of money is still cheap.  With the national average FHA 30 year fixed rates below 4% and Conventional 30 year fixed rate just above 4%, getting in now is KEY.  As mortgage rates rise, so do interest rates on your savings and other investments. Locking in on a low fixed rate while all other rates go up gives you the best of both worlds.

 

Also, lenders are expanding product offerings.  We are starting to see more options for Conventional loans like old the 80/10/10, and 5% down with No Monthly PMI.

 

Sellers who may have not been able to sell for the last few years, or were previously unwilling to sell in a down market, will now be reconsidering the move since they may be able to get more for their home than they did last year or the year before.

 

Buyers – Be Prepared!

 

If you are in the market to buy a home this year, start by talking to a lender NOW.  Actually, talk to a couple lenders. 

• Find out what you qualify for before you start looking at houses.  The last thing you want to do is find your dream home, and then lose it to another buyer because you haven’t gotten your ducks in a row.  If you are scrambling at the last minute to secure a loan, you might not make the best choice in lender or loan type.
• If you are a 1st time homebuyer, you may be eligible for FREE money toward down payment and closing costs.  That’s right – FREE Money!  Not all lenders participate in all programs, so make sure you get hooked up with a knowledgeable lender.
• Have your lender show you on paper how one loan compares with another, what the costs are, and how each loan option affects your cash out-of-pocket and monthly payment.  The loan that your friend, family member, or co-worker got may not be the right loan for you. 
• If you are having a hard time understanding the information being given to you by your lender, don’t be afraid to ask questions until you do understand.  For most people, this is the largest obligation you will take on, and you should make sure you make informed decisions.

This is a very exciting time for anyone buying or selling a home.  Having a dedicated, caring, competent lender makes all the difference. 

 

Please call or email me if you would like more information on mortgage products and getting pre-approved so you are prepared when you or your client find your home of choice.

Credit Scores: The Report Card for Grown Ups

Credit reports are a lot like school report cards.  Both measure how well you are performing using various numerical grades, such as a 4.0 or a 750, and both have to be approved by a person in charge, whether it is a parent or a home lender.

If you’re not a straight A student in Credit 101, here are some tips for making the grade during the home buying process.

1. Types of Credit:   The three most important types of credit are mortgages, student loans or other installment loans, and auto loans.  Credit bureaus place the most weight on these three types of loans when determining credit score. As such, late payments on these are the most detrimental to credit scores.
2. Credit Cards:   Credit bureaus want to see credit card usage, just not too much. The balance from revolving debt, such as credit cards, should not exceed 40% of the maximum amount.  For example, if your credit card limit is $1,000, try to keep the balance below $400.  The goal is to keep the debt to available credit limit ratio low, even if that debt is spread across a few credit cards.  It is better to have two credit cards with balances below 40% of the limit, than to have one card that is always maxed out.  In reference to multiple credit cards, the optimal number of credit cards to have is 3 to 4. 
3. Credit Score Criteria:   Lenders use stricter criteria when pulling credit reports for potential home buyers.   As a result, there is often a small difference between the borrower’s individual score and the lender’s score.  For example, a potential home buyer pulls their credit score with Experian and sees that their score is 700.  It is possible that the lender’s credit report for the borrower may show only 680.  The small discrepancy is related to the type of credit inquiry, explained below.
4. Credit Inquiries:   Credit inquiries are another factor that affects credit scores.  Inquires can be from various types of creditors, and are often classified as either “hard inquires” or “soft inquires”.  Soft inquires are those that are not being reviewed by a prospective lender.  These include checking your own credit, or credit checks made by businesses to offer you goods or services. Hard inquires are those that are reviewed by a potential lender for the purpose of extending your credit for a loan.

Having your credit pulled too often, and by too many different types of creditors will lower your scores.  The credit bureaus do not view “applying for everything” as a responsible decision. The only exception is if you are rate shopping.  Credit bureaus understand that while rate shopping you may have your credit report pulled by various lenders in a short amount of time, so they rarely give you a hit on your score.

For more information about your credit “report card” and how it is used during the home buying process, please call Stuart directly at 410.491.0200 or email at septstein@baybankmd.com.

Credit Score Limbo: How Low Can You Go When Buying a Home?

Applying for a home loan with a low credit score can feel like playing a game of limbo.  Having a mortgage application denied can feel like being in limbo. 

Borrowers that do not initially qualify for a mortgage due to their credit score can shorten the time they are in credit-rebuilding-limbo with a few simple steps.  Although, it might be helpful to first understand how credit scores are used when buying a home.

Lenders pull a tri-merge credit report from all three bureaus for each potential borrower.  All lenders use the middle score, which for many lenders needs to be no less than 640 in order to qualify a borrower for a mortgage.  

If the applicant’s score does not meet the cut off, the lender will then try to determine the cause of the low credit score.  Collections and judgments are common causes of low credit scores, and must be paid before the mortgage application can be approved. 

Medical collections are different.  Medical debt that collectively adds up to less than $1,000 does not have to be paid off in order to be approved for a mortgage, so long as that debt does not affect the credit score.  Lenders will vary on this rule.  You should ask your lender about medical collections before you do anything with them.

Some creditors will take longer to update paid debts than they do to turn over the debt to collections in the first place.   In this instance, the lender can use written proof that the debt has been paid.  The document must show all the account information, borrower name, and company letterhead.  For the revolving debt, or credit card accounts, the credit bureaus like to see you utilize your revolving credit, but not too much.  It is suggested that the balance remain under 40% of the credit limit to ensure the outstanding debt can be handled and paid timely.  As always, if you remit more than the minimum payment, it is looked upon in a positive manner to show the bureaus continue credit worthiness.

Completing this step is sometimes all it takes to increase a borrower’s credit score that fell just below the cut off.  If a borrower’s credit score is too far below 640, than they may be in credit-rebuilding-limbo for a while. There are still additional ways to speed up the process.

Potential borrowers can gather up documents that show they have been regularly paying their debts, and overnight them with return receipt requests to each of the credit bureaus.  The credit bureaus will then research and update the borrower’s credit score. This usually occurs within a few months.  

Lastly, borrowers may not have to pay off all of their debt in order to qualify for a mortgage. There is a calculation system, available to some most lenders, which allows them to see how credit scores would be affected if the borrower paid off a percentage or the balance of their debt.  Although it is not a certainty, it typically helps borrowers know where they need to be in order to take out a mortgage. 

As the potential borrower pays off their debt and gathers documentation, it is always good to stay in contact with the mortgage loan officer and/or the person that is assisting you in repairing your credit.

If you have any additional questions about how credit scores affect the home buying process, please call Stuart directly at 410.491.0200 or email at septstein@baybankmd.com.

Mortgage On A Tight Deadline

We just received this from a recent client:

"I came to Stuart and his team about a possible mortgage on my first house only a few weeks before I was supposed to close. There was a tight deadline in place that we managed to hit. The experience that I had working with Stuart's team was excellent. They had my best interests at hand throughout the process and processed all of my paperwork quickly. I would suggest Stuart and his team to anyone because of their knowledge and professional approach while working with customers." – Matt McEwen

Contact our office today if you are in the market for a new home or re-fi. Call us at 410.491.0200 or email us at SEpstein@BayBankMD.com

Lean Green Mortgages

Going green isn’t just a trend anymore; what started as a not-so-cost-effective environmental movement is now proving to have a twofold benefit, both to our wallets and Mother Nature.  

Most people want to save on their electricity bill.  Double-pane windows, low-wattage lights, better insulation, programmable thermostats, and smart appliances all contribute to reducing a home’s carbon footprint. 

But could an energy efficient home lower your mortgage payments?

The Institute for Market Transformation (IMT) partnered with the University of North Carolina in a study released on March 19th 2013.  The study found that Energy Star homeowners are 32 percent less likely to default on their mortgages.

The results of this study may prompt lenders to reduce the monthly mortgage payment when considering how energy efficient a home is. 

Lenders compare monthly expenses to monthly income when assessing lending risks.  For years, lenders assumed that smaller utility bills from energy efficient homes would reduce lending risk, but there was never any hard data to back up the claims.  Lack of study metrics, and small survey pools yielded inconclusive data. 

For the recent study, the IMT researchers looked at a real estate database from CoreLogic in order gather a sufficient sampling.  In an effort to make the study more controlled, researchers factored in metrics such as the borrower’s credit score, the size and age of the home, local unemployment rates, and local climate and energy prices.

The study examined 71,000 single-family, owner-occupied homes across 38 states and D.C. between 2002 and 2012.  Real estate statistics from California was unavailable due to privacy laws and the real estate data from Alaska and Hawaii deviates substantially from the rest of the continental US, so these three states were left out of the sample.    

Approximately 35 percent of the homes sampled were Energy Star-certified. 

The study measured loan default based on the percentage of homeowners who fell behind on their mortgage by 90 days or more.  Foreclosure laws differ from state to state making measuring default based on this indicator relatively tricky. 

The “urban legend” that lenders had assumed to be true, did indeed turn out to be true: homeowners of energy efficient homes were 32 percent less likely to default on their mortgage.   It is likely that having a couple of hundred extra dollars a month in a homeowner's pocket from energy savings could make well-insulated, tightly sealed homes a safer bet for banks.

However, there could be other factors contributing to these results. Since these homes tend to be more expensive, it is possible that a person who pays a premium for an energy efficient home may also be someone who is already more financially stable or astute than a conventional home buyer, even despite the fact that the study factored in a homeowner’s credit score,

Ultimately, this report could benefit homeowners looking to lower their mortgage. Lenders could better assess risks and offer attractive rates to encourage people to buy efficient homes. 

If you have any questions about this topic, don't hesitate to contact us. You can call us at 410.491.0200 or email at septstein@baybankmd.com.

Spring Housing Market Update for Baltimore Metropolitan Area

Written by Stuart Epstein

It’s hard to believe that we are into May already!  I will say that I am happy to report that the first four months of 2012 have been one of the busiest that we have seen in a long time in the Baltimore area home buying market.  We are up by 9% over 2011 for purchase mortgages, and an average purchase price of $200,000, compared to $187,000 for the same period last year.  Many people are starting to realize that home prices may have hit their low point and interest rates could not be more attractive than right now.  For example, the average rate on an FHA 30-year fixed rate loan right now is 3.5% and a Conventional 30-year fixed at 3.875%.  Our refinances have more than doubled for the first four months of 2012 over 2011!  This is mainly due to rates being at an all time low.  Many are reducing the term from 30 years down to 15.

The majority of the new applications are 1st time homebuyers, who happen to be in the best position right now, given they have no house to sell as a contingency for buying.  They also have the benefit of receiving 1st time homebuyer grants and incentives, such as the CDA loan with DSELP (Maryland Mortgage Program) and the FHLB grant. 

We are also seeing more “step-up” buyers, those who are selling their current home and upgrading to a larger or superior home.  Since inventories of sought after homes on the market seem to be shrinking, some sellers are finding it easier to get contracts on their houses in a couple months.   Some areas are actually experiencing bidding wars again.

The mortgage qualifying and documentation standards have continued to get more and more restrictive, which can make for a stressful process when applying and taking out a loan these days. The good news is that qualified borrowers can still get a loan, and at historically low rates.  It just may be a bit more painful getting to settlement. 

I may sound like a broken record, but the key is having a good, reputable, local lender working for you to make the transaction as smooth as possible. 

If you own a home and have not refinanced in the last year, make sure you check with your lender to see if it makes sense for you to refinance.  There are several programs available to help: the FHA Streamline Refinance, the VA IRRRL Refinance and the Fannie Mae DU Refi Plus programs all have flexible guidelines to help those who may not have the equity normally required to get a lower rate.  If you are not sure if it makes sense for you to refinance, or if you are not sure if you can, don’t hesitate to call (410.491.0200) or email us to do a free analysis.

Enjoy the beautiful spring weather!

New FHA Changes Effective April 9th, 2012 – Is it a Game Changer?

Have you heard that there are changes coming on FHA mortgages, but unsure how they will affect you or your clients?  Here is a simple breakdown of the changes:

Up-front Premium – 30 year mortgage

• Existing Up-Front MI premium (financed into the loan)  - 1% of loan amount
• New Up-Front MI Premium effective April 9th  - 1.75% of loan amount

Monthly MI – 30 year mortgage

• Existing Monthly MI rate      - 1.15% assessed annually
• New Monthly MI rate effective April 9th    - 1.25% assessed annually

What does this mean?  Let’s use an example to demonstrate the new FHA change:
On a $200,000 home purchase, under the existing structure, the payment (excluding property tax and insurance) on a 30 year fixed rate loan with an interest rate of 3.75% would be $1088/month.  Under the new plan effective April 9th, the payment will go to $1110/month. 
So on a $200,000 purchase; it will cost you $22 more a month for an FHA mortgage AFTER April 9th. 
The good news is the required down payment will still be the same.  In this example, that would be $7000 required down.  Don’t forget that if you are a 1st time homebuyer, you may qualify for help with down payment, like the FHLB or the Maryland Mortgage Program, just to name a couple.
There are different FHA mortgage insurance rates when the down payment is greater than 5%, and also for 15 year mortgages.  If you would like a breakdown of these rates and how they may affect financing, don’t hesitate to ask the Stuart Epstein team to provide you with the numbers.
Also, if you have 5% to put down, you may want to ask us to help you compare the costs and benefits of Conventional financing as an alternative to FHA.  Depending on credit and other factors, you may save a ton on money by knowing ALL of your options!
Lastly, stay tuned for exciting refinancing benefits coming in June for those with existing FHA mortgages…
Happy House Hunting!

Please contact the Stuart Epstein team if you have any questions! Call us 410.491.0200 or email me directly at sepstein@carrolltonbank.com.