Getting A Mortgage: Why So Much Paperwork?

Getting a Mortgage: Why so much Paperwork? | Keeping Current Matters

We are often asked why there is so much paperwork mandated by the bank for a mortgage loan application when buying a home today. It seems that the bank needs to know everything about us and requires three separate sources to validate each and every entry on the application form. Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago.

There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history.

  1. The government has set new guidelines that now demand that the bank prove beyond any doubt that you are indeed capable of affording the mortgage. During the run-up in the housing market, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again
  2. The banks don’t want to be in the real estate business. Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.

However, there is some good news in the situation. The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate probably below 5%.

The friends and family who bought homes ten or twenty ago experienced a simpler mortgage application process but also paid a higher interest rate (the average 30 year fixed rate mortgage was 8.12% in the 1990’s and 6.29% in the 2000’s). If you went to the bank and offered to pay 7% instead of <5%, they would probably bend over backwards to make the process much easier.

Bottom Line

Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.

Buying a Home is 38% Less Expensive than Renting!

Buy-or-Rent

In Trulia’s 2014 Rent vs. Buy Report, they explained that homeownership remains cheaper than renting throughout the 100 largest metro areas in the United States; ranging from an average of 5% in Honolulu, all the way to 66% in Detroit, and 38% Nationwide!

The other interesting findings in the report include:

  • Even though prices increased sharply in many markets over the past year, low mortgage rates have kept homeownership from becoming more expensive than renting.
  • Some markets might tip in favor of renting later this year as prices continue to rise faster than rents and if – as most economists expect – mortgage rates rise, due both to the strengthening economy and Fed tapering.
  • Nationally, rates would have to rise to 10.6% for renting to be cheaper than buying – and rates haven’t been that high since 1989.

Bottom Line

Buying a home makes sense. Rental costs have historically increased at a higher rate of inflation. Lock in a mortgage payment now before home prices and mortgage rates rise as experts expect they will.

You Need A Professional When Buying A Home

You Need a Pro When Buying a Home | Keeping Current Matters

Many people wonder whether they should hire a real estate professional to assist them in buying their dream home or if they should first try to go it on their own. In today’s market: you need an experienced professional!

You Need an Expert Guide if you are Traveling a Dangerous Path

The field of real estate is loaded with land mines. You need a true expert to guide you through the dangerous pitfalls that currently exist. Finding a home that is priced appropriately and ready for you to move in to can be tricky. An agent listens to your wants and needs, and can sift out the homes that do not fit within the parameters of your “dream home”.

A great agent will also have relationships with mortgage professionals and other experts that you will need in securing your dream home.

You Need a Skilled Negotiator

In today’s market, hiring a talented negotiator could save you thousands, perhaps tens of thousands of dollars. Each step of the way – from the original offer, to the possible renegotiation of that offer after a home inspection, to the possible cancellation of the deal based on a troubled appraisal – you need someone who can keep the deal together until it closes.

Realize that when an agent is negotiating their commission with you, they are negotiating their own salary; the salary that keeps a roof over their family’s head; the salary that puts food on their family’s table. If they are quick to take less when negotiating for themselves and their families, what makes you think they will not act the same way when negotiating for you and your family? If they were Clark Kent when negotiating with you, they will not turn into Superman when negotiating with the buyer or seller in your deal.

Bottom Line

Famous sayings become famous because they are true. You get what you pay for. Just like a good accountant or a good attorney, a good agent will save you money…not cost you money.

4 Reasons to Buy Before Winter

4 Reasons to Buy Before Winter | Keeping Current Matters

It’s that time of year, the seasons are changing and with them bring thoughts of the upcoming holidays, family get togethers, and planning for a new year. Those who are on the fence about whether now is the right time to buy don’t have to look much farther to find four great reasons to consider buying a home now, instead of waiting.

1. Prices Will Continue to Rise

The Home Price Expectation Survey polls a distinguished panel of over 100 economists, investment strategists, and housing market analysts. Their most recent report released recently projects appreciation in home values over the next five years to be between 11.2% (most pessimistic) and 27.8% (most optimistic).

The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes sense.

2. Mortgage Interest Rates Are Projected to Increase

Although Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have softened recently, most experts predict that they will begin to rise later this year. The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are in unison projecting that rates will be up almost a full percentage point by the end of next year.

An increase in rates will impact YOUR monthly mortgage payment. Your housing expense will be more a year from now if a mortgage is necessary to purchase your next home.

3. Either Way You are Paying a Mortgage

As a recent paper from the Joint Center for Housing Studies at Harvard University explains: “Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

4. It’s Time to Move On with Your Life

The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise. But, what if they weren’t? Would you wait? Look at the actual reason you are buying and decide whether it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer or you just want to have control over renovations, maybe it is time to buy.

Bottom Line

If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.

5 Questions You Should Ask Your Real Estate Agent

5 Questions You Should Ask Your Real Estate Agent | Keeping Current Matters

Whether you are buying or selling a home, the process can be challenging. That is why you should take on the services of a real estate professional when embarking on a potential home move. However, not all real estate agents are the same. A family must make sure they hire someone who truly understands the current housing market and, not only that, knows how to connect the dots to explain how market conditions may impact your decision.

How can you make sure you have an agent who meets these requirements?

Here are just a few questions every real estate professional should be able to answer for their clients and customers:

  • Are home values approaching a new bubble or will prices continue to appreciate?
  • Is it better for a first time buyer or a move-up buyer to wait until they save a bigger down payment before they purchase a home?
  • Where will 30-year mortgage rates likely be in 12 months?
  • Why do I need an agent when I can just as easily find the house online myself?
  • Is buying a home still a good investment for my family?

Make sure you hire an agent that can answer questions like those above. That will guarantee the home buying or selling process will be much easier for you and your family.

The Most Important Report in Real Estate?

The Most Important Report in Real Estate? | Keeping Current Matters

Many people report on the National Association of Realtors’ (NAR) Existing Home Sales Report which quantifies the number of closed sales of single-family homes, townhomes, condominiums and co-ops. However, there is another report that NAR releases each month that may be even more important – the Pending Home Sales Report which reveals the current Pending Home Sales Index.

According to NAR, the Pending Home Sales Index (PHSI) is

“a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.”

The PHSI generally leads Existing Home Sales by a month or two and therefore is a more current pulse on home sales.

How is the PHSI calculated?

According to NAR:

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population”.

What does the PHSI look like right now?

The most recent report showed that the PHSI climbed 3.3 percent to 105.9 in July from 102.5 in June. The index is at its highest level since August 2013 (107.1) and is above 100 – considered an average level of contract activity – for the third consecutive month.

Looking at the PHSI at a regional level, we can see the comparative strength of each market.

NAR-NortheastNORTHEAST

This region includes the states of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont.

The PHSI in the Northeast jumped 6.2 percent to 89.2 in July, and is 8.3 percent above a year ago.

NAR-Midwest

MIDWEST

This region includes the states of Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Ohio, North Dakota, Nebraska, South Dakota, and Wisconsin.

The PHSI in the Midwest fell 0.4 percent to 104.6 in July, and is 6.4 percent below a year ago.

NAR-SouthSOUTH

This region includes the states of Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia.

The PHSI in the South increased 4.2 percent to 119.0 in July, and is 1.0 percent below a year ago.

NAR-West

WEST

This region includes the states of Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

The PHSI in the West increased 4.0 percent to 99.5 in July, and is 6.0 percent below a year ago.

Bottom Line

There can be an argument made that the Pending Home Sales Report is actually the most important report released each month because of its timeliness and its measurement of an historically healthy market.

Immigration & Its Impact on the Housing Market

Immigration and Its Impact on the Housing Market | Keeping Current Matters
There are many hot topics right now and immigration is definitely one of them. Whether we agree or disagree on what is going on at this moment, the history of immigration starting around 1600 shows us the United States has been a country that always received immigrants. Several organizations have done research on the impact immigrants can have on housing demand. Let’s look at some of those results: Research done by the National Association of Home Builders (NAHB) in 2012 states: “Assuming net immigration of 1.2 million (the low end Census Bureau projection for 2010) persists for 10 years, the model estimates that after 10 years new immigrants will:

  • account for close to 3.4 million US households
  • occupy more than 2 million multifamily units and more than 1.2 million single family homes
  • account for more than 900 thousand homeowners”

The Research Institute for Housing America also projects “that from 2010 to 2020 immigrants will count for over one-third of the growth of homeowners and over one-quarter of the growth in renter households.”

Need for Continued Research

In this month’s edition of Fannie Mae’s Housing Insights, they source the American Community Survey in stating that there were 18.8 million immigrant renters in the country in 2012. Fannie Mae goes on to say that these numbers represent “a large reservoir of potential future homeownership demand”. They conclude with:

“Continued study of how these and future immigrants advance into homeownership as they reside longer in the U.S. may provide valuable insights into future prospects for the country’s housing market.”

A More Localized Look at the Impact

For those looking for local data, a research study performed by AS/COA and Partnership for a New American Economy, provides an interactive map showing “the net change in a county’s immigrant population from 2000 to 2010 and the corresponding effect on median home values.”

Bottom Line

If we look at the conclusions made by multiple sources, we see that they agree that immigrants will revitalize less desirable neighborhoods and support the housing market. Each group is seeking greater economic opportunities just like the immigrants in past decades that came to United States. The question is: are we prepared to help them with their real estate needs? 

Don’t Get Caught in the ‘Renter’s Trap’

Don’t Get Caught in the ‘Renter’s Trap’ | Keeping Current Matters

In a recent press release, Zillow stated that the affordability of the nation’s rental inventory is currently much worse than affordability of the country’s home sale inventory. The release revealed two things:

  1. Nationally, renters signing a lease at the end of the second quarter paid 29.5% of their income to rent
  2. U.S. home buyers at the end of the second quarter could expect to pay 15.3% of their incomes to a mortgage on the typical home

Furthermore, renters pay more than the average of 24.9% that was paid in the pre-bubble period while buyers actually pay far less than the 22.1% share homeowners devoted to mortgages in the pre-bubble days.

Don’t Become Trapped

If you are currently renting you could get caught up in a cycle where increasing rents continue to make it impossible for you to save for a necessary down payment. Zillow Chief Economist Dr. Stan Humphries explains:

“The affordability of for-sale homes remains strong, which is encouraging for those buyers that can save for a down payment and capitalize on low mortgage interest rates…As rents keep rising, along with interest rates and home values, saving for a down payment and attaining homeownership becomes that much more difficult for millions of current renters.”

Know Your Options

Perhaps you already have saved enough to buy your first home. HousingWire recently reported that analysts at Nomura believe:

“It’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment. 

It’s that they think they’re not qualified or they think that they don’t have a big enough down payment.” (emphasis added)

Freddie Mac came out with comments on this exact issue:

  1. A person “can get a conforming, conventional mortgage with a down payment of as little as 5 percent (sometimes with as little as 3 percent coming out of their own pockets)”.
  2. Freddie Mac’s purchase of mortgages with down payments under 10 percent more than quadrupled between 2009 and 2013.
  3. More than one in five borrowers who took out conforming, conventional mortgages in 2014 put down 10 percent or less.

Bottom Line

Don’t get caught in the trap so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Have a professional help you determine if you are eligible to get a mortgage.