Lee Morof's Real Estate Blog

Last week’s economic reports suggested that demand for homes is rising despite a jump in mortgage rates and rising home prices fueled by low inventories of homes for sale. Demand for homes rose by 1.40 percent as interest rates jumped after the 10-year Treasury rate rose by 10 basis points.

Construction spending was unchanged in May as compared to a -0.70 percent reading in April. Although builders express high confidence in housing market conditions, construction spending continued to lag behind spending levels based on builder confidence readings.

Home buyers received good news as major credit bureaus removed two key components from consumer credit reports. Fannie Mae and Freddie Mac raised the debt/to income ratio for home loans from 45 percent to 50 percent of gross income. This move was made to help would-be home buyers swamped with education debt. Doug Duncan, Fannie Mae’s chief economist, said that raising the debt to income ratio would not increase lender risk significantly.

Mortgage Rates, New Jobless Claims Rise

Mortgage rates rose last week. Freddie Mac reported that the average rate for a 30-year fixed rate mortgage rose eight basis points to 3.96 percent; the average rate for a 15-year fixed rate mortgage rose five basis points to 3.22 percent. The average rate for a 5/1 adjustable rate mortgage rose four basis points to 3.21 percent. Discount points averaged 0.60 percent for a 30-year fixed rate mortgage and held steady at 0.50 percent for 15-year fixed rate mortgages and 5/1 adjustable rate mortgages.

Jobless claims rose last week to 248,000 new claims from the prior week’s reading of 244,000 new claims, but this increase does not appear to be related to layoffs. Non-Farm Payrolls for June increased to 222,000 jobs added as compared to 180,000 jobs expected and May’s reading of 152,000 jobs added. Non-Farm Payrolls include public and private-sector jobs.

ADP Payrolls, which reports private-sector job growth, dipped in June to 158,000 jobs added as compared to 230,000 private-sector jobs added in June. Employers have repeatedly cited difficulty in finding skilled candidates for job openings, which makes it less likely that they’ll lay off employees who have needed skills. The national unemployment rate edged up in June with a reading of 4.40 percent against expectations of 4.30 percent and May’s reading of 4.30 percent.

What‘s Ahead

This week’s scheduled economic reports include testimony by Fed Chair Janet Yellen, readings on inflation and core inflation and retail sales. Mortgage rates and new jobless claims will be released along with a reading on consumer sentiment.

Last week’s economic releases included reports on new and pending home sales, S&P Case-Shiller Home Price Indices and regularly scheduled weekly reporting on mortgage rates and weekly jobless claims. Readings on consumer sentiment and confidence were also released.

New and Pending Home Sales Lower as Peak Sales Season Winds Down

August readings for new and pending home sales were lower than for July; analysts said that slim supplies of available homes and rising home prices contributed to slower home sales. Peak home sales typically occur during spring and summer. Homebuyers with school-aged children prefer to be settled into a new home when school starts in August and September.

According to the Commerce Department, new home sales achieved their second highest reading since the Great Recession. Although lower than July’s reading, August sales of new homes reached 609,000 on a seasonally-adjusted annual basis. Analysts expected a reading of 600,000 new home sales based on July’s reading of 659.000 new homes sold. August’s reading was 20.60 percent higher year-over-year. High demand for homes appears to be kicking home builders into higher gear as they strive to ease slim inventories of available homes.

The impact of short inventories of available homes was reflected in August’s reading for pending home sales. Home sales awaiting closing fell in August from July’s reading of +1.20 percent in July to 2.40 percent in August. The National Association of Realtors® said that home sales are declining due to very limited inventories of available homes. Rapidly rising home prices and strict mortgage qualification requirements also contributed to slipping sales. After home buyers sign a purchase contract, they are at the mercy of changing mortgage rates their ability to qualify for a mortgage. Pending home sales supply an indication of future closings and mortgage loans.

According to the S&P Case-Shiller 20-City Home Price Index for July, home price growth dipped from June’s seasonally adjusted annual rate of 5.10 percent to 5.00 percent. Slim inventories of homes for sale and high demand were again cited as primary reasons for slower home price growth. While demand is high, slim supplies of available homes can cause would-be buyers to postpone their home search until more homes are on the market.

Mortgage Rates Fall, New Jobless Claims Rise

Mortgage rates fell across the board last week according to Freddie Mac’s weekly survey of rates. The average rate for a 30-year fixed rate mortgage fell six basis points to 3.42 percent; the average rate for a 15-year fixed rate mortgage was four basis points lower at 2.72 percent. 5/1 adjustable rate mortgages had an average rate of 1.81 percent, which was one basis point lower than the previous week’s reading Discount points were also lower and averaged 0.50 percent for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

New jobless claims rose last week to 254,000 claims, but new claims were lower than the expected reading of 259,000 new claims which was based on the prior week’s reading of 251,000 new jobless claims. New jobless claims have stayed below 270,000 new claims for three months for the first time since 1973.

In prepared testimony before the Financial Services Committee, Federal Reserve Chair Janet Yellen discussed problems facing two major banks and said the Fed’s goal was managing its regulatory stance to support financial stability.

September’s Consumer Confidence Index reading rose to 104.1, which exceeded analysts’ estimated reading of 99.3 and August’s reading of 101.1.

What’s Next

Next week’s scheduled economic reports include readings on construction spending and several labor-related releases including ADP Payrolls, Non-Farm Payrolls and the National Unemployment Rates. Weekly reports on mortgage rates and new jobless claims are set for release as usual.

With all the expenses that go into monthly living and the temptations that come along with life, saving money for the down payment on your new home can be quite a struggle for many people. If you’re having a hard time saving and are wondering what you can do to ensure a higher bank balance next month, here are a few things that may pose a risk to getting the home of your dreams.

Forgetting To Take Lunch

One of the things most likely to defeat your bank balance is the daily office trip to the deli or diner. Instead of opting for an easy but expensive $10.00 lunch, take a few minutes at the end of each day to put together a sandwich or salad so you don’t have to spend extra funds on your lunch break.

Relying On Cable Television

With all the available options for streaming services, many people are switching out their packages for something a lot more economical. Cable can easily add up to $100.00 a month to your expenses, but a streaming service may only be a fraction of the cost and will provide savings you’ll soon notice.

Splurging On Morning Coffee

Grabbing the familiar cup of joe on the way to the office is certainly a way to ease yourself into the day, but one coffee can add up to a huge expense by the end of the month. If this is a vice you crave, try taking your own coffee to work and opt for a treat once a week if you really can’t resist.

Impulse Buys At The Grocery Store

Food certainly counts as a necessity, but there are many things that end up in the grocery cart at the end of a shopping trip that aren’t really staple items. If your cart is filling up with chips and chocolate, you might want to stick to your list or review your cart before the final purchase.

Avoiding Your Budget

Unless you’re taking to a spreadsheet to balance out your expenses and earnings, you may not see any significant savings at the end of each month. Budgeting will give you a better idea of what you can and can’t afford consistently, so make sure you’re writing everything down.

The idea of cutting back on spending is rarely a popular one, but there are things you can do every day that will make for a better bank balance at the end of the month. If you’re looking for more tips on buying your own home, contact your trusted mortgage professional today!

When you have been researching your different options for a mortgage on your home, you might have heard of an “Interest-Only Mortgage”. What exactly does this type of mortgage mean and how does it work?

Usually when you take out a loan, you must pay back the capital debt (the amount you borrowed) and the interest on that debt. An interest-only mortgage offers a cheaper option for purchasing a property, because you will only be making payments on the interest and not the capital.

Compared to a repayment style mortgage where you are paying down the principle of the loan, an interest-only mortgage will have much lower monthly payments.

However, when you reach the end of the mortgage term with an interest-only mortgage, you will not have paid off any of the original principle of the loan. This means that you will still not be any closer to owning the home than when you started, whereas with a repayment mortgage you would be in full possession of the property.

You will reach the end of the loan term, still owing the lender $250,000 or whatever the value of the house was. Also, if you do not pay off that lump sum at that point, the lender will charge you interest on the entire loan for the full time.

From the description of how it works, it seems like there would never be a good situation for taking out an interest-only mortgage. However, if you are stretched financially and you are desperate to get onto the property ladder it might be a viable option. Some people take on an interest-only mortgage so that they can buy their first home, then when their income goes up they switch to a repayment mortgage.

These types of mortgages are often used by buy-to-let investors, who are able to claim their tax back against the mortgage interest. If this is your goal, you might find this strategy advantageous.

To find out more about mortgages and determine the best option for your needs when buying a home, contact your trusted mortgage professional.

If you are on the verge of buying real estate, you’ve probably heard the term Private Mortgage Insurance. Mortgage professionals talk about it a great deal, but you may be asking, “What is it exactly? And why should I care?”

Private Mortgage Insurance Defined

PMI is required by lenders if the down payment of a purchase is less than 20 percent of the home’s value. It protects the lender if the borrower defaults on the loan.

It also makes the lender more apt to loan, even if the down payment is as low as 3%, because in the long run, the lender’s investment is protected.

You Pay For It

Unlike other types of insurance which you pay to protect your interest in an asset, you pay Private Mortgage Insurance to the mortgage company to protect its interest in your new real estate. (Note that PMI is not usually tax deductible. Check with a tax professional for details.)

Make It Go Away: PMI Can Be Terminated Once You’ve Paid Down Your Loan

Once you pay down your mortgage to the point where it hits the magical 80% of the original purchase price or appraised value, whichever is less, you can request cancellation of PMI. The Homeowners Protection Act requires that loans made after 1999 include notifications to the borrower when you arrive at this point in your payments.

Your PMI payments must be automatically canceled once you pay down your loan to 78%. At closing, and on a yearly basis, you should receive information from your lender about when you can request cancellation.

Whether you’re ready to buy real estate or need more information before taking the plunge, I can help. Contact your trusted real estate professional today.

As lenders tighten mortgage guidelines for Birmingham home buyers, minimum downpayment requirements are increasing.

Several years ago, you could finance a home with nothing down. Today, most conventional mortgages require at least 5 – 10 percent.

Incidentally, these guideline changes have led to an increase in the number of home buyers accepting cash gifts from family.

Gifts are allowed in most cases but the problem is, if you don’t accept the gift in a “lender-friendly” way, the mortgage underwriter could reject it, and negate it.

Three Steps To Success With Your Down Payment Gift Funds

You can’t just deposit a cash gift into your bank account. You have to follow a series of steps and keep records.

1. Provide an acceptable gift letter signed by all parties
2. Provide documentation of the gifter’s withdrawal of funds via teller receipts
3. Provide documentation of the giftee’s deposit of funds via teller receipts

Lenders require these 3 steps for two basic reasons.  First, they want to make sure that the cash gift is “clean” (i.e. not laundered).  Second, they want to make sure the gift is really a gift and not a loan-in-disguise. It’s why lenders typically require that the loan application be accompanied by a signed, dated letter.

For example:

I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property]. This is a gift — not a loan — and there is no expectation of repayment. Signed, [Signature of gifter]

Keep The Cash Gift Funds Separate From Your Other Money

As an additional step, home buyers receiving cash gifts should make sure that gifted funds are not commingled at the time of deposit.

If the cash gift is for $10,000, therefore, the bank’s deposit slip should indicate that a $10,000 deposit was made — nothing more, nothing less. Don’t add a random $100 deposit to the transaction, in other words. The $100 deposit should be a separate transaction.

It’s also worth noting that gifting funds between family members can create both legal and tax liabilities.

If you’re unsure about how donating or receiving a gift may impact you, call or email me directly. If I can’t help you with your questions, I can refer you to somebody that can.

According to mortgage experts, it is a good idea to gather up all of the needed documents in advance before launching your house hunt, as this will make the application process a lot easier.

The housing burst has resulted in much harder lending standards, which means that it could possible take weeks or sometimes even months to secure a loan.

Here are a few important steps that you should take in advance

Consider What You Can Really Afford

Before you start the entire house hunting and mortgage application process, you should consider what you can really afford to buy.

It might be tempting to buy a house at the upper end of your price range, but consider the fact that it will be more of a struggle to make your mortgage payments and it will take much longer to pay down the mortgage. Assess your finances and be honest with yourself.

Buying a home that is more comfortably within your price range will ensure that you can easily manage your monthly budget over the years.

Save Up A Down Payment

The bank will want to see that you are able to make a down payment of at least 20% of the value of the home.

In order to save up this amount of money, it will be easier if you start in advance and save a small amount every month. The more you can pay for a down payment, the less your mortgage will be and the more money you will save over the length of the loan.

Do Your Research

Take your time to do lots of research in advance and seek out impartial advice on the mortgage market. There are so many options to choose from and a lot to consider, so the more knowledge you have the more prepared you are to make an informed decision.

Consider Your Credit

Before applying for a mortgage loan, you should take a look at your credit report.

Your lender will look at it when you are making an application and they will use it to consider whether or not to offer you the loan and what type of interest rate to give you. If you spot any errors or issues with the credit report, it is a good idea to get them fixed now before you apply.

These are just a few things to consider before applying for a mortgage. To find out more about mortgages or buying a home, contact your trusted mortgage professional today.