Last Chance: 3.5 Percent Down

Mortgage industry changes: Low rates and terms may soon be history

You are going to be hearing a lot about restructuring the mortgage industry in the next months and years.

But the bottom line for home buyers is buy now and get financing in place by as early as May. The great terms of recent years will soon be gone, and probably gone forever.

Experts say you will probably never again see down payments in the 5 percent range (even now becoming harder to find) or 30-year fixed rates under 5 percent.

The median down payment in nine major U.S. cities rose to 22 percent late last year. This was the highest requirement since 1997 on properties purchased through conventional mortgages, according to a Wall Street Journal report.

In many areas, however, a down payment of only 10 percent of the mortgage amount could be available for people with high credit scores.

The lowest down payments are still offered by the Federal Housing Administration, FHA. They will finance a home with a 3.5 percent down payment.

But a recent Obama Administration white paper on the mortgage industry hints that this very low down payment might change as the federal footprint in the mortgage market shrinks.

According to CNN Money, Congress will be considering raising FHA down payment requirements, approving higher insurance fees for FHA mortgages, and changing rules for ‘qualified’ mortgages. This could mean higher interest rates for consumers and higher down payments, perhaps up to 30 percent.

With its low down payment requirements, low interest rates, and lower credit score requirements, FHA now has a 30 percent market share in the mortgage arena but plans are to reduce its activity to just 10 percent.

Administration officials say the planned process could take some time, but it might include phasing out federal backing of Fannie Mae and Freddie Mac. Since the mortgage crisis began, the government has bailed out the federally backed entities to the tune of $150 billion.

Life Without Fannie and Freddie?

What would happen if loan giants Freddie Mac and Fannie Mae were shut down? A recent New York Times article explains that if the government eventually shuts down these companies, the 30-year fixed-rate mortgage loan could be a thing of the past.

Homeownership as we know it could change drastically, with the fixed-rate loans at risk for extra fees and high rate increases for those in urban and rural areas.

“Lenders could charge fees for popular features now taken for granted, like the ability to “lock in” an interest rate weeks or months before taking out a loan,” according to the article.

Fannie Mae and Freddie Mac carry 90% of new mortgage loans post-recession as many lenders can’t afford to make loans that aren’t government insured. The 30-year loan has been the popular option since it was introduced in 1954 by an act of Congress, and most have been issued only with government support.

Read more about the possible outcome of Fannie Mae and Freddie Mac being shut down and what would mean for mortgage rates here.

Avoiding Foreclosure

When the stress of a possible foreclosure rises, it is important to remember that there are many resources out there to help avoid it. The programs and agencies below all specialize in helping people avoid foreclosure on their homes:

U.S. Department of Housing and Urban Development (HUD)
800-569-4287
http://www.hud.gov/local/ca/homeownership/foreclosure.cfm

HUD Avoidance Counseling
http://www.hud.gov/offices/hsg/sfh/hcc/fc/

Making Home Affordable Program
888-995-HOPE
http://www.makinghomeaffordable.org/

Housing California
916-447-0503
http://www.housingca.org/nr/resource/foreclosure_resources/

State of California – Consumer Home Mortgage Information
http://yourhome.ca.gov/

Fannie Mae Resource Center
800-732-6643
http://www.fanniemae.com/homeowners/index.html

Project Sentinel – Redwood City counseling agency
(HUD Approved Agency)
888.331.3332
http://www.housing.org

Neighborhood Counseling Services – Silicon Valley
(HUD Approved Agency)
408-279-2600
http://www.nhssv.org/foreclosure-counseling.htm

Neighbor Works America
202-220-2300
http://www.nw.org/network/foreclosure/default.asp

National Foreclosure Mitigation Counseling
202-220-6314
nfmc@nw.org

The important thing to remember is that foreclosure isn’t always inevitable, and there are many programs and agencies ready to help. Share these resources if someone you know is going through a possible foreclosure on their home.

Shopping Around For A Mortgage

It is important that while shopping for a mortgage to not solely focus on rates, but to shop for a great loan consultant. Anyone can quote a rate, but knowing you’re with a true professional that can deliver makes all the difference.

Also, many lenders will quote rates without taking into account where the property is, what your credit rating is, or other very important factors that may affect the actual rate you and your property qualify for.

Here’s the inside scoop on how to do it right.

Always make sure you are working with an experienced, professional lender. The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way. But how can you tell?

Here are four simple questions your lender absolutely must be able to answer correctly. If they do not know the answers immediately leave and go to a lender that does.

1. What are mortgage interest rates based on?

The only correct answer is Mortgage Backed Securities or Mortgage Bonds, not the Fed or the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. Do not work with a lender who has their eyes on the wrong indicators.

2. What is the next Economic Report or event that could cause interest rate movement?

A professional lender will have this at their fingertips. To receive an up-to-date weekly calendar of weekly economic reports and events that may cause rates to fluctuate, contact us today.

3. When Bernanke and the Fed “change rates,” what does this mean… and what impact does this have on mortgage interest rates?

The answer may surprise you. When the Fed makes a move, they are changing a rate called the “Fed Funds Rate”. This is a very short-term rate that impacts credit cards, credit lines, auto loans and the like. Mortgage rates most often will actually move in the opposite direction as the Fed change, due to the dynamics within the financial markets.

4. What is happening in the market today and what do you see in the near future?

If a lender cannot explain how Mortgage Bonds and interest rates are moving at the present time, as well as what is coming up in the near future, you are talking with someone who is still reading last week’s newspaper, and probably not a professional with whom to entrust your home mortgage financing.

Be smart… Ask questions… Get answers!

More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life but we do this every single day. It’s your home and your future. It’s our profession and our passion. We’re ready to work for your best interest.

To Own or To Rent?

Purchasing a home requires a thoughtful decision. For some, leaving a rented apartment is difficult due to its financial flexibility; however choosing homeownership can be financially rewarding.

Here are some things to keep in mind when considering buying a home:

Undecided?

Don’t Wait Until It’s Too Late
Buyers sitting on the fence while waiting for the “prices to go down” will miss out on long-term appreciation gains and possible tax advantages.

A Smart Investment
Renting does not provide equity benefits. Make your money work for you by building equity in your own home and benefiting from possible tax advantages* as a homeowner.

Good News!

High Inventory
There is currently a greater selection of homes for sale on the market. Sellers are motivated and many homes are priced to move! That means you have a better chance of finding the home that best fits your lifestyle and needs.

Motivated Sellers
Because the market is moving more slowly, some sellers may be highly motivated to participate in special financing programs such as buying down the interest rate on your loan. This makes homeownership much more affordable than you think.

Finding the Right Loan For You
A loan consultant can provide you with a wide selection of mortgage options that have payment structures to best suit your individual needs. As a full service mortgage banker and broker, Princeton Capital can offer many loan options along with competitive pricing. They have greater control in the decision making process from start to finish, so your loan can close faster with more flexible terms.

Tips for Buying a Home

There are many pitfalls you can avoid when you are in the market to buy a new home. Here are just a few tips and strategies to help you prepare for success:

Know your credit score.

You may be able to get a better mortgage rate and more favorable loan terms by restructuring some of your balances on credit cards, car loans, etc. Mortgage professionals help you correct errors on your credit report and determine which balances to restructure or pay off in order to improve your credit score.

Know how much you can spend and determine how much you can afford. Mortgage professionals can help you:

• Finance your home based on your monthly payment comfort level
• Determine how much cash to use as your down payment and where to get these funds
• Understand your before and after-tax monthly payments
• Restructure some other debt you may have to free up more monthly cash flow that enables you to improve your home buying budget

Don’t get caught in the “pre-approval” / “pre-qualification” trap.

It is always better to get a full approval / loan commitment from a mortgage professional before you even start looking for a home. Many mortgage brokers and lenders will give you a “pre-approval” or “pre-qualification”, but these are often meaningless. What you really need is a bona fide commitment from a mortgage lender that you are in fact approved for financing. Many real estate transactions have been ruined because buyers, sellers and Realtors have counted on “pre-approval” letters that proved meaningless.

Determine whether to rent or buy a home based on timeframe, budget and local market conditions.

Mortgage professionals help you run the numbers to determine if it is better for you to rent or buy a home based on your individual circumstances.

Develop a strategy for financing your closing costs, home improvements and furniture expenses.

A home purchase is a significant financial commitment. Mortgage professionals help you understand the costs involved in home ownership and help you develop a financial strategy for dealing with these costs ahead of time.

Evaluate the mortgage products that will work best in your situation.

Remember, it is far better to find a mortgage professional who can help you implement the best strategy with competitive interest rates than for you to shop for the lowest rate with the wrong strategy.

7 Things You Should NOT Do When Applying For A Home Loan

This is a list of things to steer clear of when you are seeking to obtain financing for a home. If you do any of these things, please contact your loan officer immediately.

Even if you have been pre-qualified, we can help you re-qualify.

1. Don’t buy or lease an auto!

Lenders look carefully at your debt-to-income ratio. A large payment such as a car lease or purchase can greatly impact those ratios and prevent you from qualifying for a home loan.

2. Don’t move assets from one bank account to another!

These transfers show up as new deposits and complicate the application process, as you must then disclose and document the source of funds for each new account. The lender can verify each account as it currently exists. You can consolidate your accounts later if you need to.

3. Don’t change jobs!

A new job may involve a probation period, which must be satisfied before income from the new job can be considered for qualifying purposes.

4. Don’t buy new furniture or major appliances for your “new home”!

If the new purchases increase the amount of debt you are responsible for on a monthly basis, there is the possibility this may disqualify you from getting the loan, or cut down on the available funds you need to meet the closing costs.

5. Don’t run a credit report on yourself!

This will show as an inquiry on your lender’s credit report. Inquiries must be explained in writing.

6. Don’t attempt to consolidate bills before speaking with your lender!

The loan officer can advise you if this needs to be done.

7. Don’t pack or ship information needed for the loan application!

Important paperwork such as W-2 forms, divorce decrees, and tax returns should not be sent with your household goods. Duplicate copies take weeks to obtain, and could stall the closing date on your transaction.

What Google’s New Algorithm Means for Real Estate

A couple of weeks ago Google rolled out a new algorithm used to calculate what shows up highest in their search engine results, and it is having a dramatic effect on real estate in particular.

According to Google, 11.8% of search queries are significantly different after this not-so-subtle change in the formula.

What does this have to do with real estate? Real estate searches typically benefit most from what are referred to as “long tail searches” – searches with phrases, such as “homes for sale in San Mateo near downtown.”

Now these long-tail search queries will be treated differently by Google’s algorithm, though exactly how this will play out is unclear at this point. Real estate is an industry particularly affected by this change due to the nature of online searches regarding it, which tend to be pretty specific.

According to a recent press release, Google implemented the changes to their system in order to hamper content-farm sites (internet spam sites looking to gain traffic that lack quality content).

“This update is designed to reduce rankings for low-quality sites—sites which are low-value add for users, copy content from other websites or sites that are just not very useful. At the same time, it will provide better rankings for high-quality sites—sites with original content and information such as research, in-depth reports, thoughtful analysis and so on,” stated the official Google release.

The major takeaway from this is that paid-for SEO (search engine optimization) is becoming less reliable, especially in the real estate field, and creating quality content is the most important thing with online marketing.

First-Time Buyers Fading

According to a recent report in the Wall Street Journal, the domination of cash-buyers and investors has been steadily increasing since July.

Capital Markets reported that “cash buyers and investors together have driven 70% of the increase in existing home sales seen since last July, while first-time buyers have been responsible for just 6%.”

This means that home prices are lower, and are expected to continue decreasing as demand for home weakens.

Locally, Santa Clara and San Mateo home sales are also dominated by cash-buyers and investors. As more homes are pushed to sale via foreclosures, demand will lower along with housing prices.

Credit Score Resources

Do you know your FICO credit score? If you are looking to purchase a home, be sure to look into your credit score well in advance.

 

Today’s market is competitive, with more cash buyers investing in property and multiple-offer transactions. Are you in the 700 range? 600 range? You will need some time to find out your score and work on improving it if need be. Check out the below sources to help you assess your credit situation.

Four Good Sources of Credit Information

Here are four websites worth visiting, if you want to learn more about your credit reports and scores:

1. www.myfico.com — This site is owned by the company that created the credit-scoring model used by most lenders. The education tab is especially useful. Take a look at the forum where you can post questions.
2. www.annualcreditreport.com — This website is jointly owned by the three credit-reporting companies (TransUnion, Equifax and Experian). This is where you should go to request your free reports. This is the only site that is regulated by the Federal Trade Commission.
3. www.ftc.gov/freereports — This website is useful to find out why a “free” credit report is offered, but then they try to “charge” you for additional things. This is a marketing practice in wide use and this website can tell you more about it.
4. www.bankrate.com — This site offers credit tips and it explains the mortgage process. You can compare rates, use a myriad of calculators and check out their “news and advise” tab for pertinent news information each week.

The four sites listed above will help you get started on your home buying adventure.

Cash Buyers Dominate San Mateo, Santa Clara County Home Sales

Over the past several months, cash buyers – often investors – looking for bargains have been purchasing homes in San Mateo and Santa Clara counties at a high rate, according to a San Jose Mercury article. This activity lowered the average sale price in San Mateo County, and kept it level with last year’s average in Santa Clara County.

The real estate information service DataQuick stated that the area home sales are dominated by distressed homes and these cash buyers, who made up about a quarter of home buyers in January in both counties.

“What’s most interesting is how active the investors were through the holidays and into early January,” said Andrew LePage of DataQuick in the Mercury story.

Buyers in the area are on the bargain hunt as well, with multiple-offer real estate transactions being common of late. Foreclosures have allowed some buyers to get in to the market, and the low prices fuel the competition fire.

It is hard to compete against a true cash buyer when bidding on a property. To stand out when making an offer, make sure you get your loan pre-approved properly, essentially turning yourself into a “cash buyer.”

Speed-Cleaning Your Kitchen

There are many shortcuts and extra efficient methods of keeping your kitchen spotless without spending too much time cleaning every day. This Real Simple magazine article recommends setting up three kitchen to-do lists: daily, weekly, and seasonally.

Daily chores include wiping down the sink, stovetop, counters, and sweep or vacuum the floor. They tally this up as taking 3 minutes and 30 seconds total.

Weekly, Real Simple recommends wiping down backsplashes, appliances, cabinets, garbage can, switchplates and phones. Also, one should mop weekly (about four minutes, the most time consuming of these quick tasks), and wash the dish rack. The weekly tasks add up to about 20 minutes.

Seasonal tasks include deep cleaning and scrubbing of the refrigerator, sink, and other appliances four times per year.

While cleaning isn’t everyone’s idea of fun, using these quick guidelines will decrease your cleaning time to minutes a day – the time it takes to brew your coffee.For motivation, Marla Cilley, author of Sink Reflections, recommended in the article to clean your sink first.

“A sparkling sink becomes your kitchen’s benchmark for hygiene and tidiness, inspiring you to load the dishwasher immediately and keep counters, refrigerator doors, and the stove top spick-and-span, too.”