From Colin Robertson of TheTruthAboutMortgage.com, dated August 17, 2016
It seems just about everyone is lowering mortgage down payment requirements to deal with rising home prices, this despite the near-record low mortgage rates still widely available.
You see, down payment is still the biggest hurdle to homeownership, and I suppose it was during the previous boom as well. That would explain why zero down mortgages were the norm back in 2006.
The major problem then was that you could also state your income, your assets, and not disclose your job, so long as you had a decent credit score. No skin in the game and no disclosure equals no good.
We’ve learned from those mistakes, I hope, and now underwriting is a lot more sound. Still, people want to buy homes, whether they’ve saved up a large down payment or not. And that would explain why Fannie and Freddie began offering 97% LTV mortgages.
Instead, many lenders are providing a 2% grant to homeowners and asking that they come up with the remaining one percent, which seems pretty fair.
The use of a grant is allowed under both Fannie’s HomeReady program and Freddie’s Home Possible Advantage, and some banks dole outs funds in accordance with the Community Reinvestment Act.
Quicken Loans 1% Down Payment Option
Interestingly, the largest non-bank mortgage lender in the country, Quicken Loans, quietly rolled out their 1% down payment option back in March, but there wasn’t a press release or any fanfare. There certainly wasn’t a Super Bowl commercial.
I don’t know why that is; I’m just here to tell you about the loan program in case you lack a down payment and are interested. If I had to guess, I’d say that it’s limited to certain types of buyers and thus a national rollout or major ad campaign might be misleading and/or a waste of money.
Anyway, let’s talk about Quicken’s 1% down loan program to see if you might qualify based on what I know about it.
First off, this program can only be used for the purchase of a home, no refinances are permitted. Quicken Loans provides a 2% grant and the borrower brings in the remaining 1% to make it a 97% LTV loan.
I’m not sure if the grant has to be paid back if the borrower sells or refis before a certain period of times passes. Inquire with Quicken about that.
Secondly, the property must be a one-unit owner-occupied property, which includes single-family homes and condos (and townhomes), but not co-ops.
When it comes to credit, the minimum FICO score required is 680, which is considered average (or perhaps a bit below average). So it’s pretty flexible in terms of creditworthiness.
Perhaps more importantly, you must make less than or equal to the median income for the county in which you’re purchasing the home. If the income limit is $75,000, you must earn that or less to qualify for the 1% down payment program.
Speaking of income, the maximum DTI ratio is 45%, which is standard.
Quicken’s 1% Down Might Not Require Any Funds from the Borrower
If there aren’t any additional overlays on this program versus the ones offered by Fannie and Freddie, no minimum borrower contribution is required, meaning the down payment funds and any reserves can be gifted.
The Quicken program also comes with a free “introduction to homeownership” course that is required for first-time home buyers, but available to everyone at no cost.
When it comes to loan types, you’re likely going to be limited to fixed products with a 30-year amortization. Put simply, probably the 30-year fixed unless you can afford and desire a 15-year fixed. That wouldn’t really make sense for someone lacking a down payment.
There will be mortgage insurance, seeing that the loan is well north of 80% LTV, but it might be at a reduced rate as it is via the Fannie/Freddie 97 programs.
I have no idea what the mortgage rates are like, but I assume higher than what you see advertised to account for the higher risk of putting just one percent down. But seeing that rates are so low at the moment, they’ll probably still look pretty favorable.
For the record, Quicken is just one of many lenders out there offering grants to home buyers to push the down payment requirement down to just 1%, so you can always shop around to compare different interest rates and program requirements by lender.
Recently, Guaranteed Rate launched a similar program, as did United Wholesale Mortgage (if you’re using a mortgage broker).
Other regional lenders, such as Fifth Third and BancorpSouth, have introduced zero down offerings.
The mortgage market is changing rapidly to account for higher home prices. So take the time to compare all options, including FHA loans, to see what the best fit is for your situation. ( End of Colin’s article.)
Need a lender, for this, or any other type of real estate loan? I have some excellent names I can recommend – just give me a call, a text, or an email.
Location? What Location? Which Location?!
It’s almost a joke these days, but one solidly mired in truth: the real estate mantra of location, location, location. It is of course the one thing about your new home that you can’t renovate or upgrade; that’s why considering exactly where you are buying is so crucial to your entire homeshopping experience.
So when you’re thinking about location, does it mean more than which city or town you want to live in? Of course it does. Here are four factors to consider when shopping for your new home, all related to location, location, location!
- Urban? Suburban? Rural? You can live in Chicago, or Tucson, or Sacramento without being downtown. Whether you want to be right in the city, on the outskirts, or more of a commuter makes a big difference in home prices and sizes, and in the time it will take you to get around.
- Narrowing it down. Once you know whether you’re a city kid or a country kid, you’ll need to drill down another layer and figure out what you want in the area directly surrounding your home. Do you want to be close to the freeway? Is it important to be able to walk to a coffeeshop, or to have a local farmers market, or ride your bike to the grocery store? Making a list of the features characterizing the neighborhood you dream of living in will help you find that neighborhood, so you can become part of it.
- Look up the future. By this, we mean check into plans for infrastructure updates, commercial zoning, and other planned developments in the area. Building on empty lots is good; having a freeway come through your backyard is not so good.
- The worst house on the best block. This is also an old saying that’s still totally true. If you can buy the worst house on the best block, it’s far better than buying the best house on the worst block. You can work toward getting your home in line with your neighbors’; there’s no guarantee your neighbors will try to catch up with you.
Whether you’re looking to settle down to stay for years to come or you’re considering your new home’s resale potential, you’ll always need to put consideration of location at the top of your list of features you’re considering when shopping for your new home.
If you’d like to discuss your homebuying options further, give me a call today – let’s talk real estate! I look forward to working with you.
From Jonathan Lansner of the Orange County Register, 3/1/2016
“Orange County’s housing inventory maven, Steve Thomas, isn’t mincing words: “Seller Drought” is how he titled his latest biweekly newsletter.
ReportsOnHousing.com notes the number of homes listed on local brokers’ networks increased by 298 homes, or 6 percent, in two weeks to 5,271 on Feb. 25. Thomas notes this was the largest jump in supply since May 2014.
So why does Thomas think inventory is so slim, a shortage that frustrates house hunters?
Well, supply growth in January was 9 percent below 2015 levels and even with the recent burst in listing activity, inventory is still 3 percent off a year ago and far below the historic average supply of 9,200 homes for sale.
“Essentially, the low inventory is preventing would-be sellers from coming on the market, which only exasperates the problem,” Thomas wrote.
ReportsOnHousing.com notes that demand, the number of new pending sales over the prior month, increased by 242 homes in two weeks to 2,584 on Feb. 25, the highest since September 2015. Still, demand is down 11 percent in a year, partly due to limited selection for house hunters.
Thomas calculated “expected market time” – how long it would take current inventory to sell at pace of demand – 61 days on Feb. 25. That’s up from 56 days a year ago but better than 66 days two years ago.” ( End of Jonathan’s article.)
From Bob Phillips: We are now one month into this year’s “Spring selling season” when the number of homebuyers starts to grow with a vengeance. That growing number of buyers needs something to buy, and if the local housing inventory doesn’t start to grow soon, there will be an increasing likelihood of multiple buyers for each nice house to come upon the market, which translates to increasing prices.
In 2013, local home prices went up more than 15% between February 1st, and July 31st, our typical “buying season”. That’s the LAST thing today’s homebuyers need, so hopefully the number of homes available will start increasing, to match the number of buyers.
Keep your fingers crossed and watch this space.
A new article from Brena Swanson, of HousingWire.com, dated 2/22/2016
Bank of America unveiled a new affordable mortgage program that offers consumers the option of putting as little as 3% down and requires no mortgage insurance. The program does not involve the Federal Housing Administration, whose program has recently undergone a lot of scrutiny from big banks.
Bank of America announced a partnership on Monday with Self-Help Ventures Fund andFreddie Mac for its new “Affordable Loan Solution” mortgage, a conforming loan that provides low- and moderate-income homebuyers access to a responsible lending product with counseling at affordable entry prices.
To make the program function, the three companies will work together to help ensure the loan is properly originated and backed in case the loan goes delinquent, the companies said Monday.
For starters, Bank of America said the mortgage will be available through all of its mortgage sales channels.
Self-Help, which is based in Durham, North Carolina, will then buy the loans and servicing rights, along with providing post-closing counseling for any borrowers who might be experiencing payment difficulties.
Since Self-Help is taking the first-loss position, the loans require no mortgage insurance.
Freddie Mac will purchase all of the eligible affordable mortgages originated via the Self-Help and Bank of America partnership, having recently approving Self-Help as a seller/servicer to facilitate the rollout of this offering to borrowers.
The program allows down payments as low as 3% on the purchase of a primary, single-family residence, with no reserve funds required in most situations.
The loan also requires a minimum FICO score of 660, and first-time buyers will need to participate in homebuyer education.
“There is a need in today’s marketplace for more responsible mortgage products that enable creditworthy homebuyers, who meet certain income limits and other requirements, to become homeowners at an affordable entry point with comprehensive counseling,” said D. Steve Boland, consumer lending executive, Bank of America.
“Affordable Loan Solution combines Bank of America’s wide distribution network of mortgage professionals with the borrower support expertise of Self-Help and market liquidity provided by Freddie Mac to provide a new affordable loan option,” said Boland.
The news comes amid a pushback against the FHA, which offers similar style loans, from lenders for its loan requirements.
The FHA, unlike Bank of America’s new program, offers loan options with as little as 3.5% down mortgages, along with 520 FICO score. It’s important to note that the two are not offered together.
As a result, major lenders have pulled away due to the heightened risk of possible enforcement actions on the high-risk loans.
John Shrewsberry, Wells Fargo’s chief financial officer, said last September that the San Francisco bank will not make loans to FHA borrowers with low credit scores because of their higher rates of default.
In addition, Kevin Watters, CEO of Chase Mortgage Banking, said in an interview with CNBC shortly after that the FHA’s loan requirements look an awful lot like subprime lending.
“FHA requirements are down to a 520 FICO (credit score) and you only have to put 3.5% down; that’s subprime lending, and we’re not in the subprime lending business,” CNBC quotes Watters saying.
Quicken Loans is already in the middle of legal battle with the Department of Justice over its FHA loans, which is pushing the nonbank to consider ending its participation in FHA lending entirely, citing the government’s aggressive enforcement policies as the main reason for potentially dropping FHA lending.
Meanwhile, although Bank of America’s loans require no down payment, the loss is covered by Self-Help and borrowers are required to a FICO score of 660.
Self-Help added in a statement to HousingWire that research by the UNC Center for Community Capital has continually proven that, given sound underwriting, low down payments are not a significant factor in mortgage performance. Shutting out borrowers with lower down payments is a missed opportunity for lenders and borrowers alike, Self-Help said.
The research from the UNC Center for Community Capital found that losses on these loans remained relatively low, even during the housing crisis triggered by mass marketing of unaffordable subprime loans.
Bank of America has upped it mortgage lending lately. In its fourth-quarter earnings, the bank reported that total mortgage production grew 13% to $17 billion in the fourth quarter, up from $15 billion last year. This is slightly up from $16.9 billion last quarter.
And during the company’s fourth-quarter earnings call, when Brian Moynihan, CEO of Bank of America, was asked what his outlook for continuing to take share in the mortgage business was, Moynihan said that the bank is focused on originating prime and sort of non-conforming loans.
Back in November, Freddie Mac CEO Donald Layton asked for mortgage lenders to consider writing more low down payment mortgages in order for the government-sponsored enterprise to help increase access to credit to potential homeowners.
The GSE also announced a partnership with Quicken Loans for more low-down payment mortgages.
“The strength of the Affordable Loan Solution program is how it brings each partner’s special expertise together to address the barriers faced by aspiring homebuyers with limited savings,” said Danny Gardner, vice president, affordable lending and access to credit, Freddie Mac. “Freddie Mac is committed to working with industry and community leaders like Bank of America and Self- Help to find better ways for helping eligible borrowers overcome the obstacles that stand between them and successful long-term homeownership.” ( End of Brena’s article.)
From Jonathan Lansner, Staff Columnist of the Orange County Register:
Various economic anxieties, from a fear of higher interest rates to the possible negative ramifications of Chinese economic problems, raised doubts about the durability of the housing market’s long-running recovery.
So before autumn takes hold of the Orange County housing market (we’ll leave the weather to others), it’s a good time to review how summer treated the local market
When I tossed CoreLogic’s third-quarter homebuying report into my trusty spreadsheet a few surprising trends emerged. Here is the fourth key thing you should know about the summer of ’15 in Orange County housing.
Yes, Orange County’s median home price is up 5 percent in a year. But when you look at prices from spring to summer, a mild cooling trend can been seen.
The Orange County median dipped 2.1 percent from June to September. That’s not terribly unusual. Last year, prices fell 2.7 percent in summer. The median has fallen from the second quarter to the third quarter in eight of the last 12 years.
Part of the seasonal dip is market reaction to the end of the traditional spring rush and the family orientation of earlier-in-the-year homebuyers. These shoppers tend to buy larger – thus pricier – housing.
Since 1988, the Orange County median has dipped an average of 0.6 percent in the third quarter – the weakest three-month period – after rising on average of 4.1 percent in the second quarter – the strongest three months, historically speaking.
Even if softer summertime prices are to be expected, I’m not going to totally ignore this midyear stagnation of what Orange County homebuyers are willing to pay when the local job market is the strongest it’s been in roughly 15 years.
It was the hottest summer for homebuying in a decade, but those shoppers weren’t aggressively paying up. That’s a trend worth watching, especially if you’re a seller. ( End of Jonathan’s article.)
From Bob Phillips: Every year I tell my blog and mailing list readers that the fourth quarter of any given year is typically the BEST time to be a buyer, in Orange County, and this year doesn’t appear to be an exception. The primary reason this is true is because almost other buyers have already bought, closed escrow, and moved into their new homes.
This leaves an abundance of unsold homes – and their owners – waiting for ever declining numbers of buyers looking to make a purchase. THAT condition makes for any sellers who truly need to sell, to become more anxious, as they’re hoping to get their property closed sometime soon – before the market dries up completely, for the Holidays.
So, if you’re in a position to buy a new place to live, this next two, two and a half months, will be your best opportunity to get a good buy, before prices start to go up again, next Spring, like they usually do.
If you’re thinking of buying, give me a call ( 949-887-5305.) or shoot me an email, ( BobPhillipsRE@gmail.com ) and let’s go house shopping.
Peak moving season is underway. While moving can be a stressful undertaking, there are simple ways to make the process more organized. CityLab recently asked moving experts to share some of their top tips to make moving easier. Feel free to share these moving tips with your clients.
- Document all of your cords: “Take photos or make notes on how all of your media equipment is set up: television, sound equipment, modems and computer equipment,” says Lior Rachmany, CEO of Dumbo Moving + Storage in New York City.
- Update your address: Streamline the change of address process by using Updater, which can save time and money by forwarding mail and also updates numerous businesses including alumni associations, charities, and professional organizations with the new address. Updater even shares moving announcements with friends and family.
- Create a pet plan: The moving process can be stressful for pets too. Consider leaving pets with a friend or a boarder until the move is complete. If that’s not an option, this checklist lists 10 tips for keeping pets safe during a move.
- Schedule touch-up paint jobs: If you’re renting, you will need to see if you’re responsible for paint job touch-ups before moving out. If that’s the case, schedule a painter before the move. “Once you have a moving date set, get a painting bid and plan for the painter to be the last person in before you turn the keys over,” suggests Brendon DeSimone, author of Next Generation Real Estate. “Waiting until the last minute could be a logistical nightmare.”
- Recruit some help. Not using a mover? Make sure you repay family and friends for their help in some way (pizza is always a good incentive!)
- Plan a “first night in the new house” box: The last thing you’ll want to do after moving all day is to dig through numerous boxes to find your toothbrush. Designate a box for your toiletries, medications, deodorant, and a change of clothes so they’re easy to find.
- Your suitcases are your friends: Use your large suitcases as easily transportable storage! Fill them up with clothes, towels, and light-weight items.
- Be mindful of important documents: Don’t toss your birth certificate or other important but easy-to-lose documents in random boxes. Make a folder with anything important and carry it with you.
- Strategize your layout: Put labels on items for movers so they don’t put them in the wrong room. You can also make signs showing where large items need to be.
- Save all receipts: “In many cases, moving expenses are deductible from federal income taxes,” says Rachmany of Dumbo Moving + Storage. “If you’re moving because of a change in employment, you may be able to claim this deduction even if you do not itemize.” Try to keep track of all moving costs for your accountant.
Source: “13 Tips to Make Moving Slightly Less Hellish,” CityLab (Aug. 6, 2015)
VA, Communities, Helping Homeless Veterans
Some of the really great things being done to help homeless Veterans are taking place every day at VA’s Community Resource and Referral Centers (CRRC). Here are just a few of their impressive success stories:
— Homeless Veteran M is 60 years old and will not be parted from his two cats. After his wife and mother died, he did not have enough money to pay his rent so he was evicted. He put all his belongings in a storage locker but then did not have enough money to pay the storage fee and was about to lose all his belongings. Gil, with the Community Resource and Referral Center, found a way to get him some money to pay his storage fee, hooked him up with some job possibilities and is helping him find a home … for him and his cats.
There are 29 VA Community Resource and Referral Centers around the country. As national director Eileen Devine describes them, “The CRRCs, by design, are a low-barrier, central access point for resources and referrals for homeless Veterans, where they can receive rapid and comprehensive services.
“We see the positive results every day. In FY2014, there were over 20,000 Veterans who accessed services through the CRRCs, and we anticipate that by the end of FY15 we will have exceeded this number.”
— Mike works at one of VA’s CRRCs and is also an umpire. He found out that two of the other umpires were Veterans and were not doing well. One was homeless and was “couch hopping” among family members. The other Veteran had not worked in two years. Both were showing signs of depression and drinking problems. Mike convinced them both to come into the CRRC to seek services. One Veteran now has a full time job. The other Veteran thanked Mike for getting him to come in talk with the folks at the CRRC and that it has given him the desire to improve himself and put a positive spin on things.
Homeless Veterans on the street need help. Help finding housing, a job or financial assistance, or access to health care. Maybe it’s just access to some basics — a place to get food, a shower, a change of clothes or a place to do laundry, or a ride to the medical center.
“There needs to be coordinated efforts to fully utilize all the resources available.”
Fortunately, for an increasing number of these men and women, Community Resource and Referral Centers are there to help. CRRC programs are places where Veterans who are homeless or at risk of homelessness can get connected to stable housing and an array of supportive services. CRRCs provide a “one-stop shopping” opportunity in many densely populated, strategically located sites across America.
— CRRC employee Terry helped a Veteran who had just moved into his state find a job. The Veteran was approved for a gas card but could not leave his new job and did not have enough gas … or money … to get home. So Terry left his office and picked up the card and took it to the Veteran, who was very grateful.
Devine explains: “The CRRCs are a key component of VA’s initiative to end homelessness among Veterans and for good reason. We know that in order to end Veteran homelessness in our communities, there needs to be coordinated efforts to fully utilize all the resources available within that particular community.
“In addition to maximizing all of these resources, we need to also create the lowest barrier possible to all services. This enormous goal cannot be realized without very active communication and teamwork both within the VA homeless program and the larger community of homeless service providers.”
— When CRRC employee John met Veteran X, he learned that he had been sleeping in his trailer for several years with no running water or electricity and in 100 degree Phoenix temperatures. He cited posttraumatic stress disorder, military sexual trauma and termination from his last job as his reasons for not looking for employment. John found a safe place for him at the James Walton House even though he said he’d rather be alone. John encouraged him to socialize with other residents and to work with the CRRC employment specialist. He not only made great progress but earned the nickname “Handyman” for rebuilding furniture, repairing the refrigerator and helping in the kitchen. Veteran X is now more positive about life and very thankful for everything VA has done for him.
Many CRRCs across the country are the points-of-contact for community lead efforts to end homelessness. Veterans are benefiting through immediate and direct referrals to the most appropriate services needed to resolve their particular situation rather than going from one agency after another to find help.
CRRCs also conduct street outreach to engage homeless Veterans who, for a variety of reasons, have not come in seeking services on their own. This translates to an increase in CRRC services being offered and an increase in low-barrier access to services for Veterans who need them.
As director Devine notes, “The CRRCs and their staff are not only providing vital and tangible resources to homeless Veterans but are seeking to refine and improve the systems these Veterans inevitably must engage in their search for assistance.
“Although it is a massive job we’ve asked them to do, they manage to do it exceptionally well.”
A new article from Colin Robertson, of TruthAboutMortgage.com, 8/19/2015
In fact, the percentage of survey participants who said they would sell before buying again nearly doubled from a year ago.
Some 44% of current owners said they’d sell first, up from 23% a year ago. That made it the top response in the survey, with “buy, then sell” a distant second with a 21% share.
Even fewer (15%) said they’d rent out their current residence in order to buy a new home, down from 30% a year earlier. Guess fewer folks want to be landlords.
And another 20% indicated “other,” whatever that means.
This seems to be directly related to the intense competition found in today’s real estate market.
Essentially, these homeowners know that it will likely be impossible to get an offer accepted that is contingent on their existing home selling.
After all, if there are plenty of other willing buyers, why would a seller want to take on the risk of another home selling before theirs does?
There’s no need with inventory so low and demand so high, so I suppose it makes sense to sell first and then arrange some kind of temporary living situation. Or gasp, rent!
Once an owner sells, they’ve also got plenty of cash in their pocket (hopefully) to throw around their weight if need be, pushing the low-down payment buyers out of the way.
It’s also not a bad time to sell, given how expensive home prices have become just a handful of years after one of the worst housing crises in history.
Home Buyer Concerns Have Also Shifted
Speaking of prices, they happen to be the biggest concern for would-be home buyers today.
A year ago, they were the second biggest concern, but they’ve since claimed the top spot. As I said, home prices have been on a tear, which would explain the deep concern.
Increasing competition from other buyers also moved up one slot from third to second, while inventory concerns dipped from first to third.
New is the top five is selling the current home, which we’ve already talked about.
Rounding out the top five is down payment concerns, seeing that rents are high and a higher-than-necessary down payment might be needed to win the bid.
Sure, only 3% or 3.5% down is needed, based on lender guidelines, but to get your offer accepted and beat out of the competition, you might be better off coming in with 10% or 20%.
Interestingly, mortgage rates are no longer a top 5 concern, though affordability sure is. It tells you that home prices mean a lot more than mortgage rates.
When moves were made to push down mortgage rates, the intention was to prop up home prices and help underwater borrowers stay in their homes.
But the obvious problem is that it makes it more difficult to save enough money for a down payment when the price is higher, and once interest rates normalize, it’s a one-two punch.
Interestingly, there isn’t really a correlation between interest rates and home prices, so it’s unclear if higher rates will force prices down from their current lofty levels.
However, 44% of respondents in the survey think prices will either remain flat or fall over the next six months, up from 29% a year ago.
So we could be starting to top out, as many long expected.” ( End of Colin’s article.)
First, we are about to enter the traditional slowest time of the year for South Orange County real estate. While most of this year’s buying happened in the Spring and early Summer, that hectic period – complete with rising prices, and multiple offers on the better listings that popped up – and heading into the Fall months, complete with the Holidays.
Most buyers have already bought, thinking of getting their kids in school, while many of those who weren’t successful and now hunkering down for the Holidays, planning to start fresh in the Spring of 2016.
In addition, new listings are still coming aboard, with sellers unaware that most buyer’s ships have already sailed.
Enter the buyer’s best annual sweet spot, a time when more listings are being confronted with fewer buyers.
As the next few months go buy, sellers will become more anxious – that they missed the market – and will start to reduce their prices, making your choices as a buyer, considerably more negotiable.
Here are 2 blog posts I’ve published in the past week, with reports from two separate local real estate experts:
Both echo the reasons I’ve stated above, with plenty of supporting historical data. ( Yes, this pattern happens almost every year, in South Orange County, either slightly more, or slightly less. )
So, if you’re in the market for new quarters, between now and the middle of January would be an excellent time to buy. If you’re so disposed, drop me a line ( BobPhillipsRE@gmail.com ) or give me a call. ( 949-887-5305 )