Strong Jobs Gain = Jolt In Mortgage Rates

Strong Jobs Gain = Jolt In Mortgage Rates

Make 2015 The Year You Achieve Greatness

Make 2015 The Year You Achieve Greatness

Buy Local

There’s no question that the Internet has simplified our lives, but financing a home is far different than logging into Amazon and purchasing a book. Buying and financing a home involves many parties working together to navigate through a process that is very labor intensive, time sensitive, and fraught with obstacles that can kill a transaction. When a problem arises it helps to have professionals who have a working relationship to get the job done. Buying a home involves, two buyers, two sellers, two Realtors, one and maybe two lawyers, an appraisal management company, an appraiser, home inspector, insurance agent, and a loan officer. And that’s a typical transaction. It could also involve a pest inspector, building inspector, contractor, estate lawyer, well you get the idea. Getting all of these parties to work together on a tight schedule requires a lot of local knowledge and constant communication between parties. Even what might seem to be a slam dunk can run into major obtacles. The most common issues involve problems with the appraisal, clear title to the property, or difficulties with documenting financial information. While a loan officer cannot influence an appraiser’s opinion, we can certainly appeal a value if we believe the appraiser didn’t use the best historical sales data for the property, or give proper credit if the home is in a better neighborhood, or is in impeccable condition. Only a loan officer with in-depth, local knowledge has the expertise to make this argument. From time to time, I need to request an extension to the closing, or mortgage approval date due to an unforeseen delay in the process. It is extremely helpful if I’ve worked with the listing realtor, who is the person that is going to advise the seller whether or not they should grant the extension. The realtor will have the confidence to tell their client that the buyer is in the hands of a reputable loan officer who can get the deal done. I can go on and on with examples of how a loan officer’s local knowledge, and hands on experience carried the day, and after many years in the business, I still run into a potential deal-breaker that I’ve never experienced before. So before you send your financial information into cyberspace, consider the value of working with a loan officer who might just live right down the street from you.

Is The 30 Year Fixed Rate Mortgage Dead

Many in the investment community would argue that the old tried and true strategy of buying and holding a stock is no longer a viable investment plan. With computer trading, and hedge fund managers manipulating stocks, you can no longer rely on a good stock acting the way it should. So if we consider a 30 year fixed rate mortgage the equivelant of a long term investment, can the same be said about which mortgage program you should choose? Interest rates move up and down with the economy, and we know that there are always economic cycles. Therefore, interest rates are also cyclicle, meaning there are times where they're high, and times when they're low. Add to this the fact that most people either don't live in their homes for more than 10 years at best, or, even if they do, they're likely to refinance to tap into their equity for major expenses.

Considering these factors, wouldn't it make more sense to consider an adjustable rate mortgage that is fixed for the first 5-10 years of the loan? Rates on adjustable mortgages are at historical lows, and the spread between them and fixed rate mortgages are also much wider than the norm. You can lock-in a 5/1 ARM today at 3.25%, a 7/1 arm at 3.50%, or ten years at 3.875%. This compares to a 30 year fixed rate mortgage of 4.375%. Now I understand that fixed rates are also at historical lows, and making the decision to pass up on a 4.375% 30 year rate shouldn't be taken lightly, but if you're purchasing your first home, and know that you'll outgrow it within the next 7-10 years, or your nearing retirement and plan to sell your home, doesn't it make sense to at least consider an ARM?

Housing Affordability and Mortgage Prequalification

I always say to first-time home buyers, "there are two numbers when it comes to determining how much of a mortgage you can afford; one is the monthly payment that the mortgage industry thinks you can afford, and the other, which is the more important one, is what you think you can afford.

It wouldn't have surprised you five years ago days if I said that the number the industry comes up with is far higher than what most people are comfortable with, but it may surprise you that even in today's world of so called conservative lending, that this number, called DTI  ratio (debt to income ratio), is still very aggressive.  The industry, more specifically Fannie Mae, and The Federal Housing Administration FHA allow debt to income ratios of anywhere from 28%-45% of your gross monthly income.  A DTI is determined by taking a percentage of your gross monthly income.  For example, a family earning $10,000 per month can afford a DTI of 28%-45% of their gross monthly income, or a$2,800 to $4,500 per month to dedicate towards their monthly housing expense (mortgage payment, homeowner's insurance, real estate taxes, and flood or mortgage insurance, if applicable).

More often than not, even when quoting in the lower range of DTI ratio, the prospective home-buyer will tell me that they aren't comfortable with a payment that high.  What I tell people is that every one's lifestyle is different, meaning that some people live modestly and might be able to afford a higher mortgage payment, while others may like to buy expensive cars, go out to dinner or take frequent vacations.  Other factors are future expenses such as college, or wedding.  Certainly empty nesters can allocate more funds towards a mortgage than a family of six kids.  Other factors are how far along you might be with investing for retirement.  I try to review these important issues when pre-qualifying a home-buyer. 

Generally speaking, I'd prefer to see a DTI ratio of 25%.  At the end of the day, you need to determine for yours and your family's financial security what a comfortable housing payment is.  There are two things I strongly encourage prospective home-buyers to do; the first is to sit down and complete a family budget.  This will give you a clear picture of where your money is going, how you might reduce your living expenses, and how much cash-flow is available to increase your present living expense.  The second is once you've determined how much you can afford, immediately start putting the difference between your current living expense and the proposed payment into a savings account.  This will get you used to paying the higher amount before you commit to purchasing a home and will blunt the effect of payment shock.

I welcome the opportunity to answer any questions related to qualifying for a mortgage. Feel free to email me anytime at gdevine@atlantichomeloans.com, or call me at 401 301 0130. You may visit my web site at http://www.bankyourloan.com/gdevine

Welcome to the Vine.

Catching A Falling Knife

As the saying goes, "you never know when you've hit bottom until you bounce up". This applies to the interest rate markets, and if there is one thing you can be sure of, it's that rates rise at four times the speed than they fall. I've witnessed it time and time again; rates drift lower over the course of a few weeks, remain there for a while, then jump within a few days and never look back. Take November 2010, rates were low throughout the summer of 2010 and bottomed out in late October/early November. In late November, interest rates went from 4.5% on a 30 year fixed rate to 5% within a week, and remained at those levels thru May/June 2011. I had about a dozen fence-sitters that missed the boat.
So, here we are again with a sovereign debt crisis, including our own, and an economy mired in a real estate funk, interest rates are back to their lows of Novemeber 2010. Right now the best execution price is about 4.375% on a 30 year fixed rate. Don't try to catch a falling knife! Lock in today and take advantage of today's rates before they bounce.
I welcome a conversation about your mortgage, or the general direction of interest rates. Feel free to email me anytime at gdevine@atlantichomeloans.com, or call me at 401 301 0130. You may visit my web site at http://www.bankyourloan.com/gdevine We are licensed in RI, MA, CT, NY, NJ, and DE.