Category: FCM Blog

Article written by FCM CEO Keith Canter for NASDAQ

The calendar turning over is often a time for people to take a look at their lives and evaluate any changes they’d like to make. New Year’s Resolutions about exercise, saving money, weight management and more can be useful if carried out. For many, one resolution may be to buy a new home in 2022. If so, now what?

The home buying and financing process can be daunting. For one, you don’t just go the store and buy a house like you would a gallon of milk. Fortunately, lenders have increasingly made it easier to finance a home. Some lenders even provide prospective home buyers with added informational items like a book for first-time buyers, a roadmap for application documentation, and a checklist for homeownership and financing steps.

Other lenders provide a helpful mortgage calculator to see what your monthly payment may look like based on various loan amounts and estimated rates. Borrowers should know that loan amounts may change during the homebuying process, just as rates can change throughout the home financing journey.

A good mortgage calculator will give you a basic understanding of how monthly payments are calculated. Likewise, a great mortgage originator or loan officer should be ready and willing to gauge your knowledge level and help you clearly understand the process and choices.

Easier than you think

A good real estate agent will take the time to walk you through how that process works. An experienced, reputable mortgage banker will help you with your application and find options that suit you and your circumstances best. Every borrower, and every property, is different, and a good loan officer will stand by to answer your questions, tackle any changes or surprises, and bring you to the closing table as “cleanly” as possible.

A good loan officer also will pay attention to you as an individual. Are you married, or is there a co-borrower? A good explanation why a 15-year fixed-rate mortgage is better for you than an adjustable rate, or a 30-year fixed rate. How a Down Payment Assistance Program might benefit you. Why a pre-qualification letter is different than a pre-approval letter. The list goes on and on, and a loan officer will walk you through the process.

Anyone thinking about buying a home in 2022 should realize that most lenders can offer a variety of technological advances to help process your loan. But you also should know that the process has not changed much: an application is taken, the borrower’s credit is analyzed, the property appraised, a rate and program selected, and the loan “funds.” Those steps have been streamlined through the use of software that improves the speed and accuracy of data collection, which in turn helps the lender analyze whether you and the property are good risks.

Stable, consistent for now

As we wrap up 2021 and move into 2022, like many things, buying a home and financing the property are subject to global events. The pandemic, which has dominated world headlines for nearly two years, continues to influence the strength or weakness of economies, and therefore interest rates and specifically mortgage rates.

A good mortgage loan originator will discuss how strength in the U.S. economy can move your mortgage rate, making housing more affordable or helping determine whether it makes sense to refinance. And although the Fed does not determine mortgage rates specifically, its actions come about as a result of U.S. economic strength.

Rates, including those used to finance a home purchase in 2022, have indeed moved higher from where they were this summer. But the impact of that increase in mortgage rates must be kept in context. You may not have the same interest rate as your neighbor, but a loan officer will affirm that the impact of a small move-in rate could be negligible.

For example, on a $250,000 30-year, fixed rate loan the monthly payment at 2.75 percent is $1,021. At 3 percent it is $1,054; a difference of only $33 per month. A couple who buys coffee every day will, over a month, spend $240 a month. A lot of money can be saved over the months and years by, for instance, making coffee at home and using that money to help pay off their home loan.

Expertise, relationships, communication

Through all of this, it’s important to remember how important a personal connection is with a real estate agent and with a trained loan officer. Sure, many answers can be found on the internet, but it always helps a new home buyer to have someone on their side, ready to answer questions as you head into 2022 – and, possibly, into home ownership or a re-fi.

Read the original article here.

Article written by FCM CEO Keith Canter for NASDAQ

Lenders, economists, investors, and consumers closely follow the Federal Reserve’s decision-making, and at its meeting in September, the Federal Reserve Open Market Committee (FOMC) voted to hold interest rates for now. What gives? And what should anyone seeking a mortgage know about the Fed and its action or inaction?

Well, rates generally increase during a good economy, declining when the economy cools. So, FOMC giving a nod to the eventual tapering off of its near-daily purchases of fixed-income securities showed the markets that the U.S. economy is indeed “picking up some steam” after reeling for much of the pandemic. Many metrics have been improving, and with signs of improvement come talk of less need to support low-interest rates.

But what to watch…?

Mind you, the Central Bank (the Federal Reserve) does not set mortgage rates. It sets the overnight Fed Funds rate and buys mortgage-backed securities (MBS). Still, the same things that normally lead the Fed to change the overnight rate also drive changes to other interest rates. And, yes, this includes mortgage rates. And recent signs show an improving economy, which doesn’t necessarily lead to the FOMC increasing rates, just as taking one’s foot of the brake doesn’t mean the same as accelerating the car.

Since the “Financial Crisis” of the latter 2000s and since the Fed’s last increase, it has rethought its course in the wake of a slower economy and concerns of a trade war with China. It is best known for setting and buying billions of dollars of Treasury and mortgage-backed securities (MBS). That does not directly affect mortgage rates, but some of the same factors that drive one may drive the other. And recent signs show an improving economy, which doesn’t necessarily lead to the FOMC increasing rates, just as taking one’s foot off the brake doesn’t mean the same as accelerating in a car.

Historically, rate reductions stanch rising borrowing costs, from your mortgage or HELOC to student loans, credit cards and car payments. Since the end of 2019 mortgage rates have been substantially lower. Plus, long-term fixed mortgage rates reflect U.S. Treasury note yields. As I write, rates have moved up to where they were in June of 2021 but are still low by historical standards. In fact, home lenders’ rates are still very good, and anyone who has not refinanced their mortgage within the last few years is advised to contact a lender to see how their rate compares to current lending.

Rates matter, but how?

Rate movement on smaller credit “buys” like car loans and credit cards may not be reflected as readily. For one, some loans like student loans are mostly Federal loans at fixed rates. So only students who use private loan sources may see variable rates. Even so, a small rate adjustment, like a quarter of a percentage point, is going to impact a loan of $20,000 minimally, unlike the effect it would have on a more sizeable home loan. Another factor: Some of these other fixed or variable rates may be tied to Constant Maturity Treasury (CMT), prime or T-bill rates.

Consumers should know that any increase in interest rates, when it eventually comes, will impact their bank accounts. Namely, savings rates that banks pay consumers on their money haven’t moved much for quite some time but could increase with a move to higher in rates. Remember that until rates fell last year due to the pandemic, the Fed had been since 2015 increasing its benchmark rate. That means, if rates move higher, savings can earn more than the current rate of inflation.

In terms of mortgage applications, the Mortgage Bankers Association publishes a weekly gauge of activity from the prior week. Moves in rates are reflected quickly and efficiently in the MBA’s application data, and sure enough, with interest rates in general shifting higher, application numbers have dropped. Many homeowners who could refinance already have, and those who have not are advised to check with a lender to compare their existing rate versus current rates.

Along those lines, potential homebuyers who have been “sitting on the sidelines” waiting may be prompted to renew their interest in looking for a home to purchase. Although the inventory of available homes for sale has been low (there are more Realtors than there are homes for sale in the United States!), there are still “For Sale” signs out there. Historically the late autumn, winter and early spring have been slow times for home sales, but perhaps this year will be different, especially if the threat of higher rates nudges some buyers to act.

Reflections of trusted sources

Much of what is considered here may sound like doublespeak – it matters, it doesn’t matter, it only impacts this but not that, and so on. Still, the lesson holds: Stay abreast of action by the Fed. For every action it makes, a lot of smart pundits will cuss and discuss the potential results. If you follow a diversity of credible news sources who report on such, you should be able to parse if any Fed action will impact your borrowing or potential borrowing.

All told, many factors influence money markets and all that they entail, from saving to home lending, and rates are just one of those puzzle pieces. When in doubt, turn to a known, trusted source of mortgage and housing information for their take on any rate activity.

Read the original article here.

Article written by Ellen Chang with Mortgage Research Center

Mortgages backed by the Federal Housing Administration aren’t the only way to get a low-down-payment home loan – Fannie Mae and Freddie Mac offer them too.

Saving enough money for the down payment on your first home is often a hurdle, but there are several government programs that allow buyers to only put down 3% aimed at broadening the number of homeowners.

A typical down payment is often 20% of the price of property, which can be challenging in a year that saw home prices increase at a record pace. In May, the median U.S. home price rose 24% from a year earlier, the biggest jump ever recorded, according to the National Association of Realtors. The increase was 23% in June, 18% in July, and 15% in August, NAR said.

“If you’re not a veteran and won’t qualify for a VA loan and don’t want the permanent mortgage insurance that comes with an FHA loan, the 3% down payment programs from Fannie Mae and Freddie Mac are a viable alternative, particularly for first-time homebuyers,” said Greg McBride, chief financial analyst at Bankrate, a financial data company.

Fannie Mae and Freddie Mac, two government entities that buy mortgages to keep the availability of them plentiful for consumers, each offer two programs with a down payment of only 3%. Fannie Mae offers the HomeReady and Standard 97 programs while Freddie Mac provides the HomeOne and Home Possible programs.

The Home Ready program is available for either buyers or people who want to refinance their existing mortgages. The Standard 97 program is similar, but is geared for first-time homebuyers only and has no income limitations. These programs are intended for borrowers with credit scores of at least 620.

The Freddie Mac Home One program is broader and does not restrict people from any geographic or income limits and does not require a minimum credit score. One of the borrowers has to be a first-time homeowner or someone who has not owned a home in the past three years.

The Freddie Mac Home Possible program has some income restrictions based on where you live, but allows people to own another home. It does not have a minimum credit score requirement and allows adjustable-rate mortgages.

Borrowers who use these 3%-down programs will need to get mortgage insurance, a typical condition for homebuyers without 20% down payments. Like borrowers using standard loan products, you can apply to stop the monthly payments after you have 20% equity in the home.

Mortgage Qualifications

Buyers must meet the income and credit score qualifications to qualify for these mortgages and plan to use them as their primary residence. These loans can only be used for a single residence home, unlike FHA loans which can be used for properties up to a four-plex, said Leslie Tayne, a Melville, N.Y. attorney specializing in debt relief.

Another advantage is that with a 3% down conventional loan consumers can get a loan for up to $548,250 in most areas of the country, while an FHA loan for a single-family property is limited to $356,362, she said.

“Just like with any other loan type, there are some requirements that you must meet to get this loan,” Tayne said. “You must be able to show reliable income and employment and your debt-to-income ratio must be below 43%.”

All of these loans require buyers to pay for private mortgage insurance (PMI), which “can be costly for borrowers with lower credit,” she said.

“PMI is inversely proportional to your credit score, meaning the lower your credit score, the higher your PMI payment,” Tayne said. “PMI for FHA loans are fixed and not dependent on your credit score.”

These programs offer many people a chance to own a home and not have to face rising rental payments,” she said.

“Buyers with good credit scores can put a small amount of money down on the home and receive a favorable fixed interest rate,” Tayne said. “The loans could be an excellent opportunity for borrowers in today’s highly competitive real estate market to be able to compete to buy a house.”

Since these mortgages are conventional loans, some sellers “might be more likely to accept a conventional loan because of the higher credit score that’s required for this type of loan,” Tayne said.

Paying a lower down payment frees up cash for people who are saddled with student loans or other debt or want to have a reserve for emergencies, said Austin Barnard, a loan originator with First Community Mortgage in Murfreesboro, Tennessee.

“Leverage and security are the two keys to these programs,” he said. “You’re able to leverage your cash elsewhere for furniture or moving expenses and not be forced to put a whopping down payment down,” he said.r

Risks for 3% Mortgages

Real estate prices remain elevated after a surge this year, but predicting valuations in homes in the future can be challenging, said Bankrate’s McBride.

“There is more risk with a low down payment loan at this point in the real estate cycle,” he said. “With just a 3% down payment, any stagnation in home prices could leave the homeowner with insufficient equity to cover the transaction costs if they need to sell in the next few years.”

The ability to purchase a home with a low down payment is attractive to many shoppers, but shelling out money for mortgage insurance for years can also be a burden for people on tight budgets, he said.

“With the surge in home prices, many first-time buyers are scrambling to accumulate a sufficient down payment,” said McBride. “Low down payment programs such as these can be a foot in the door of the housing market but you must be in it for the long haul. Don’t expect a small down payment to put you in the position to trade up just a few years later. It will take time to accumulate a healthy equity cushion.”

Another disadvantage in this competitive real estate market is that some sellers may view a pre-approval letter with 3% down and “assume” the buyer isn’t as strong as a 20% down borrower, said First Community’s Barnard.

“There are ways around this last objection, but I have personally seen that cause issues with offers that my buyers put in,” he said.

The Fannie Mae and Freddie Mac 3% down programs are “some of the best options for younger or newer homebuyers,” Barnard said.

“It gives some individuals and families the opportunity to buy a home when they may not have had the opportunity otherwise,” he said. “These programs are generally structured toward individuals with average to good credit scores so as a buyer continue to improve your credit to help put you in the best position possible.”

Read the original article here.