This week there will be key economic data coming out that will shed light on the state of inflation, housing, manufacturing, retail sales and consumer sentiment. While mortgage rates have maintained their lows in the past few weeks due to consistently poor performance by leading economic indicators (this is good for mortgage rates), it is widely acknowledged that the question is not if, but when mortgage rates will be rising.
For home shoppers and those that have not yet refinanced their homes, the current mortgage rate environment is extremely favorable despite expectations that rates would have gone higher by now. For mortgage shoppers on the fence, now may be a great time to take advantage of low rates before they make an inevitable move upward in the coming days, weeks and months.
Economic Calendar For the Week of June 13, 2011
- Monday: Lacker & Fisher from the Fed speak
- Tuesday : Producer Price Index (PPI), Retail Sales, Business Inventories
- Wednesday : Consumer Price Index, Housing Market Index
- Thursday : Housing Starts, Initial Jobless Claims
- Friday : Consumer Sentiment, Leading Economic Indicators
Some of life’s biggest changes occur at the same time, even when you don’t plan it that way. It may just happen that you get a job offer that could greatly benefit your career with your closing date looming just weeks ahead. While your first instinct may be to reply with an ecstatic “YES!”; you do need to stop and think before you make that commitment because you’re about to take on a major financial investment. The choice may be right for you, but you’ve got to consider a few things first.
How Will Your Job Change Impact Your Mortgage Loan?
You need to bring your potential job change to the attention of your mortgage lender and there are a few factors they’ll look at to determine if that may compromise your ability to take on the mortgage you were previously approved for:
- If your income level will remain the same at your new job. If it’s higher, your mortgage may not be impacted; if it’s lower, it has the potential to change what you can afford.
- If you’ll be working in the same industry as the job(s) you’ve held before. Your mortgage lender may consider it a risky move and it could potentially compromise your mortgage.
- If there’s going to be a probationary period at your new job that will still be in place when you close, because then the chances are much greater that you’ll lose it since there’s zero job security.
- The length of time that you’ll be at your new job before your mortgage closing date. If you’ve switched jobs 90 days before you close on your home, then you may have enough stability on your side.
- Whether your high ratio mortgage is insured or backed up by a program or grant. Guidelines may differ, but some programs that allow you to make a low or no down payment on your mortgage may choose to run a credit report and revisit your file at any time. You need to tell your lender or mortgage broker about your job change, and if this other program looks into it and don’t like what they see, they could refuse to back your loan.
- Your loan approval amount. If you’ve got a home loan that’s far less than what you can afford (according to the bank’s assessment) and are a two income household, it may be that your loan approval would not change.
- Your debt ratios. Regardless, your lender would recalculate your Gross Debt Ratio and Total Debt Ratio based on your new income, or based on the other household income if yours for some reason cannot be used.
Keep in mind that everyone has different circumstances and there can be compensating factors, so before you decline or accept a job offer, we can help give you guidance so that you can make an informed decision.
You’ve likely heard the phrase “We’re in escrow!” before, but what does it mean? It’s always presented as though it’s positive and as though a house purchase is a done deal. Both of these things are true, but you do need to understand the process in order to be adequately prepared when the time comes.
What is Escrow?
The escrow process puts your money in the hands of a neutral third party to complete part of the necessary financial process for you to close upon your home. An escrow account is required by many lenders in order to ensure that you’re prepared to cover some of your home expenses once you take posession as this protects their investment.
What is the Escrow Process?
Typically, an escrow account is opened before you actually close upon your newly purchased home and at that time you are required to start adding funds to it. Typically, the costs you will need to place into an escrow account is the insurance, property taxes and sometimes the utilities. Here is the general escrow process:
- Around closing, your mortgage lender may require you to deposit the payments to cover at least one month’s worth of funding for the required expenses. Often, lenders ask for 2-3 months of payments.
- Your money will be protected with the third party that holds onto your money as they transfer it only to the lender for the pre-determined expenses on a set schedule.
- Once you take posession of the home you will be making flat rate monthly payments to cover your expenses (property taxes, insurance, utilities) and the lender will use the funds to pay the appropriate outlets directly. Many first time home buyers find this especially simple because it helps them manage their money. Typically, property taxes would be paid on a quarterly basis in a larger lump sum. Paying monthly into escrow means that smaller amounts of money are automatically removed from a home owner’s account, so the process is budget-friendly!
There are very few notable economic events taking place this week on the Economic Calendar that might affect rates this week. Fortunately, it looks like rates will continue to sustain their current levels based on the disappointing economic data that was released last week. This provides yet another great window for being able to take advantage of the low rates that exist today but not existing in the short term future.
Disappointing Economic Data is Good For Mortgage Rates
The big news last week affecting mortgage rates was a disappointing employment report. Analysts had expected 150,000 new jobs to be created, while data came in showing that only 54,000 new jobs were actually created. There was also a higher than expected number of jobless claims, which was yet the latest in a series of reports indicating that the overall economy is weaker than had been hoped.
While the disappointing economic data continues to paint a picture of long term weakness in the overall economy, it bodes well for help mortgage rates to sustain their existing levels and even set new lows. While there has been concern that low mortgage rates could not continue at their existing levels for much longer, the data of last week has bought more time for on the fence home buyers and homeowners considering refinancing their existing mortgage.
Economic Calendar for Week of June 6, 2011
- Monday: Fischer and Plosser from the Fed speak
- Tuesday: Lockhart from the Fed speaks, Consumer Credit
- Wednesday: Fed Beige Book, Hoenig from the Fed speaks
- Thursday: Plosser from the Fed speaks, Initial Jobless Claims
- Friday: Dudley from the Fed speaks
We end this holiday week with great news for mortgage rates and bad news for the economy as a whole as several key pieces of economic data disappointed. This morning, the Employment report showed that US employers hired significantly fewer employees than expected and the jobless rate increased to 9.1%. Earlier in the week, U.S. manufacturing growth data showed manufacturing at its weakest level since September 2009.
While these numbers are not healthy for the economy as a whole, the have played an important role in helping mortgage rates move even lower. During times of economic turmoil, investors pull away from riskier investment vehicles, such as stocks and move their money into safer vehicles such as bonds. In doing so, they help drive mortgage rates lower, as was the case this week and today.
What does this mean for potential home buyers and those looking to refinance their existing mortgage? The window to get into record low rates has been extended, which means there may be no better time than now to see how we can help you with our existing mortgage or new home purchase.
Employment Situation Report Set to Move Mortgage Rates
On Friday morning, the Employment Situation Report or Jobs Report will be released. While not the only economic report coming out this week (see Economic Calendar below), it presents the highest risk to mortgage rates and may set a tone moving forward as to which way mortgage rates will move. The report will not only give valuable guidance on the future of mortgage rates but the broader economy as well. This may mean that now is an ideal time for homeowners or potential buyers to lock in already low mortgage rates.
Economic Calendar for Week of 5/30/2011
- Wednesday, June 1, 2011: ADP National Employment Report and ISM Index
- Thursday, June 2, 2011: Initial Jobless Claims and Productivity
- Friday, June 3, 2011: Employment Situation Report and ISM Service Index
New Lows For Home Prices
According to the newly released March S&P / Case-Shiller National Home Price Index, national home prices hit a new low in the first quarter of 2011, reaching index levels not seen since 2002. This means that consumers that have been contemplating buying a home have one of the best opportunities in the last decade to purchase a home.
From the Standard & Poor Press Release:
The U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels.
Twelve of the 20 MSAs and the 20-City Composite also posted new index lows in March. With an index value of 138.16, the 20-City Composite fell below its earlier reported April 2009 low of 139.26. Minneapolis posted a double-digit 10.0% annual decline, the first market to be back in this territory since March 2010 when Las Vegas was down 12.0% on an annual basis.
As was expected, trading volume in the bond markets was minimal today as traders leave early for the Holiday weekend and the bond markets closed early at 2:00 PM EST.
This week was marked by interesting new regarding FHA loan requirements, low trading volume, interesting Foreclosure data from the first quarter and a new HAMP NPV website that enables homeowners to run their own HAMP tests.
New Proposed Guidelines For FHA Mortgages
House Republicans have proposed legislation that would raise the FHA minimum down payment from 3.5% to 5.0%. Additionally, they have indicated that they believe that FHA Borrowers should not be able to finance their closing costs into their loan. While FHA maximum loan limits are scheduled to fall in October, they also believe that the current adjustments will not be enough and that they should be lowered even more.
If the suggested proposals are enacted, prospective home buyers will be looking at significantly higher costs when purchasing a home with an FHA mortgage. This is yet another reason to take advantage of the low rates and advantageous FHA options that are available now.
Foreclosure Home Present Buying Opportunity for Many
Realtytrac.com, today released its Q1 2011 U.S. Foreclosure Sales Report, which shows that sales of bank-owned homes and other foreclosure properties accounted for 28 percent of all U.S. residential sales in the first quarter of 2011. This figure is up slightly from 27 percent of all sales in the fourth quarter of 2010 and the highest percentage of sales since the first quarter of 2010, when 29 percent of all sales were foreclosure sales.
RealtyTrac reported that Arizona, Nevada and California had the highest percentage of foreclosure sales, with California accounting for 45% of all Residential sales. Ohio, Illinois and Kentucky posted the highest foreclosure discounts.
Ohio foreclosures sold for an average discount of 41 percent in the first quarter, the biggest discount percentage of any state.
U.S. Treasury and U.S. Department of Housing and Urban Development Unveil New HAMP NPV Website
Until the launch of CheckMyNPV.com, homeowners that have been struggling with their housing payments have been in the dark about how to calculate the Net Present Value of their home. CheckMyNPV.com solves this problem by giving consumers tools to check their NPV and help better understand their standing in relation to a loan modification request.
CheckMyNPV.com is a free tool provided by the United States Department of the Treasury, and the Department of Housing and Urban Development in conjunction with the Obama Administration’s Making Home Affordable Program.
CheckMyNPV.com provides only an estimate of a mortgage servicer’s NPV evaluation. While the NPV formula used on CheckMyNPV.com is required to be the same as that of your mortgage servicer’s, differences in input data and other industry-related data may result in different outputs. After using CheckMyNPV.com, it is recommended that you save a copy of the evaluation and share it with your mortgage servicer to discuss options available to you.
Mortgage Opportunity and Window Timeline
There is a clear window of opportunity that may close sooner rather than later with existing rates and programs. This means that now is a great time for us to help answer questions you might have about a refinance or purchase and determine whether or not now is the time for action.
One of the biggest concerns of first time home buyers when they’re looking at getting their first mortgage is just how much money they’re going to require. Qualifying for a mortgage is the first step in the process, but it is important to understand if you will need cash for your purchase and if so, how much.
Understanding what you’ll be responsible for paying for in cash is good information to have before you even submit a mortgage application. The specific costs can vary depending upon the state that you live in, the cost of your home and to other factors, but here are some basic things to consider that should be considered.
Down Payment Required for a Mortgage
In order to qualify for a mortgage, you will likely have to produce a down payment. The specific amount required for a down payment depends upon state guidelines as well as the type of loan. FHA mortgage loans offer the competitive down payment options for those who qualify, requiring under 3.5% of the purchase price down.
Mortgage Closing Costs
In addition to requiring money for your mortgage down payment, you’ll need to save money for closing costs. This is something that you may be able to get paid by the seller of your new home, but as this is not something that is guaranteed, it is wise to have some money on hand to pay for all of the costs of purchasing a home that cannot be rolled into your mortgage. If you present a mortgage lender an offer that does not include closing costs covered by the seller, often as a first time home buyer, you are required to prove that you have the money to cover them. Depending on your local market environment and location, 3% to 6% of the purchase price may be a fair estimate for your closing costs, and somewhere in this range is what a mortgage lender will typically need to confirm.
Target Purchase Price and Other Considerations
Since the location, cost and your unique financial and credit attributes can affect what you will need to put down when you purchase a home, we can help you better understand the estimated amount that you’ll need to pay when buying a home. More importantly, we can help you understand and target the home purchase price that suits your specific needs an finances so you can be prepared in advance to make your first home purchase!
While rates have come down in the past month, mortgage rates this week may affected by multiple bond auctions that are taking place, any of which can sway the market dependent on their volume. For this reason, the market will be moving forward with less certainty, which makes this week a great week to lock in rates to insure you benefit from downward movement of late.
As we head into a holiday weekend with Memorial Day Weekend approaching, many market participants will be leaving early on Friday, which all but insures weak trading volume which can cause erratic movement in bonds up or down.
Market Calendar for the Week of 5/23/2011
- Monday: 6 month bill auction
- Tuesday : New Home Sales, Rosengren, Hoenig, Bullard and Plosser from the Fed speak
- Wednesday : 5 Year Note Auction, Durable Goods, FHFA Home Price Index
- Thursday : Jobless Claims, GDP, Money Supply
- Friday : Personal Income and Outlays, Consumer Sentiment, Pending Home Sales Index
Simplifying GFE and TIL Disclosures:
It’s easy to become confused when getting a new mortgage due to the volume of paperwork involved. Adding to this confusion are a number of recent government regulations that have been implemented that are increasing confusion when their intent is the opposite. According to Elizabeth Warren, Special Adviser to the Secretary of the Treasury for the Consumer Financial Protection Bureau:
“A simple, straightforward and consistent presentation of a credit agreement is the best way to level the playing field between consumers and lenders – and among different types of lenders – and foster honest competition.”
To help create an easier to understand experience for consumers, the Consumer Financial Protection Bureau (CFPB) has created a website where you can give feedback. Simply view their site and follow the instructions to help give them feedback on your preferences.