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Federal Reserve Minutes Indicate Higher Mortgage Rates Coming

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The Federal Reserve released notes from the June 21-22 Federal Open Market Committee (FOMC) meeting on Tuesday, shedding light on the FOMC’s current observations of the market and how it will be adjusting its activities moving forward. This release of minutes is one of eight releases the Fed meets, following each of the eight Fed meetings that take place each year.

The minutes didn’t drop any bombshells that have had any significant immediate impact on mortgage rates, but did provide useful insight on how the Fed will be adjusting its activities, which will affect how mortgage rates move in the future. The market and mortgage rates as a whole were largely unmoved release of the minutes.

The Fed overview on the current state of the market shows that recovery has been slower than expected and that housing prices remain depressed, both factors holding back the overall recovery of the economy.

From the June 2011 FOMC Minutes:

Activity in the housing market remained depressed, as both weak demand and the sizable inventory of foreclosed or distressed properties continued to hold back new construction. Starts and permits of new single-family homes were essentially unchanged in April and May, and they stayed near the very low levels seen since the middle of last year. Sales of new and existing homes remained at subdued levels in recent months, while measures of home prices fell further.

Since the Fed sets monetary policy and participates in other activities such as buying Treasury debt, their activities can significantly impact the mortgage rates and the economy as a whole. As the Fed has implemented various policies to help push the economy out of recession, maintaining these policies for an extended period of time can do more damage than good. The June minutes provided some insight into how the Fed will unwind or exit some of these policies moving forward.

Fed Exit Strategy Principles

  1. The Fed will raise the Fed Funds Rate (the rate at which banks lend each other money overnight)
  2. The Fed will stop buying Treasury Debt (they are currently reinvesting the proceeds on existing obligations)
  3. The Fed will sell its holdings in mortgage-backed securities

Since rates are currently at very low levels, there is a lot more room for rates to go up then go down. That means that now is a great time to inquire about whether your existing mortgage is the best fit for you or to learn about your options if you are considering purchasing a home.

 

 

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Recurring Closing Costs: Costs of Buying and Maintaining Your Home

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When you purchase a home for the first time, there are some expenses to keep in mind that you may not be aware of that you are responsible for when you close on your home.  Closing costs typically total 3% to 6% of the purchase price of a home. The recurring closing costs outlined below are not only applicable when you close but have to be paid on an ongoing basis after you take possession of your new home.

Recurring Closing Costs

These are the costs that you may have to pay out at closing, but that you’ll also be responsible for on an ongoing basis as a home owner.

  • Property Tax – This will be paid at closing if the seller has pre-paid any of the property taxes for the period after you take possession of the home. If your mortgage lender requires that you put your property taxes in escrow, one or two month’s payments may also be required at closing.
  • Mortgage Insurance – If you’ve taken out a high ratio mortgage (with less than 20% down) you may be required to have it insured. You may need to pay the full premium upfront or just the taxes. The same applies if you choose to take creditor protection to help you with your mortgage in case of illness or death.
  • Home Owner’s Insurance – To protect you against fire or flood, at the time of closing you will be required to prove that you have insurance in place. Some lenders will require that you pre-pay premiums for the whole year.

If you have any questions about recurring closing costs or any other mortgage related questions, we can help! Please contact us for a free mortgage consultation.

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Mortgage Rates Move Lower on Weak Jobs Data

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The Bureau of Labor Statistics released unexptected  employment data this morning in the form of the “Jobs Report” resulting in a decrease in mortgage rates. Mortgage rates are senstiive to the jobs report because jobs are what provide the income that is spent to power the economy.

The data released showed that Nonfarm payroll employment was essentially unchanged in June (increase of 18,000 jobs, lower than expected), and the unemployment rate was little changed at 9.2 percent. Since the market was expecting higher job growth, the data was disappointing, which is good for mortgage rates.


From the Bureau of Labor Statistics Report:

The number of unemployed persons (14.1 million) and the unemployment rate (9.2
percent) were essentially unchanged over the month. Since March, the number of
unemployed persons has increased by 545,000, and the unemployment rate has
risen by 0.4 percentage point. The labor force, at 153.4 million, changed
little over the month.

Mortgage rates are once again at extremely low levels due to weaker than expected economic data. This means that although rates were expected to have moved higher by now, we have a little bit more time to lock in low rates at their current levels. If you need help determining if you can benefit from the low rates available today, we can help!

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What to Expect When You Apply for a Mortgage

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You’re ready to make that big step into home ownership, which can be exciting, but if you’ve never gone through the process? It’s easy to get overwhelmed but when you have a better understanding of what to expect from the process of obtaining a mortgage, you will feel much more confident about every decision you make no matter what comes your way. While we can’t cover everything that you may experience when you apply for a mortgage, here are a few things you can surely expect!

The Mortgage Application Process

1. Discuss your needs and your finances with your mortgage professional – While this is not a step that you are required to take, even before you begin shopping for a house or a mortgage, it’s a good idea to go over your finances with a mortgage representative that can provide further advice on saving for your down payment or which debts you may want to pay off in order to qualify for the mortgage amount you’re hoping for.

2. Get Pre-Approved – Before you begin shopping for a house, you want to get pre-approved so you know what your lender will allow you to spend. In order to do this, you will need to need to complete a basic mortgage application and provide information about your income, debts and expenses.  Your mortgage professional will look at all of this information and will advise you on the best mortgages for your needs, and provide a guideline as to how much you can spend on your home.

3. Commit To a Mortgage – The specific process depends upon your lender, but typically once you’ve made an offer on your home, you will have to provide a few further details about you that way your mortgage application can be formally processed. You will receive a mortgage commitment, but there may be some conditions attached.

4. Fulfilling Your Mortgage Conditions – It depends upon your state and lender, but often you will be asked to prove that you have your down payment and even some of your closing costs in place 30 days before you’re set to close on your  home.  If some of your down payment will be coming from a family member as a gift, you may also be asked to provide a gift letter. Your lender wants to ensure that you aren’t borrowing your cash assets that you’re using for your home purchase.

5. Sign Your Closing Papers – This may happen before your closing date or on your closing date depending upon your lender and where you live.  You will then confirm the frequency of your mortgage payments and arrange a payment method for your mortgage premiums.

The above outlines some of the main components of the mortgage application process, though some of the finer details will depend upon your lender and the state you live in!

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Home Values Show Increase, Signs of Recovery?

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This week was marked by several indexes showing similar gains in housing prices, a change that every home owner has been waiting for and a sign that the summer housing market is moving in a positive direction.

The Case-Schiller index, which is a measure of of home-value is calculated from repeat sales of single-family homes (as opposed to relying on median home prices) showed that home values rose 0.8 percent for the 10-city index and 0.7 percent for the 20-city measure when compared with March.

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Similarly, the Federal Housing Finance Agency’s monthly House Price Index (FHFA Index) shows U.S. home prices rose 0.8 percent on a seasonally-adjusted basis from March to April. The FHFA monthly index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.

Finally, the National Association of Realtors Pending Home Sales Index (PHSI) showed growth of 8.2% month over month, which is 13.4% higher than May 2010. It is also worth noting that this is the single largest gain since November 2010.

About the NAR Pending Home Sales Index:

NAR’s Pending Home Sales Index (PHSI) is released during the first week of each month. It is designed to be a leading indicator of housing activity.

The index measures housing contract activity. It is based on signed real estate contracts for existing single-family homes, condos and co-ops. A signed contract is not counted as a sale until the transaction closes. Modeling for the PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years.

If you are considering purchasing a new home but aren’t sure how much you qualify for, we can help. Now is a great time to take advantage of historically low rates, waiting may result in having to pay more for a higher rate, so don’t hesitate with any questions you might have. Have a happy and safe 4th of July!

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BuildFax? What is it and Why is it Free Until July 31st?

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You’ve probably heard of CarFax, a service that enables you to get vehicle history reports before you purchase a car to make sure that you aren’t buying a car with otherwise undetectable problems or history that may cost you money in the future. Now BuildFax, based in Austin, Texas is offering a similar service for prospective home buyers that want to do further due diligence prior to purchasing a home.

BuildFax bills itself as a “a one-stop shop for building, remodel, and repair information for over 70 million U.S. properties”.

From the BuildFax Website:

BuildFax collects and organizes construction records on millions of properties from cities and counties across the United States. Once in our system, we analyze, mine and compare the data so that it becomes like a “background check” on a property. We have data on new construction, major systems repair, additions, renovations, roofs, pools, demolitions, contractors and more.”

BuildFax’s database of permit information from building departments covers in excess of 4,000 cities and counties. BuildFax provides summary reports showing major renovations or repairs done on properties including additions, plumbing, air conditioning, roof replacements, etc. BuildFax reports also including contractor and dates of work completed.

BuildFax reports are usually $39.99 per report, but you can sign up for a FREE REPORT until July 31, 2011.

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Mortgage Outlook for the Week of June 27, 2011

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We start the week off in a positive direction for mortgage rates stemming from multiple positive economic events last week. The first event was good news regarding Greece’s debt issues as the country looks to pass an act that will lay out a plan for remaining solvent and keep other European nations and the IMF happy.

The second positive event was that the Federal Open Market Committee left the Fed Funds Rate (interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions) unchanged at .000% – .250% while lowering it expectations of growth in the future for the US economy. While the expectations growth outlook was not positive news for the economy as a whole, it is good for mortgage rates, which move lower in times of economic uncertainty or turmoil.

Economic Calendar for Week of June 27, 2011

  • Monday – Personal Income & Outlays Report for May, Kocherlakota and Koenig from the Fed speak, 2 Year Treasure Note Auction
  • Tuesday – Case-Shiller 20-city Index, 5 Year Treasure Note Auction
  • Wednesday – Consumer Confidence, Pending Home Sales, 7 Year Treasure Note Auction
  • Thursday – Initial Jobless Claims
  • Friday – Construction Spending

Not sure if you are in the best mortgage for your needs? We can give you the information you need to decide which options make the most sense for your current or future mortgage. Mortgage rates have continued to maintained low levels for months, creating a great opportunity to lock in a low rate on new home purchases or refinances, now is a great time to take advantage of low rates before they inevitably begin to move higher.

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Fixed and Adjustable Rate Mortgage Basics

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With mortgage rates at some of the lowest levels in decades, many borrowers are considering whether a fixed rate or adjustable rate mortgage is better suited for their needs. We are going to walk you through the two main mortgage options that you can select from, along with the core benefits and some of the negatives associated with each.

Fixed Rate Mortgages

With a fixed rate mortgage, your interest rate and monthly payments remain the same throughout the term of the loan:

  • There is no risk of your monthly mortgage payments changing at any point during the course of the loan. This means as long as there are no drastic changes to your lifestyle, you should always be in a position to pay the mortgage amount comfortably.
  • A fixed interest rate is typically higher than whatever the going adjustable interest rate is since you are offered more stability.
  • Throughout the term of your mortgage, there is no change to the amount applied to principal versus interest, it always takes the same course as per the amortization schedule.
  • If interest rates go down you don’t have the opportunity to take advantage of this move as you may with an adjustable rate mortgage.

Adjustable Rate Mortgages

With adjustable rate mortgages, your payment amount is determined by the initial mortgage rate fixed for a 3, 5, 7 or 10 year term, which presents some interesting pros and cons:

  • With a adjustable rate mortgage, there is the potential that you can pay much less than you would with a fixed rate mortgage, but if interest rates go up, you could also pay much more as you do not have a guaranteed future rate once your “fixed rate” period is complete.
  • You don’t have a guaranteed monthly payment amount, and you may have to tighten the purse strings on other spending when interest rates rise.
  • Adjustable rate mortgages can allow you to pay down your mortgage with more money applied to principal depending upon what interest rates are doing at any given time.
  • In order to be eligible for a adjustable rate mortgage, you may need be approved to pay a monthly payment amount higher than what you’d pay based on the interest rate at the time in a fixed rate loan. The regulations can vary by lender or state, but this ensures that your mortgage can always be paid.

Still have questions about whether an adjustable rate or fixed rate mortgage is best for your needs? We can help walk you through any questions you have to find the loan that best fits your needs.

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What Are Closing Costs?

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When you’re ready to purchase home, it’s necessary to have some cash assets ready to cover the expenses that cannot be added to your mortgage. A portion of these expenses that you’ll need to pay in cash are the closing costs. While many first time home buyers may expect from watching real estate shows that they can convince the seller to cover the out-of-pocket costs, this is not always the case. It’s essential that all buyers have a general understanding of what the various closing costs are so they can be prepared. Typically, it’s a good idea for buyers to save at least 3% to 6% of the purchase price of a home for closing. Below, we’ve outlined some of the typical closing costs you’ll be responsible for paying only once, when you close on your house.

Non-Recurring Closing Costs

Non-recurring closing costs are those that you will pay once when you close upon your home, but you will not have to worry about them again until you choose to make another purchase.

Non-recurring closing costs can include the following:

  • Home inspection – This is one of the first closing costs you will have to pay as a buyer. If you make an offer on a home conditional upon a satisfying inspection, you typically have under a week from the offer date to have it completed. This is a cost you as a buyer have to pay even if you choose to withdraw your offer because you’re not happy with the results of an inspection.
  • Title insurance – This is insurance that compensates for any losses that are a result of a defective title or liens on the property that should have been revealed at the time of purchases. Losses covered include any legal fees paid to rectify related issues. Title insurance can be taken in lieu of a title search which is much more pricey and in many cases, unnecessary. A real estate lawyer will advise buyers if a title search is needed rather than title insurance.
  • Appraisal fee – Before a mortgage lender will provide you a loan, they complete a property appraisal to ensure that your home is worth at least as much as they’re going to lend you. Often today this can be completed without surveying the property as banks can look at recent valuations in the area online, but a fee does still apply and the cost can vary depending upon the appraisal method used.
  • Attorney fees – Your attorney is the one that processes all of the necessary paperwork, registers the deed, deals with the seller’s lawyer, processes information for the bank, and makes sure all necessary money gets to the appropriate bodies. For all this, a real estate lawyer charges a flat fee for his or her services.
  • Escrow fees – Some mortgage lenders may require that you put the costs related to the mortgage payment, property taxes and utilities into an account to be paid by them on a monthly basis. This helps them ensure that their investment is protected because payments are made. At closing, you may be required to deposit escrow fees for one or more months of expenses.
  • Land transfer fees – Most cities or counties (or both) require that you pay a fee to ‘transfer’ the land from the seller to the buyer. The specific costs and requirements vary greatly across the country but typically apply.
  • Various administrative fees – As a buyer you may need to pay the fees to record the sale, fees for document preparation, and any charges that surface from the need to use wire transfer or a courier to get the transaction completed.

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Should You Spend The Full Mortgage Amount You’re Approved For?

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When you’ve gotten a pre-approval from your mortgage lender, you’re ready to start shopping for a home. While your pre-approval tells you how much the bank thinks you can afford, many first time buyers in particular wonder if they should actually spend as much as they’ve been approved for.

The first thing to note is that a bank takes your Gross Debt Ratio and Total Debt Ratio into consideration when determining how much money they will lend you.

Theoretically, you can afford to spend what you’ve been pre-approved for, but there are some other things you should think about when determining if you want to spend it all.

Determining How Much of Your Mortgage Approval Amount to Spend

While you may be tempted to spend your full pre-approval amount to get the best home available to you, there are some other things that you should consider when you take a look at your total expenses:

1. Would you need to make cutbacks? – Even if your full mortgage amount is under 40% in your total debt ratio, there are many other expenses not calculated by the bank. Take a look at all of your other fixed and variable expenses and determine if you’d need to make cutbacks to live comfortably with that mortgage amount. Remember, your expenses can include things like your grocery bill, the cost of children’s activities, and eating out.

2. Are you willing to change your lifestyle? – If you would need to make cutbacks to spend the full mortgage amount, take a look at what you would be willing to give up, if anything. For some, it may be worth the sacrifice to get a “better” home. For others, it may be preferable to spend less on the home and maintain status quo in other aspects of life.

3. Are your expenses likely to change? – Remember, your pre-approval amount is based on your current income level and debts. It might be affordable today, but if you have intentions to leave your job or take on new expenses, the affordability may change quickly.

Once you’ve considered all of the above factors, it’s up to you to determine how much you’re comfortable spending. Don’t feel pressure to spend it all, but if that number is a comfortable one, then getting shopping for a property of that value!

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