HUD's DEFINITION OF QUALIFIED MORTGAGE RULE

Department of Housing and Urban Development or HUD released its version of the Qualified Mortgage rule.   Effective January 10, 2014, the new rule will apply to the new mortgages applied on or after the said date. HUD oversees FHA (Federal Housing Administration) which caters to the low income and first time home buyers and has a 3.5% minimum down payment requirement.  

The Dodd–Frank Wall Street Reform and Consumer Protection Act requires HUD to propose a QM definition that is aligned with the Ability-to-Repay criteria set out in the Truth-in-Lending Act (TILA) as well as the Department’s historic mission to promote affordable mortgage financing options for underserved borrowers. HUD’s rule builds off of the existing QM rule finalized by the Consumer Financial Protection Bureau (CFPB) earlier this year. (Source:www.hud.gov)

To qualify under the new HUD'S Qualified Mortgage definition, mortgage loans must: (Source: www.hud.gov)

- Require periodic payments without risky features

- Have terms not to exceed 30 years

- Limit upfront points and fees to no more than three percent with adjustments to facilitate smaller loans (except for Title I, Title II Manufactured Housing Section 184,Section 184A loans and other)

- Be insured or guaranteed by FHA or HUD.

There are 2 types of Qualified Mortgages under the new rule:

1. Rebuttable Presumption Qualified Mortgage - are loans with an Annual Percentage Rate (APR) greater than the Average Prime Offer Rate (APOR) + 1.15 percentage points and ongoing mortgage insurance premiums. 

2. Safe Harbor Qualified Mortgages - loans with APRs equal to or less than APOR + 1.15 percentage points

+ on-going Mortgage Insurance Premiums (MIP)

In addition, the HUD's rule covers Title II manufactured housing, Title I manufactured housing and property improvement loans, Section 184 Indian Home Loan Guarantee Program mortgages and Section 184A Native Hawaiian Housing Loan Guarantee Program mortgages. 

Unlike the Consumer Financial Protection Bureau's Qualified MOrtgage rule, HUD's final rule does not require borrowers to have 43% or less debt-to-income ratio. 

HUD also adopts CFPB's list of transactions that are exempted from the ability-to-repay requirements which incudes reverse mortgages, bridge loans with terms of a year or less and construction-to-permanent loans of a year or less for the construction phase.  

According to NAR (National Assocation of Realtors), the new rule will have a major impact on how lenders determine the underwriting standards to be used to qualify borrowers.  Most Realtors think that with the new Qualified Mortgage rules in effect, it will be more difficult to qualify for a new loan.  Especially for the first time home buyers.  Even though, there are only a few weeks left until the effectivity of the new Qualified Mortgage rules, there's still time to take advantage of the more relaxed credit standards. ACT NOW! Don't wait until it's too late! 

For more information on listings, please visit www.jamesteamrealestate.com.

Tax Could Increase in 2014

Mortgage Foreclosure Debt Forgiveness Act of 2007 - a tax break for struggling mortgage borrowers is set to expire in January 2014. This law was created to help distressed home owners and prevent them from defaulitng on their loan. Normally, debt forgiveness results in taxable income. But under the Mortgage Foreclosure Debt Forgiveness Act, the home owner can exclude up to $2M of debt forgiven on his/her principal residence. 

According to National Association of Realtors (NAR) a return of the tax could have a BIG IMPACT on underwater home owners. 

Once the law expires, a home owner who owns a $400,000 property and sells it for $250,000, the forgiven debt of $150,000 will be taxed after January 1 of 2014. The tax payable could reach up to $35,000. In addition to that, the debt that was forgiven from 2007 to 2013 must be included in the taxable income.  

NAR president Gary Thomas firmly believes that extending the Mortgage Foreclosure Debt Forgiveness Act is detrimental to the continuous recovery of the housing market. 

"If it's allowed to expire, many distressed homeowners may opt instead for continued default until foreclosure or simply to walk away from the property," said Thomas. "Either way, this would destabilize communities as foreclosed and vacant houses drive down values in the surrounding neighborhood." (Source: www.money.cnn.com)

There's a very slim chance that the government will extend the bill. With only approximately 2 weeks into the year and Christmas season at that.  Our best bet is if the government extends the bill by next year and apply it retroactively.

If you have any more questions, please feel free to contact me.

Getting a Mortgage is About to Get Harder

 

Starting January 10, 2014, the New Qualified Mortgage Rule (QM) will take effect to avoid the repeat of the housing and credit crisis happened 5 years ago. The new rule prohibits banks from approving mortgages to potential borrowers that have higher than 43% of debt-to-income ratio. It means that potential borrowers' total debt liability should not exceed 43% of income.

The new QM rule will make it more difficult for first time buyers to purchase their own home.  First time home buyers may have limited income or existing college loans.  This will result to 30 - 40% decrease in the total market. When this market is taken out of the equation,prices are going to be stagnant or decline. Stagnant or declining pricing means underwater home owners will stay in that position, encouraging short sales and foreclosures. 

Borrowers that do not meet the Ability-to-Repay (ATR) standard will likely see decrease in credit availability and increased in borrowing costs. In addition, borrowers with inconsistent income such as self-employed, contract workers, individuals with cyclical or seasonal employment, or those primarily reliant on investment income will likely have some difficulties satisfying the underwriting criteria despite good credit histories.  (Source: First Look - Implications of the ability to repay rule and the qualified mortgage definition)

Mortgage lenders are going to look sharply on (1) Current or reasonably expected income and assets, (2) Current employment (3) Monthly payments on covered transactions (4) Monthly payments on simultaneous loans (5) Monthly payments for mortgage related obligations (6) Current debt obligations alimony and child support (7) Monthly debt-to-income ratios or residual income and (8) Credit history.

Bottom line is... it will be harder for the potential home buyers to obtain a loan once the new rule takes effect due to the increased required documentation, higher down payments and stricter underwriting guidelines.  

As for the seller, if you want to sell quickly, that will not be happening for next year.  Currently, the average closing period is 45 days, it will definitely take longer once the new QM rule takes effect.

So, if you're shopping for a mortgage, it's a MUST that you close your loan before the end of the year.  It is important to ACT NOW! Not in a few weeks or a few months, but NOW!!! While lending policies are still manageable. Once the new rule takes effect it will be harder for both buyers and sellers to close transactions.

If you need to understand how and when the new regulations may impact you, don't hesitate to contact me. I can provide good tips and guidance to get through the mortgage process as smoothly as possible. 

 

 

THE COMPETITIVE HOUSING MARKET

Houses may be more expensive than before, but they are selling faster. The reason? According to the National Association of Realtors, the supply of available properties is down more than 7% year over year.

"The declining inventory of for-sale homes over the past year naturally creates pressure for buyers to take advantage of the inventory that is on the market," said Stan Humphries, chief economist at Zillow. "This demand has been fueled by huge resets in home prices, historically low mortgage rates and a slowly improving economy." 

The current competitive market means potential buyers must have all their financials in order before they even ask their Realtors to schedule a showing. 

Humphries also said, "Home shoppers in today's environment need to be prepared to move quickly, with pre-approvals in place and an established sense of what they're willing to pay." 

DON'T WAIT! Grab your new home now while it's still affordable. AND while there are available inventory in the market.  

Whether buying or selling at this current competitive market, the James Team at Keller Williams is committed to providing great customer service for your family and giving you an advantage for purchasing the home of your dreams, an investment property and also selling your home!! Don't wait another moment and contact us today!!

BUYING AND SELLING YOUR HOME DURING OFF-PEAK SEASON

Holiday season can be one of the best times of the year for buying your new home or selling your existing home.  There is a misconception that the Alaskan housing market does a complete halt once the snow hits the ground, this is actually far from the truth!  Instead of going with the "norm", why not take advantage of the housing market with some helpful tips?

When you buy or sell during off season, the housing inventory (depending on price range) is typically low in comparison with the Spring and Summer months.  So what does this mean and how does low housing inventory impact you when buying or selling??

From a BUYING perspective, it is very important to work with a Realtor who knows the local market and can actually guide you into the home PRIOR to it going on the market.  With inventory traditionally low during the Holidays, some homes are selling within days or even hours of going on the market!! That is the difference between a TOP REALTOR TEAM and an average real estate licensee.  From a SELLING perspective, this is also a GREAT BENEFIT to working with our team because we are focused on bringing PRE-QUALIFIED BUYERS into your home and our seamless strategic pre-marketing!!

These are just a few tips, please contact our office for more info and detailed recommendations.  Viewing a property during the Winter months can tell you a lot about what you can really expect from a property during the worst weather conditions:

1. Drive by houses after a snowfall and you'll discover if the property is properly insulated.  A helpful tip is to contact the utility company for monthly utility costs.

2. Drive by the home after a recent snow fall to see how the roads and sidewalks are being maintained. 

3. Tour a house during a hard rain and you can check if there are no overflowing gutters or standing water in the crawl space or on the lot.

4.  Stay in a house on a cold day and check out if the furnace heats the whole house.  How are the living rooms, bedrooms and bathrooms? 

Whether buying or selling in the Holiday Season or any other time of the year, the James Team at Keller Williams is committed to providing great customer service for your family and giving you an advantage for purchasing the home of your dreams, an investment property and also selling your home!! Don't wait another moment and contact us today!!

Using 401(k) for Down Payment

Worried about down payment on your first home?  You may be able to tap into your 401(k) for your down payment. NOW is the perfect time to buy a house so it might be worth to touch your retirement money earlier than planned.

 

You can generally borrow up to half of your balance, up to a maximum of $50,000, from the account at any age and for any reason without tax or penalty.  The interest you pay on the loan, generally the prime rate plus one or two percentage points, goes back into your account.

 

Loans taken from 401(k)s must be paid within 5 years, but your employer may give you up to 15 years to repay a 401(k) loan if you are using the money to buy a home.  

 

There is one down side to borrowing from your 401(k). If you lose or leave your job, you generally have just 60 or 90 days to pay back the loan or it will be subjected to taxes, plus a 10% early withdrawal penalty if you're under 55 when you leave 

your job. (Source:www.realestate.msn.com)

 

In principle, it's not a good idea to tap into your retirement funds, since you'll need those funds when you get old.  But, borrowing from 401(k) can be the quickest, simplest, lowest-cost way to get the funds you need. Requesting for a 401(k) doesn't require credit checks and it doesn't affect your credit rating.  Getting your 401(k) loan can be just few clicks away and you can have your check on hand within a few days. 

In addition to that, it's easy to repay your loan. You can pay your loan earlier than scheduled without prepayment penalty. You can also pay it back through payroll deductions.

 

Just like any type of loan, you should always have a clear plan of paying on time or earlier. If you have any questions on your 401(k) loan, don't hesitate to call me.

Effects of Government Shutdown 2013 to Real Estate

What is the government shutdown's impact on real estate?  What happens from today onward? 

National Association of Home Builders Chief Economist David Crowe said, "Spike in mortgage interest rates, along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation's debt limit, have caused builders and consumers to take pause".  He added, “However, interest rates remain near historic lows and we don’t expect the level of rates to have a major impact on sales and starts going forward. Once this government impasse is resolved we expect builder and consumer optimism will bounce back.” (Source: www.realtor.org)

According to realtor.com, Crowe's view seems to be the same as other industry observers.

The main impact of the government shutdown in the real estate industry was the difficulty in obtaining IRS 4506T (copy of tax returns) documents needed to close most borrowers' loans. 

Only USDA (United States Department of Agriculture) and Jumbo loans were greatly affected by the shutdown.  USDA loans were completely inaccessible to borrowers.  Jumbo loans, on the other hand, were requiring documentation from IRS.  But this should be back to normal within the next few weeks.  

Many lenders remained operational through the shutdown and still processing FHA loans.  There might be a slight backlog of approvals on the FHA's end, but there shouldn't be any significant delays.  

"Best advice is to buy a home at the current lower prices and historically low rates.  Rates will rise and property values will follow due to limited supply" advised Cal Haupt, Chief Executive Officer at Georgia-based Southeast Mortgage.

Government shutdown is the topic of the decade. Nobody really knows what will happen in the future.  Let's just keep our fingers crossed and hope for the best!

HOW TO SAVE ON CLOSING COSTS

Buying a home can already put a hole in your pocket and  paying for the closing costs can also be equally painful.  These fees must be paid (no matter what) to the lenders and other third parties such as title/escrow and insurance.

There are 2 types of closing costs. They are called recurring closing costs and non-recurring closing costs. Recurring closing costs are charges that must be paid more than once. On the other hand, non-recurring closing costs are once in a life time charges.

If you want to reduce the closing costs follow these advice:

1. Ask the seller if he/she could cover part of the closing costs as part of the transactions. The lowest amount that the seller can cover is 2% of the purchase price and the highest amount allowed is 9%.
2. Shop for closing costs. When looking for a lender, also make sure to look at their closing fee charges. Different lenders charge different closing fees. So, search for a lender with low rate and low fees - this could give you HUGE savings.
3. Read the contract carefully. Some lenders charge junk fees - and you don't want to pay for those.
4. IF you close towards the end of the month, you can reduce the number of days of per diem interest due at closing. However, this can be a busy time for lenders and they might not close in time.

If you have more questions on closing costs, feel free to contact me.

FHA Needs $1.7 Billion Bailout

FHA (Federal Housing Administration), provider of mortgage insurance of low down payment loans, is asking the Congress for $1.7 Billion from the Treasury to stabilize its long-term finances and cover potential losses from loans they insured from 2007 - 2009.  FHA is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.

The amount is higher than the estimate since it is now insuring fewer loans than before. Additionally, Obama administration expected the bailout since April and has proposed $943 million budget for bailout fund by Sept 30, but the requested bailout was almost double the expected.

This is the first time since the agency's inception that it has required money from the government for its Mutual Mortgage Insurance Fund (MMIF). However, this bailout is so much less than the nearly $200 billion that the mortgage giants Fannie Mae and Freddie Mac required to stay in business during the housing bust.

Fannie Mae and Freddie Mac have recently posted record profits.

FHA Commissioner Carol Galante stressed that the agency does not need to pay claims at this point. It still has more than $30 billion in reserves. However, the law requires the agency to have enough reserves to pay off all claims over the next 30 years.

Big percentage of FHA losses (around $70 billion), were from loans originated from 2007 to 2009 and from its reverse programs.

For any question, please don't hesitate to contact me.

Ways to Fund Your Down Payment and Closing Costs

Afraid that you won't be able to find the funds you need for your down payment or the closing costs to buy a home? Think again! There just might be some ways to find it.

You can buy a home with a 3.5% down payment through FHA (Federal Housing Administration) loan.  For conventional loan, you are required to have at least 5% down on the purchase of a home.

There are at least 5 different ways you can come up with the down payment and closing costs so you can buy a home:

1. Gift Money

Gift of funds or gift money is a monetary gift that is given by a relative or a close friend. He/she must sign a gift letter, provide a copy of a bank statement showing that he/she is financially capable of gifting the down payment money and he/she must show proof that the funds came from and has been withdrawn from his or her account and deposited to your account.

2. Loan from 401 (k) or Retirement Fund

You can borrow funds from your 401(k).  If you borrow, just keep in mind that it will be considered a loan and the lender will include it in your total debt obligations and include the total monthly repayments in your total debt-to-income ratio. 

3.  Sale of a Personal Asset

You can sell your car, stamp or coin collection, jewelry, art or an RV or any other assets you may have and use the proceeds from the sale to purchase your new home.  Take note, that you need to provide proof of the transactions. 

4.  Trust Funds, Lottery Winnings etc.

If you receive money from your trust funds, lottery wins or other means, you can use this money as a down payment and/or closing costs on the purchase of a home.

Again, all paper trails must be presented.

5.  Loans Made Against Assets

If you can secure your loan with an asset, then there's no problem in obtaining a loan as long as use these assets to secure your loan.  These assets can include stocks, bonds, mutual funds and real estate (separate from the property being purchased).

Funds borrowed from cash value of life insurance policies can also be used for down payment and closing costs. 

Consult with a mortgage lender if you will be receiving any funds to help you with the down payment and/or closing costs on the purchase of a home.  This will save you a HUGE amount of time and headache!

 

 

Loans Now Available To Previously Troubled Borrowers

FHA recently announced a new mortgage rule that will benefit borrowers that have experienced foreclosure, short sale, deed in lieu or bankruptcy.  In the new Back to Work - Extenuating Circumstance program, borrowers with a record of foreclosure, short sale, deed in lieu or bankruptcy will still be able to get a new FHA loan in 12 months instead of the standard three year waiting period.

For a borrower to qualify, they must prove that major economic event like job loss or at least 20% income reduction (for at least 6 months) was the main reason in losing their home.  Furthermore, borrowers will also need to prove that they have recovered from their situation and they must have a satisfactory credit score.  And lastly, potential borrowers will need to complete a one hour one-on-one housing counseling session.  BUT, borrower's MUST have a satisfactory credit score and in good standing prior to the said major economic event. 

Borrowers "MUST" satisfy the following criteria in a minimum of 12 months to be considered borrower with "SATISFACTORY CREDIT":

- No delinquency payments on rentals.
- No more than one 30-day late payment due to other creditors.
- No collection accounts/court records reporting (other than medical and/or identity theft)

Back-to-Work program is now available until September 30, 2016. Once the borrower qualifies the program, the same 3.5% minimum FHA required down payment will apply. Mortgage insurance and closing costs will also apply.

Reverse mortgages are ineligible for Back to Work program.  In reverse mortgage, the home owners can borrow money against the value of his or her home.  No repayment will be applied until the borrower dies or the home is sold.

However, even with the new Back to Work program, the final decision to lend the borrower is still up to the lender.  So, it is VERY important for the borrowers to prove that they can satisfy all requirements for them to be able to obtain a loan. 

If you want to fast-track your home ownership but has trouble in obtaining a loan because of your previous record, then I can help. Don't hesitate to call.

FHA, Bailout is Still a Possibility

As a result of the housing crash, private investors pulled out of the housing market.  FHA, the government mortgage insurer, helped stabilize the housing market.  Its market share increased to 25% from 3% market share during the boom. A lot of first time home buyers have turned to FHA to make home buying a possibility during the housing bust.  However, FHA's delinquency rate is still high at 8.22%, while the delinquency rate for all loans is at 5.88%.

It is hard for the low down payment market to get a loan without the help of the government.  The government helps make the availability of the capital on a large scale.  However, with mortgages getting more expensive, even with the help of FHA, home buyers may still have a difficult time afford a home of their own. And if the delinquency rate still goes up, then FHA might also need a bailout in the future.

If you're thinking of getting your new home, NOW is the time to act - before the rules get stricter and mortgage rates increase again. 

For more information on how to take advantage of the current market situation, please feel free to contact me.

The New 43% Loan Cap in Qualified Mortgage Rule

Getting approved for a mortgage loan has become so difficult as compared to few years back, prior to the housing collapse.  However, Federal regulators are issuing more new lending rules that could possibly make it harder for both existing and potential borrowers to obtain loans.  Effective January 10, 2014, Consumer Financial Protection Bureau (CFPB) will implement the new Qualified Mortgage (QM) Rule. The new QM rule will require new borrowers to have a debt-to-income ratio (DTI) not exceeding 43.

The new lending rules will limit potential borrowers from taking out a mortgage or refinancing an existing one that puts their overall household borrowing at more than 43% of their income. The Debt-to-income cap of 43% means that all the debt expenses (this includes total mortgage payment) do not exceed 43% of the borrower's gross income (income before taxes). That new debt cap also includes a wide swath of common forms of debt that count toward the total, including student loans, most fees and points related a home purchase, and property taxes. It also tightens rules on documentation, and lenders who improvise to give customers easier terms will be open to consumer lawsuits if the loans go bad. (Source: http://money.usnews.com/money/personal-finance/mutual-funds/articles/2013/08/20/fewer-easy-mortgages-under-us-consumer-agency-rules)

The following groups may be affected by the new Qualified Mortgage rule:

- First time home buyers, especially those who are carrying college loans.  College loans will be counted towards the 43% debt-to-income cap.
- Home owners that want to refinance but lost their equity due to the housing bust.
- Retirees with limited savings.

The new credit restrictions can result to a more expensive, harder-to-arrange loans or outright disapproval for qualified borrowers.

With mortgage interest rates on the rise, increase in house prices and combined that with tightening credit standards, how can a average Joe afford the American dream of owning his own house?

If you want to own your new home, NOW is the time to act! In 4 months, the new Qualified Mortgage rule will take effect and acquiring a home may be more expensive and more difficult by then. If you want to take advantage of the more relaxed rules and buy your new home, please feel free to contact me.

Closing Down Fannie Mae and Freddie Mac Could Increase Mortgage Rates

Home buyers will feel the burden of increase in mortgage rates once the Congress shuts down both Fannie Mae and Freddie Mac, the government-controlled mortgage guarantee giants that were rescued by a $187 billion taxpayer bailout during the financial crisis. (Source:http://realtormag.realtor.org/)

The House Financial Services Committee passed a bill called the PATH (Protecting America's Taxpayers and Homeowners) Act which would mean phasing out the two mortgage giants - Fannie Mae and Freddie Mac. On the other hand, the Senate's bipartisan plan would also phase out Fannie and Freddie but, unlike in the House, the federal government would remain as an insurer of last resort. In the House bill, there is no plan to get the federal government involved in mortgage financing except through a much-modified FHA. (Source:http://realtormag.realtor.org/)

Both proposed bills would phase out the two mortgage giants in a 5-year time frame, limit the government's intervention into "just" guaranteeing mortgage securities and at the same time transfer the mortgage financial risks from the government to the private sector - this will prevent the use of taxpayer's money for future bailouts again. Once the Congress shuts down Fannie Mae and Freddie Mac, borrowers will be paying a slightly higher mortgage rates.

According to Mark Zandi, chief economist at Moody's Analytics, on a $200,000 loan with 20% down payment, typical borrowers could pay about $75 extra per month in interest payments in the Senate's bipartisan plan. While borrowers could pay $135 more under the House plan. Adding up all the extra monthly payments all through out the life of the loan could sum up to a significant amount for the borrowers.

If you have questions, please feel free to contact me. I will gladly assist you in achieving your dream of owning your new home at the least possible cost for you!

Buy-to-Rent is Anticipated to Grow

Buy-to-Rent Market is set to have a major growth in the coming years, according to Morgan Stanley Housing Research Report. Morgan Stanley analysts predict that the buy-to-rent market will grow from $17B today to more than $100B in the future.

Morgan Stanley analysts recommend four different ways investors can take advantage of the current Real Estate market:

1. Invest in a single-family real estate.  This is the most popular type of home among renters.
2. Invest in home rehab company investments. Although Morgan Stanley analysts predicts that this strategy will be less successful.
3. Invest in mortgage lenders.
4. Invest in non-agency mortgage bonds with front-pay tranches that benefit from an institutional investor base.

With interest rates still at historic lows, Real Estate is still a wise investment.  And mortgage lenders are also easing on the borrower requirements.  NOW, is definitely the right time to get into the Real Estate business.

If you are interested in investing in Real Estate, please feel free to contact me. I will be happy to help!

Green Home Equals Higher Mortgage

In the past, mortgage lenders have refused to factor energy savings into the value of the home. This could possibly change in the future --The SAVE (Sensible Accounting to Value Energy) Act bill in the US Senate could help borrowers purchasing an energy efficient home get a larger mortgage. 

The proposed bill is set to improve the accuracy of mortgage underwriting used by Federal mortgage agencies by ensuring that energy costs are included in the underwriting process.  (Source: http://www.govtrack.us/congress/bills/113/s1106)

The bill tells lenders (backed by Fannie Mae, Freddie Mac and FHA) to account the amount of the expected energy cost savings.  Those savings will be subtracted from the borrowers expenses - which will be factored in the monthly mortgage payment. 

The expected energy savings will also be added to the value of the home in the appraisal.  Since the mortgage amounts are based on a percentage of the value of the home, this would allow the borrowers to get a bigger mortgage. (Source: http://www.cnbc.com)

The proposed bill will only be applicable to federal government backed loans. To qualify for a larger mortgage, borrowers must submit a qualified energy report. The bill under consideration will also remove penalties against homes that do not have an energy rating. 

 

With the new legislation, green homes will be more appealing to the home buyers because of the energy cost savings and the possibility of a higher mortgage. While home sellers will also benefit in investing in green technology because homes with green technology will have a higher resale value -- when they decide to sell. 

If you have any questions, please feel free to contact me.

The Return of Adjustable-Rate Mortgage

The recent dramatic increase in mortgage interest rates have caused an alarm for the new home buyers. The rates on a standard 30-year fixed mortgage have gone from record low at below 3.5% to as much as 4.5% recently - which significantly increased the monthly payments that new home buyers will have to pay and making it harder for them to qualify for mortgage loans.

For example, at 3% fixed-mortgage interest rate, you will pay $843 per month for a $200,000 home. At 4%, the payment would be $955. However, if your current credit status only qualified you for a monthly payment of $843, then that means that you can only obtain a loan for $177,000 - preventing you to take on a home that you really want. So, getting an adjustable-rate mortgage will let you spend more on the house you want.

According to Bankrate, even though other mortgage rates have climbed dramatically, the ARM rates have remained steady between 2.7% and 3.1%. As Freddie Mac Vice President and Chief Economist Frank Nothaft said, "with the ongoing run up in fixed mortgage rates, adjustable-rate mortgages are becoming more popular among home owners looking to refinance and for home purchasers."

The disadvantage of ARMs, is that the initial low interest rate is only locked in for the first year. The interest rates will increase as it follows the prevailing market rate for the succeeding years causing your monthly payment to skyrocket Some home buyers were not able to afford the higher reset payments causing them to default on their loans. Others say that adjustable-rate mortgages are to be blamed for the housing bubble.

Here's a piece of advice, before you consider taking up an adjustable-rate mortgage, you need to understand how the future increase in mortgage could affect your future monthly payments. Look at the maximum rate provision stated on the contract - both annually and over the life of your loan. Compute all scenarios, then see if you will be able to meet your future obligations.

 If you need more information on different interest rates, don't hesitate to contact me. I will be more than happy to help.

End of Bond Buying Program Affects Housing

Federal Reserve President Ben Bernanke announced in June that the FED plans to reduce its bond purchasing program or also known as "quantitative easing" later this year and could end the program by the middle of 2014 - that is, if the economy shows significant improvement. This plan caused the bond market to panic and sent the interest rates to shoot up -- According to Huffington Post report.  

The FED's buying of Treasury and mortgage bonds have helped keep long-term interest rates at historic lows.  The low interest rates have helped the housing market to go back on its feet, drive the stocks to record highs and slowly help the country crawl out of recession. The end of the bond-buying program may likely result to higher mortgage interest rates and other consumer and business loans. 

How Will It Affect the Housing Market?

In general, low interest rates mean that more people are able to borrow more money. The result is that consumers have more money to spend, causing the economy to grow and inflation to rise. On the other hand, if the interest rates increases, consumers tend to have less money to spend. With less spending, the economy slows and inflation decreases. 

At low interest rates, the price of a loan is cheaper.  When loans are cheap, people are encouraged to borrow, and first thing they will spend it on is on housing, thus creating a higher demand on housing. As interest rates increases, there is less people that can afford to buy a home, thus the demand decreases. 

If the Fed starts reducing its bond-buying program, the interest rates will increase that may result to fewer home buyers that can afford to buy a home. 

Interest rates are going higher in a consistent way, if you are looking to buy anything that requires a loan, NOW is the time while interest rates are low.  Let me know if you have any questions, I will be glad to help.

10% Down Payment Is Back

Before the housing crisis, getting a home loan was easy.  All you had to do was state your income and then sign on the dotted line. 

After 2008, lenders have become strict.  They required a minimum of 20% down payment. A lot of potential home buyers had a hard time coming up with that much money. Furthermore, the economy was uncertain, there were job cuts and purchasing a home was really scary.

As a result, even though home prices and mortgage rates were at historic lows, many home buyers were turned off to purchase a home.  

At present, the real estate market is rising again.  The economy is improving and job growth is evident. Potential home buyers are feeling good about investing in real estate again.  

Good news for potential buyers thinking of buying a house, now that the economy is showing improvement. Mortgage lenders are starting to ease on the minimum down payment requirement.  To qualify for a 10% down, your monthly housing, car, student loan, and credit card debt can't be higher than 45% of your monthly income. And you must have a 700 credit score. 

If you have enough funds to make a 20% down payment, you might consider paying the 10% down and then investing the other 10% in stocks or mutual funds. But you have to take note of the risks. 

Paying the 10% down also has its disadvantages too. If you just pay for 10% down and home prices decline later (like what happened in the past few years), you could end up owing more on the mortgage than your home is worth.  You could end up underwater, stuck with your home and unable to sell. 

Talk to a mortgage professional or a realtor about your options before making the down payment.  Consider your long-term goal. Do not make the 10% down payment because you are able to. Weigh the pros and cons then decide.