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.