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.