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Bubble Alert! Is it Getting Too Easy to Get a Mortgage?

by Melissa Thompson

There is little doubt that it is easier to get a home mortgage today than it was last year. The Mortgage Credit Availability Index (MCAI), published by the Mortgage Bankers Association, shows that mortgage credit has become more available in each of the last several years. In fact, in just the last year:

  • More buyers are putting less than 20% down to purchase a home
  • The average credit score on closed mortgages is lower
  • More low-down-payment programs have been introduced

This has some people worrying that we are returning to the lax lending standards which led to the boom and bust that real estate experienced ten years ago. Let’s alleviate some of that concern.

The graph below shows the MCAI going back to the boom years of 2004-2005. The higher the graph line, the easier it was to get a mortgage.

As you can see, lending standards were much more lenient from 2004 to 2007. Though it has gradually become easier to get a mortgage since 2011, we are nowhere near the lenient standards during the boom.

The Urban Institute also publishes a Home Credit Availability Index (HCAI). According to the Institute, the HCAI:

“Measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates … it is easier to get a loan.”

Here is a graph showing their findings:


Again, today’s lending standards are nowhere near the levels of the boom years. As a matter of fact, they are more stringent than they were even before the boom.

Bottom Line

It is getting easier to gain financing for a home purchase. However, we are not seeing the irresponsible lending that caused the housing crisis.

Let’s get together and find out how much house you can afford! 901-729-9526 or [email protected]

BY: KCM Crew

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The Impact Your Interest Rate Makes

by Melissa Thompson

The Impact Your Interest Rate Makes [INFOGRAPHIC] | Keeping Current Matters

Some Highlights:

  • Interest rates have come a long way in the last 30 years.
  • The interest rate you secure directly impacts your monthly payment and the amount of house that you can afford if you plan to stay within a certain budget.
  • Interest rates are at their lowest in years… RIGHT NOW!
  • If buying your first home, or moving up to the home of your dreams is in your future, now may be the time to act!

Thinking about buying or selling a Memphis TN home, Call your local expert’s The Melissa Thompson Team 901-729-9526.

 

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Tax Day is approaching quickly and now is the time to take advantage of every deduction possible. As a homeowner, there may be more deductions than you thought!  Here are some homeowner tax breaks you might not have known about:

  • Mortgage interest deduction - If you’ve taken out a loan to buy a house, you can deduct the interest you pay on a mortgage, with a balance of up to $1 million. To access this deduction, you must itemize rather than take the standard deduction. The savings here can add up in a big way. For example, if you’re in the 25% tax bracket and deduct $10,000 of mortgage interest, you can save $2,500.
  • Private mortgage insurance - Qualified homeowners can deduct payments for private mortgage insurance, or PMI, for a primary home. Sometimes you can take the deduction for a second property as well, if it isn’t a rental unit. However, this only applies if you got your loan in 2007 or later. Also, this deduction only applies if your adjusted gross income is no more than $109,000 if married filing jointly or $54,500 if married filing separately.
  • Property taxes - You can include state and local property taxes as itemized deductions. An interesting note: The amount of the deduction depends on when you pay the tax, not when the tax is due. So, paying property taxes earlier could have a positive impact on your return.
  • Capital gains on a home sale - The dreaded capital gains tax can be avoided when the gain from selling your personal residence is less than $250,000 if you are a single taxpayer or $500,000 if you are a joint filer. To qualify, you must have owned and used the home as a primary residence for at least two years out of the five years leading up to the sale.
  • Medical improvements - If you’ve made improvements to your home to help meet medical needs, such as installing a ramp or a lift, you could deduct the expenses—but only the amount by which the cost of the improvements exceed the increase in your home’s value. (In other words, you can’t deduct the entire cost of the equipment or improvements.) These types of deductions can be tricky, but are worth looking in to. Guidelines for Medical Improvement Tax Deductions
  • Home office - If you have a dedicated space in your home for work and it’s not used for anything else, you could deduct it as a home office expense.
  • Renting your home out on occasion - If you rented out your home for, say, a major sports event like the Super Bowl or the World Series, or a cultural event such as Mardi Gras, the income on the rental could be totally tax free—as long as it was for only 14 days or fewer throughout the course of a year.
  • Discount Points - Discount points which are paid to lower the interest rate on a loan, can be deducted in full for the year in which they were paid. If you’re buying a home and the seller pays the points as an incentive to get you to buy the house, you can deduct those points as well.
  • Energy-efficiency tax credit - You can take advantage of an energy efficiency tax credit of 10% of the amount paid (up to $500) for any “green” improvements, such as storm doors, energy efficient windows and AC and heating systems.

For more tax tips, check out IRS Publication 530 for a list of what homeowners can (and cannot) deduct.

http://www.yourkeytomemphis.com/Blog/You-Can-Never-Have-TMI-about-PMI

http://www.yourkeytomemphis.com/Blog/Home-Is-Where-The-Heart-Is

Learn more about buying or selling Memphis Real Estate at yourkeytomemphis.com. 901.729.9526 or [email protected]

2 Myths About Mortgages That May Be Holding Back Buyers

by Melissa Thompson

2 Myths About Mortgages That May Be Holding Back Buyers | Keeping Current Matters

Fannie Mae’s “What do consumers know about the Mortgage Qualification Criteria?” Study revealed that Americans are misinformed about what is required to qualify for a mortgage when purchasing a home.

Myth #1: “I Need a 20% Down Payment”

Fannie Mae’s survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 76% of Americans either don’t know (40%) or are misinformed (36%) about the minimum down payment required.

Many believe that they need at least 20% down to buy their dream home. New programs actually let buyers put down as little as 3%.

Below are the results of a Digital Risk survey of Millennials who recently purchased a home.

2 Myths About Mortgages That May Be Holding Back Buyers | Keeping Current Matters

As you can see, 64.2% were able to purchase their home by putting down less than 20%, with 43.8% putting down less than 10%!

Myth #2: “I need a 780 FICO Score or Higher to Buy”

The survey revealed that 59% of Americans either don’t know (54%) or are misinformed (5%) about what FICO score is necessary to qualify.

Many Americans believe a ‘good’ credit score is 780 or higher.

To help debunk this myth, let’s take a look at the latest Ellie Mae Origination Insight Report, which focuses on recently closed (approved) loans. As you can see below, 54.1% of approved mortgages had a credit score of 600-749.

2 Myths About Mortgages That May Be Holding Back Buyers | Keeping Current Matters

Bottom Line

Whether buying your first home or moving up to your dream home, knowing your options will definitely make the mortgage process easier. Your dream home may already be within your reach.

 

Would You Qualify for a Mortgage Now?

by Melissa Thompson

Would You Qualify for a Mortgage Now? | Keeping Current Matters

The widespread myth that perfect credit and large down payments are necessary to buy a home are holding many potential home buyers on the sidelines. According to Ellie Mae’s latest Origination Report, the average FICO score for all closed loans in May was 724, far lower than the 750 or 800 that many buyers believe to be true.

Below is a graph of the distribution of FICO scores of approved loans in May (the latest available data):

Would You Qualify for a Mortgage Now? | Keeping Current Matters

Looking at the chart above, it becomes obvious that not only do you not need a 750+ credit score, but 54.9% of approved loans actually had a score between 600 and 749.

More and more experts are speaking up about the fact that if potential buyers realized they could be approved for a mortgage with a credit score at, or above, 600, the distribution in the chart above would shift further to the left.

Ellie Mae’s Vice President, Jonas Moe encouraged buyers to know their options before assuming that they do not qualify for a mortgage: 

“The high median credit score is due to many millennials believing they won’t qualify with the score they have - and are therefore waiting to apply for a mortgage until they have the score they think they need.” (emphasis added)

CoreLogic’s latest MarketPulse Report agrees that the median FICO score does not always tell the whole story:

“The observed decline in originations could be a result of potential applicants being either too cautious or discouraged from applying, more so than tight underwriting as the culprit in lower mortgage activity.”

It’s not just millennials who believe high credit scores and large down payments are needed. Many current homeowners are delaying moving on to a home that better fits their current needs due to a belief that they would not qualify for a mortgage today.

So what does this all mean?

Moe put it this way:

“Many potential home buyers are 'disqualifying' themselves. You don't need a 750 FICO Score and a 20% down payment to buy.”

Bottom Line

If you are one of the many Americans who has always thought homeownership was out of their reach, meet with a local real estate professional who can help you start the process of being pre-qualified to see if you are able to buy now!

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The Mortgage Process: What You Need To Know

by Melissa Thompson

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Some Highlights:

  • Many buyers are purchasing a home with a down payment as little as 3%.
  • You may already qualify for a loan, even if you don't have perfect credit.
  • Take advantage of the knowledge of your local professionals who are there to help you determine how much you can afford.

 

Yes, Home Prices Are Rising. No, a New Housing Bubble is NOT Forming

by Melissa Thompson

Yes, Home Prices Are Rising. No, a New Housing Bubble is NOT Forming | Keeping Current Matters

We recently reported that home prices are continuing to rise across most of the nation. This has created concern in some pundits that a housing bubble, like we saw ten years ago, is forming again. We want to explain why these concerns are unfounded.

The current increase in home values can be easily explained by the theory of supply and demand. Right now, the number of families looking to purchase a home is greater than the supply of homes on the market.

Here is a chart that explains how the months’ supply of housing inventory impacts home values:

Yes, Home Prices Are Rising. No, a New Housing Bubble is NOT Forming | Keeping Current Matters

According to the latest Existing Home Sales Report from the National Association of Realtors, there is currently a four-month supply of inventory. That puts us in the blue section of the above graphic. Home prices should be appreciating.

The difference in 2006…

A decade ago, the demand for housing was artificially boosted by lending standards that were far too lenient. Today, the strength of the demand for housing is legitimate, as lending standards are nowhere near what they were a decade ago.

For proof of this, let’s look at a graph of the Mortgage Bankers’ Association’s Mortgage Credit Availability Index:

Yes, Home Prices Are Rising. No, a New Housing Bubble is NOT Forming | Keeping Current Matters

The higher the number, the easier it was to get a mortgage. We can see that from June 2005 to June 2007, mortgage standards were much more lenient than they have been over the last nine years.

Bottom Line

Today’s price increases, unlike those a decade ago, are the result of qualified buyer demand exceeding the current inventory of homes available for sale. Once the supply increases, prices will level out.

 

Mortgage Rates Again at Historic Lows

by Melissa Thompson

Mortgage Rates Again at Historic Lows | Keeping Current Matters

Just two weeks ago, we posted an article discussing where mortgage interest rates may be heading over the next twelve months. We quoted projections from Fannie Mae,Freddie Mac, the Mortgage Bankers’ Association and the National Association of Realtors. Each predicted that rates would begin to rise slowly and steadily throughout 2016.

However, shaky economic news and a volatile stock market have actually caused rates to drop six out of the last seven weeks, and have remained at 3.65% for the past two weeks.

Mortgage Rates Again at Historic Lows | Keeping Current Matters

Rates have again fallen to historic lows yet many experts still expect them to increase in 2016. The only thing we know for sure is that, according to Freddie Mac, current rates are the best they have been since last April.

Bottom Line

If you are thinking of buying your first home or moving up to your ultimate dream home, now is a great time to get a sensational rate on your mortgage.

by 

Where Are Mortgage Rates Headed?

by Melissa Hayes Thompson
 

Where Are Mortgage Rates Headed? | Keeping Current Matters

The interest rate you pay on your home mortgage has a direct impact on your monthly payment. The higher the rate the greater the payment will be. That is why it is important to look at where rates are headed when deciding to buy now or wait until next year.

Below is a chart created using Freddie Mac’s February 2015 U.S. Economic & Housing Marketing Outlook. As you can see interest rates are projected to increase steadily over the course of 2015.

30-Year Fixed Rate Mortgage Projections | Keeping Current Matters

How Will This Impact Your Mortgage Payment?

Depending on the amount of the loan that you secure, a half of a percent (.5%) increase in interest rate can increase your monthly mortgage payment significantly.

Research released by Zillow touched on this point:

“As rates rise, new home buyers will confront higher financing costs and monthly mortgage payments. For many, this will mean tightening their budgets and sacrificing some luxuries they may take for granted today.”

The experts predict that home prices will appreciate by 4.4% over the course of 2015. If both predictions become reality, families would wind up paying considerably more for their home.

Bottom Line

Even a small increase in interest rate can impact your family’s wealth. Meet with a local real estate professional to evaluate your ability to purchase your dream home.

 

Avoid a Major Mortgage Mistake by Increasing Your Down Payment

by Melissa Hayes Thompson


For prospective home buyers who have annuities, selling those future payments for a lump sum of money now can help them avoid getting locked into a mortgage black hole.

First-time home buyers often save money for years to collect enough for a down payment on their house. Once they have that 5 or 10 percent of the house value in the bank, they settle follow through by agreeing to 15 to 30 years of monthly payments on the mortgage, one that costs a fortune in interest.

What many don’t realize is that increasing a down payment for a $300,000 home by just 5 percent can reduce the mortgage by as much as $30,000. Putting money from an annuity sale toward a down payment offers significant long-term savings on your home – decreasing the amount paid for interest, loan principal and monthly payments.

Affording A Down Payment For Your Dream House

For most people, the greatest obstacle for getting a new home is the down payment. While mortgage payments might be easily figured in to a budget, putting together enough cash to buy takes time and hard work. Buyers generally pay a minimum of 3.5 percent (for federal housing loans) to 20 percent for down payments. For a $200,000 home, this means coming up with at least $40,000 to bring to closing. As people still recover from the recession, saving $40,000 while still keeping up with regular bills and living expenses seems like an impossible feat.

Unfortunately, paying less than 20 percent has other financial consequences. Lenders can (and almost always do) require you to purchase private mortgage insurance, which increases your monthly expenses and the total you are paying for your home. Additionally, they may restrict you to mortgages with high interest rates or even deny your application.

How Much Are You Actually Paying?

Let’s look at an example. You’ve found the home of your dreams for $300,000 and you’re ready to commit to a 30-year mortgage. If you can afford a down payment of $30,000 (which would be 10 percent of the cost), then you will need a mortgage of $270,000.   What kind of terms can you expect from a lender?   Banks look at a variety of factors to determine your loan eligibility and your credit-worthiness. They collect credit scores, employment history and the size of your down payment to determine your interest rate. According to The Washington Post, in 2014 the average interest rate was 3.99 percent for a fixed-rate loan. With a 10-percent down payment, an applicant with excellent credit would likely be able to qualify for this rate.

With the help of a mortgage calculator, you can find out how much this will cost. In this example, monthly payments are $1,287.47.   Here is a price chart based on a 30-year mortgage for a $300,000 home:

30-year mortgage at an interest rate of 3.99%

Mortgage (Down Payment)   Monthly Cost    Interest Paid
$285,000 ($15,000)   $1,299.37    $182,909

The Difference Annuity Cash Can Make

Using money from your annuity to bulk up your down payment can be a game-changer. The larger down payment reduces the necessary principal for the loan and decreases the home loan to value ratio. Because of this, a bank may qualify you for a lower interest rate.   For these examples, we used an interest rate of 3.625 percent. This chart shows how every increase in the down payment significantly decreases the total interest paid.

30-year mortgage at an interest rate of 3.625%

Mortgage (Down Payment)    Monthly Cost    Interest Paid
$285,000 ($15,000)    $1,299.37    $182,909
$270,000 ($30,000)    $1,231.34    $173,282
$255,000 ($45,000)    $1,162.93    $163,655
$240,000 ($60,000)    $1,094.52    $154,028

Now, if you are an annuity owner and you pull out $15,000 from selling annuity payments, you can increase your down payment by 5 percent, making a down payment of 15 percent. This reduces the mortgage total and the total interest is now $163,655.10. If we compare the interest on both mortgages, the difference between the old and new mortgages is nearly $30,000 — $193,487.47 – $163,655.10 = $29,832.37.   If you double your down payment to 20 percent, and kept the same interest rate, your savings will be closer to $40,000 — $193,487.47 – $154,028.32 = $39,459.15.

Eliminating the Waiting Period

Bottom line: If you own an annuity or structured settlement and want to own a home, don’t go through another decade of saving or sit around until the date your annuity payments are scheduled. And avoid the mistake of making a small down payment. By paying more up front, you reduce the home loan-to-value (LTV) ratio, which increases your eligibility for a mortgage and the likelihood of receiving approval for a better interest rate.

By selling annuity payments – using a resource that is already at your disposal – and putting the money toward your home, you can save tens of thousands in interest. Let your neighbor be the one with the 10-percent down payment, while you pay 20 percent and spend the next 30 years with $200 more in your pocket every month.

By Alanna Ritchie and Learn More About Annuities

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