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Mortgage Timeline 101

by Melissa Thompson


Buying your first home, while exciting, is also likely to be the biggest and most complex purchase you will have made up to this point in your life.  But there is no need to let yourself get overwhelmed. Take the time to educate yourself about the process and it will be a lot less stressful.  Let’s start with your mortgage loan.  If you have never acquired one before, you may not realize that from start to finish, it can take from about three to five months to complete the process.  Let’s take a look at the approximate timeline for a mortgage:

  1. FIGURING OUT WHAT YOU CAN AFFORD (TWO WEEKS)

This is the time when you will determine the type of mortgage you will apply for, find out what your credit rating is, and figure out how much you can afford for a monthly payment.While it can probably be done pretty quickly, give yourself about a week so that you can take your time.The second week will be for getting your pre-approval letter. 18 Ways to Check Your Credit Score for Absolutely Free

  1. START YOUR HOME SEARCH/FIND YOUR HOME/MAKE AN OFFER (THREE TO EIGHT WEEKS)

Now, the fun begins! Once you have procured a preapproval, you can start looking for the right home for you and your family. Depending on the market and availability of homes that fall in your price range and appeal to you, this step can go pretty quickly, or it can take a while.Once you’ve found the right home, your Realtor will help you come up with an offer and will submit it to the seller’s agent. Avoid these Seven Mistakes When Making an Offer onHouse

  1. FIND A MORTGAGE LENDER/GET HOME INSPECTION & APPRAISAL (FIVE TO SIX WEEKS)

Once the seller has accepted your offer, it’s time to finalize your mortgage offers and get loan estimates. It’s smart to get rate quotes from at least three lenders so you can compare and find the best one for you. This may take about a week and the appraisal may take three to four weeks. Before you close on your home you need to order a home inspection to ascertain the condition of the home.Your lender will also schedule a home appraisal to confirm the home’s value. The Home Appraisal Process

  1. COMPLETION OF MORTGAGE OVERWRITING AND CLOSING (TWO TO FOUR WEEKS)

If all goes well with the inspection and the appraisal is complete, you are ready to proceed.The mortgage lender will verify your income, assets, debt, and home value details.When all has been cleared to close, you will receive a closing disclosure which will sum up the terms of your loan and what you will owe at closing.You will be given at least three days to review it.Once you’ve determined that everything is as it should be, you are ready to close on your new home! What You Should Expect When Closing on a House

If you are in the market to buy or sell a home in the Memphis area, contact professional Realtor Melissa Thompson and let her help you with all your real estate needs! Give her a call today at 901-729-9526!

Do You Know The Difference Your Interest Rate Makes?

by Melissa Thompson
 

Do You Know The Difference 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.
  • Experts predict that rates will increase by 3/4 a percent over the next 12 months.
  • Secure a low rate now to get the most house for your money.

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Applying For A Mortgage: Why So Much Paperwork?

by Melissa Thompson

Applying For A Mortgage: Why So Much Paperwork? | Keeping Current Matters

We are often asked why there is so much paperwork mandated by the bank for a mortgage loan application when buying a home today. It seems that the bank needs to know everything about us and requires three separate sources to validate each and every entry on the application form.

Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago.

There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history.

  1. The government has set new guidelines that now demand that the bank provebeyond any doubt that you are indeed capable of affording the mortgage. During the run-up in the housing market, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again
  2. The banks don’t want to be in the real estate business. Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.

However, there is some good news in the situation. The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate probably at or below 4%.

The friends and family who bought homes ten or twenty ago experienced a simpler mortgage application process but also paid a higher interest rate (the average 30 year fixed rate mortgage was 8.12% in the 1990’s and 6.29% in the 2000’s). If you went to the bank and offered to pay 7% instead of <4%, they would probably bend over backwards to make the process much easier.

Bottom Line

Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.

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Is Qualifying for a Mortgage Getting Easier?

by Melissa Thompson
 

Is Qualifying for a Mortgage Getting Easier? | Keeping Current Matters

There has been a lot of talk about how difficult it is to get a home mortgage in today’s lending environment. However, three recent reports have revealed that lending standards are beginning to ease. This is great news for both first time buyers and current homeowners looking to move or buy a second vacation/retirement home. Let’s look at the three reports:

The MBA’s Mortgage Credit Availability Index

This index, issued by the Mortgage Bankers’ Association, measures the availability of credit available in the home mortgage market. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of a loosening of credit. We can see that the index has been increasing nicely this year:

Mortgage Credit Availability Index | Keeping Current Matters

Fannie Mae’s latest Mortgage Lender Sentiment Survey

This survey revealed that more lenders report that mortgage lending standards across all loan types are easing. The survey asked senior mortgage executives whether their company’s credit standards have eased, tightened, or remained essentially unchanged during the prior three months. The gap between lenders reporting easing as opposed to tightening over the prior three months jumped to approximately 20%. This represented a new survey high of "net easing." In addition, the share of lenders who expect their organizations to ease credit standards over the next three months also ticked up this quarter.

Doug Duncan, senior vice president and chief economist at Fannie Mae, addressed this easing of standards:

"For the first time in seven quarters, we see a pronounced increase in the share of lenders, particularly medium- and larger-sized lenders, reporting on net an easing of credit standards … This is a significant result in light of public discourse on credit availability and standards … Overall, we expect that lenders' tendency toward easing credit standards, together with relatively low mortgage rates and a strengthening labor market, will continue to support the housing market expansion."

Ellie Mae’s latest Origination Insights Report

The easing of credit standards is also confirmed in this report which showed that the average FICO score on a closed loan fell to its lowest point in well over a year. Here is a chart of average FICO scores on closed loans so far in 2015:

Ellie Mae FICO Scores | Keeping Current Matters

Just keep an eye on interest rates…

Although this is all great news, there was one challenge in the recently released data.Ellie Mae reported that the average interest rate on closed loans is beginning to inch upward:

Ellie Mae Interest Rates | Keeping Current Matters

What this means to you…

If you are a first time buyer or a current homeowner thinking of moving up to a bigger home or buying a vacation home, now may be the time to act. Mortgage lending standards are beginning to ease and interest rates are beginning to inch up.

 

Thinking of Buying a Home? Ask Yourself These 3 Questions!

by Melissa Thompson
 

Thinking of Buying a Home? Ask Yourself These 3 Questions! | Keeping Current Matters

If you are debating purchasing a home right now, you are surely getting a lot of advice. Though your friends and family will have your best interest at heart, they may not be fully aware of your needs and what is currently happening in real estate.

Let’s look at whether or not now is actually a good time for you to buy a home.

There are 3 questions you should ask before purchasing in today’s market:

1. Why am I buying a home in the first place?

This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with finances.

A study by the Joint Center for Housing Studies at Harvard University reveals that the four major reasons people buy a home have nothing to do with money:

  • A good place to raise children and for them to get a good education
  • A place where you and your family feel safe
  • More space for you and your family
  • Control of that space

What non-financial benefits will you and your family derive from owning a home? The answer to that question should be the biggest reason you decide to purchase or not.

2. Where are home values headed?

When looking at future housing values, Home Price Expectation Survey provides a fair assessment. Every quarter, Pulsenomics surveys a nationwide panel of over 100 economists, real estate experts and investment & market strategists about where prices are headed over the next five years. They then average the projections of all 100+ experts into a single number.

Here is what the experts projected in the latest survey:

  • Home values will appreciate by 4.1% in 2015.
  • The cumulative appreciation will be 18.1% by 2019.
  • Even the experts making up the most bearish quartile of the survey still are projecting a cumulative appreciation of over 10.5% by 2019.

So what does that really mean for you and your family?

The chart below was made using the Home Price Expectation Survey’s predictions:

Homeowner's Family Wealth Over the Next 4 Years | Keeping Current Matters

If the experts are right and you were to purchase a home by January 2016 for $250,000, that home would appreciate by over $34,000 over the next four years! As we have reported before, homeownership is one of the best ways to build your family’s wealth.

3. Where are mortgage interest rates headed?

A buyer must be concerned about more than just prices. The ‘long term cost’ of a home can be dramatically impacted by an increase in mortgage rates.

The Mortgage Bankers Association (MBA), the National Association of Realtors andFreddie Mac have all projected that mortgage interest rates will increase by approximately one full percentage over the next twelve months as you can see in the chart below:

Mortgage Rate Projections | Keeping Current Matters

Bottom Line

Only you and your family will know for certain if now is the right time to purchase a home. Answering these questions will help you make that decision.

 

What Do You Really Need to Qualify for a Mortgage?

by Melissa Thompson
 

What Do You Really Need to Qualify for a Mortgage? | Keeping Current Matters

A recent survey by Ipsos found that the American public is still somewhat confused about what is actually necessary to qualify for a home mortgage loan in today’s housing market. The study pointed out two major misconceptions that we want to address today.

1. Down Payment

The survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 36% think a 20% down payment is always required. In actuality, there are many loans written with a down payment of 3% or less.

Here are the results from a Digital Risk survey done on Millennials:

Millennials Down Payments | Keeping Current Matters

2. FICO Scores

The Ipsos survey also reported that two-thirds of the respondents believe they need a very good credit score to buy a home, with 45 percent thinking a “good credit score” is over 780. In actuality, the average FICO scores of approved conventional and FHA mortgages are much lower.

Here are the numbers from a recent Ellie Mae report:

FICO Score Of Approved Loans | Keeping Current Matters

Bottom Line

If you are a prospective purchaser who is ‘ready’ and ‘willing’ to buy but not sure if you are also ‘able’, sit down with someone who can help you understand your true options.

 

Debunking Some Myths about Mortgage Availability

by Melissa Thompson
 

Debunking Some Myths about Mortgage Availability | Keeping Current Matters

There seems to be a growing chasm between what the public believes to be needed and what is actually needed to qualify for a residential home loan.

A recent survey by Ipsos reported that:

  • Two-thirds of those surveyed believe they need a very good credit score to buy a home, with 45 percent thinking a “good credit score” is over 780.
  • Consumers overestimate the down payment funds needed to qualify for a home loan, with 36 percent thinking a 20 percent down payment is always required.

However, according to American Enterprise Institute's International Center on Housing Risk’s May First-Time Buyer Mortgage Risk Index (FBMRI), reality is far from perception. The report reveals:

  • 70% of first-time buyer mortgages had a combined loan-to-value ratio of 95% or higher
  • About 20% of first-time buyers taking out mortgages had a FICO score below 660
  • 25% had total debt-to-income ratios above 43 percent
  • The median first-time buyer with an agency mortgage made a down payment of only 3 percent, or $7200 in dollar terms.
  • The median FICO score for first-time buyers with agency mortgages was 705
  • For first-time buyers with FHA-insured loans, the median FICO score was only 672

These numbers contradict the frequent claims that first-time buyers face difficulties in obtaining mortgages.

Bottom Line

Stephen Oliner, co-director of AEI’s International Center on Housing Risk explained the reality of the situation.

“One hears all the time that first-time buyers have limited access to mortgage debt.  But this isn’t true. Many first-time buyers with low FICO scores and little money down are buying homes every month.”

 

How Will Mortgage Rate Hikes Impact Home Sales?

by Melissa Hayes Thompson
 

How Will Mortgage Rate Hikes Impact Home Sales? | Keeping Current Matters

When mortgage interest rates begin to climb, experts immediately begin to discuss home affordability indexes. They calculate how an increase in rates will slow home purchases as more and more potential buyers are priced out of the market. Today, with home prices also increasing, many believe that home sales may slow down rather dramatically.

This may prove to be true in the long term. However, in the short term, increasing mortgage rates may have the opposite effect. Many buyers who have been sitting on the fence may realize that delaying their purchase no longer makes sense.

Last week, in a CNBC article, Matt Weaver of Florida-based PMAC Lending explained the impact an increase in rates will have:

"These increases really help the home-buying market. It really gets buyers to really understand that 'wait a minute, rates are at an all-time low, let's react now, let's react before they go higher’.”

As an example, we can look to 2013 when interest rates spiked up by a full percentage point over a two month period. The result is that many buyers rushed to the market on the fear that rates would continue to climb. It didn’t necessarily increase the number of sales that year dramatically.

However, it did seem to move some sales up in the year as evidenced by the chart below:

Home Sales & Impact of Mortgage Rate Spike | Keeping Current Matters

We can see that the sales cycle did not follow a more normal cycle (2014) with more sales being pushed into July and August and slightly less sales in September and August.

Bottom Line

If you are waiting to put your house on the market, think twice. Now may be the perfect time to sell as buyer competition will continue to heat up as more purchasers jump into the market. You may also save a pretty penny on the monthly mortgage payment of your next home by selling now before rates shoot up.

 

Low down payments make a comeback

by Melissa Hayes Thompson

By Mark Fahey   @CNNMoney

Borrowers who have steady income and good credit, but not much money in the bank, will find that it recently became easier to buy a home.

Down payment requirements, which rose after the subprime mortgage crisis, are easing again as lenders and mortgage backers try to draw in new buyers.

"It's one of the things that's inhibiting first-time homebuyers," said Rob Chrane, president of Down Payment Resource. "There are a lot more people who can qualify for a home that don't realize that they can."

FHA cuts insurance costs

The Federal Housing Administration has long backed loans for borrowers with lower credit scores and with down payments as low as 3.5%, but until this year it also required hefty insurance payments.

FHA annual insurance premiums dropped dramatically at the beginning of 2015. The change, from 1.35% to only 0.85%, will make FHA loans a better choice for some borrowers after years of prohibitively high premiums, said Anthony Hsieh, chief executive officer of LoanDepot, one of the largest FHA lenders in the country.

"We're starting to get back to what's reasonable," said Hsieh. "The crisis has shaken the market so much that there is no doubt there was an overreaction."

Fannie and Freddie

Fannie Mae and Freddie Mac guarantee more than half the country's mortgages. At the end of 2014, the two government-backed companies announced plans to slash minimum down payments from 5% to 3%.

The new program from Fannie Mae went into effect in December, and the one from Freddie Mac will begin in March. Both are for first-time homebuyers or those refinancing their mortgage, and the Freddie Mac program is restricted to low-income borrowers.

Loans backed by the two mortgage giants still require private mortgage insurance for down payments below 20%.

And just because Fannie and Freddie are willing to buy loans with looser requirements doesn't mean the lenders themselves will change their standards.

"It's a phenomenon of the post-recession where lenders learned their lesson," said David Stevens, president of the Mortgage Bankers Association. "They learned that simply because the investor will allow it, the lender may still not feel comfortable doing it."

"Rural" and VA loans

Other types of low-down payment loans have also become far more popular since the recession.

Despite its name, loans from the Department of Agriculture are available to borrowers in many locations that are hardly rural, and they include no-money-down financing. To be eligible for USDA loans, a borrower must have dependable income and decent credit, and can't already own a home, exceed certain area median income thresholds or live within certain urban areas.

Department of Veteran Affairs loans are also booming, coming close to outnumbering FHA loans. Although not available to the average American homebuyer, VA mortgage backing allows veterans and surviving spouses to purchase property with no money down, no outside insurance and limited closing costs.

Average VA interest rates are lower, and credit and income requirements are also more flexible than conventional loans.

A return to easier credit

The shift toward loans with lower down payments has drawn criticism from some politicians -- after all, easy loans with little money down contributed to the crisis that led to the Great Recession.

Stevens said that new rules for qualified mortgage loans and more diligent underwriting by lenders will protect the lending market.

"Down payment has become the single largest barrier to home ownership," said Stevens. "Quite frankly, it's going to be a lot safer and sounder this time than it was in the past."

CNNMoney (New York)

 

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Photo of Melissa Thompson Real Estate
Melissa Thompson
Crye-Leike Realtors
6525 N Quail Hollow Road
Memphis TN 38120
(901) 729-9526
(901) 756-8900
Fax: (901) 435-0620