Starting Monday, December 13, 2010, Fannie Mae is changing its mortgage lending guidelines.
For some mortgage applicants of Arizona , the loan approval process will simplify. For others, it will toughen. How you’ll be affected personally will depend on your credit profile and your loan characteristics.
Among the biggest changes from Fannie Mae is a new set of guidelines for gift funds. When the new rules roll out, accepting cash gifts for downpayment will be easier.
Undetr the new guidelines, buyers of owner-occupied, 1-unit properties (i.e. single-family homes, condos, townhomes) can forgo Fannie Mae’s typical, minimum 5% personal downpayment contribution. Downpayments on homes meeting the above criteria can be comprised of 100% gifted and/or granted funds.
Buyers of second homes and multi-unit properties, however, are not exempt.
There’s also two changes pending with respect to revolving debt.
Debt with less than 10 payments remaining may no longer be waived in debt-to-income ratio calculations
Debt lacking a monthly payment on credit must be assigned a payment equal to 5% of the outstanding balance
Both of the above should increase the number of loan denials in 2011.
And, lastly, Fannie Mae changes some of its documentation requirements, the most noticeable of which will be with respect to income verification. Salaried workers and applicants whose commission/bonus accounts for less than a quarter of their income will have fewer paystubs to produce for underwriting.
Loan applications taken prior to December 13, 2010 are exempt from the new rules.
Consistent with calls of a housing rebound, the Pending Home Sales Index rose again in August. It marks the second straight month of improvement after May’s post-tax credit drop-off.
A “pending home” is an existing home under contract to sell, but not yet closed.
According to the National Association of REALTORS®, 4 out of 5 pending homes close within 60 days, and many more close within 90 days. For this reason, the Pending Home Sales Index is an excellent forward-indicator for housing.
As a real-life illustration, after July’s 27% plunge to an 11-year low, Existing Home Sales recovered 8 percent in August. This was not a surprise, though, because July’s Pending Home Sales Index predicted it.
Region-by-region, the Pending Home Sales Index varied in August, suggesting better sales levels in the South and West markets:
Northeast : -2.9% from July
Midwest : +2.1% from July
South : +6.7% from July
West : + 6.4% from July
Overall, buyers are being drawn into housing by low mortgage rates, affordable homes, and ample supply. If the August Pending Home Sales Index is foreshadowing the fall housing market, home prices appear slated to rise and the market to pick up.
In other words, the economy is in recovery, but the average Tucson citizen isn’t believing it. That causes purse-strings to stay tight, thereby retarding economic growth.
Wall Street is struggling with the contrast, and constantly changing its outlook. It’s making mortgage rates tough to pin down and this week should reflect that. In addition to a home sales report and new consumer confidence data, the government prints its market-moving Non-Farm Payrolls report.
More commonly called “the jobs report”, Non-Farm Payrolls details the workforce, its size, and its Unemployment Rate. There’s expected to be little change from August, a month considered “fair” by recent employment standards. If the jobs report shows improvement and/or strength, look for mortgage rates to rise. If the report does deterioration and/or weakness, look for mortgage rates to fall.
The Non-Farm Payrolls will be released Friday at 8:30 AM ET.
As a result of new Public Law 111-229, FHA was given authority to change the amount charged to borrowers for both the Up-Front and the Annual Mortgage Insurance premiums. These changes as outlined in Mortgagee Letter 2010-28, are effective for all case numbers assigned on or after October 4th, 2010.
Here are the 3 things you need to know:
1. The Up Front premium is now 1.0 % for all standard FHA programs
2. The Annual premium is now .90% for LTVs GREATER than 95% on 30 year loans and .85% for LTVs EQUAL to or LESS than 95% on 30 year loans
3. The Annual premium is now .25% for LTVs GREATER than 90% on 15 year loans and .00% for LTVs EQUAL to or LESS than 90% on 15 year loans
These NEW premiums apply to purchases, regular refinances and streamlines.
Please note that this new law also gives FHA the authority to raise the Annual premium at will up to 1.5% for LTVs at or below 95% and 1.55% for LTVs more than 95%.
The result will be HIGHER monthly mortgage payments on new loans, although Borrowers will maintain a bit more equity. Just what we needed, right? HIGHER mortgage payments!!!
If you are in the process of locking in an FHA loan, I suggest you get your FHA case # assigned THIS WEEK to beat the new fees!
Call Todd Abelson & Tyler Ford at Sunstreet Mortgage in Tucson, AZ at (520) 331-LEND for all your mortgage needs!
Is it better to rent a Tucson home, or to buy one? The answer may not be as clear-cut as you think. In this balanced, 3-minute joint interview from NBC’s The Today Show, you’ll hear the case for both sides.
From the pro-renting part of the talk, there’s valid points about the economic impact of low credit scores and/or no cash for downpayment, and the ongoing, annual cost of home maintenance — estimated at 2% of a home’s value. Plus, renters have the ability to “follow a job” to a new town or region whereas a homeowner may be restricted, somewhat.
From the pro-purchase part, however, there’s excellent points that were made, too:
Mortgage rates are low and each 1% drop to rates equates to a 9% drop to home price
Buyers can zero in on a particular area with particular schools or walkability, for example, better than renters
A home can a piggybank over the long-term; a place for “forced savings” for families that want it
The segment then closes with 5 of the best cities in which to rent, and 5 of the best cities in which to buy.
Whether buying or renting, don’t try to go at it alone. Give the Tucson Mortgage Team a call at 520-331-LEND (5363) set you in the right direction.
The Federal Open Market Committee adjourns from its 6th scheduled meeting of the year today, and 7th overall.
Upon adjournment, Federal Reserve Chairman Ben Bernanke will release a formal statement to the market. In it, the Fed is expected to announce “no change” to the Fed Funds Rate.
Currently, the Fed Funds Rate is within a target range of 0.000-0.250 percent. It’s been at this same level since December 2008.
Note that the Feds Funds Rate is not “a mortgage rate” — nor is it a a consumerrate of any kind. The Fed Funds Rate is a rate that defines the cost of an overnight loan between banks. And, although the Fed Funds Rate has little direct consequence to everyday Tucson homeowners, it is the basis for Prime Rate, the interest rate on which most consumer cards are based, plus many business loans, too.
Therefore, because the Fed Funds Rate won’t change today, neither will credit card rates. Mortgage rates, however, are a different story. Mortgage rates should change today — regardless of what the Fed does.
It’s more about what the Fed says.
In its statement, the Federal Reserve will highlight strengths and weaknesses in the economy, and threats to growth over the next few quarters. Depending on how Wall Street interprets these remarks, mortgage rates may rise or fall.
If the Fed’s comments signal better-than-expected growth, bond markets should lose and mortgage rates should rise. Conversely, if the Fed’s comments signal worse-than-expected growth, mortgage rates should fall.
If you’re actively shopping for a mortgage, it may be prudent to lock your rate ahead of the Fed’s announcement today. The Fed adjourns at 2:15 PM ET. Call the Tucson Mortgage Team at 520-331-LEND (5363) to lock your rate.
Prior to Tuesday, mortgage rates had been spiking across Arizona on the resurgent hope for U.S. economic recovery. The sentiment shift was rooted in reports including the Pending Home Sales Index and Initial Jobless Claims, both of which showed surprising strength last week.
August’s Retail Sales, though, after removing motor vehicles, auto parts and gasoline sales, failed to maintain the momentum. Its figures were actually in-line with expectations — it’s just that expectations weren’t all that high.
Wall Street now wonders whether the weak Back-to-School shopping season will trend forward into the holidays.
The doubt spells good news for mortgage rates and home affordability.
Because Retail Sales is tied to consumer spending and consumer spending accounts for two-thirds of the economy, a weak reading tends to drag down stock markets and pump up bonds, and when bonds are in demand, mortgage rates fall.
This is exactly what happened Tuesday. The soft Retail Sales data eased stock markets down, and generated new demand for mortgage bonds. This demand caused bond prices to rise, which, in turn, caused mortgage rates to fall.
Mortgage rates did not cut new lows this week, but they’re very, very close.
With mortgage rates at historical lows, it’s an excellent time to look at a refinance, or gauge what financing a new home would cost. Low rates like this can’t last forever.
Want a lower mortgage rate on your upcoming Tucson home buy? Think about moving up the closing date.
The reason is rooted in “rate locks”, a bank’s guarantee to honor a specific mortgage rate for a specific, finite period of time. Rate locks allow home buyers to reserve mortgage rates today even though their respective closings may be scheduled as far as a year into the future.
A rate lock is a contract. No matter what the “current market rate” is at the time of closing, the bank will honor the terms of the original rate lock.
It would be like making an agreement to buy Microsoft stock at a specific price 60 days from now. No matter what the price, you already know what you’re paying for it.
In this sense, rate locks are predictions about the future and, meanwhile, as we all know, the future can be a challenge to forecast. Lenders know this, too, of course, so it’s easy to understand why longer rate locks tend to be more expensive than shorter ones.
The longer the rate lock, the more risk to the bank.
To compensate for this “time risk”, therefore, lenders typically step-up pricing for rate lock guarantees as lock period lengthen.
15-day rate lock : The best of all pricing
30-day rate lock : 1/8 percent extra cost versus the 15-day rate lock
45-day rate lock : 1/4 percent extra cost versus the 15-day rate lock
60-day rate lock : 3/8 percent extra cost versus the 15-day rate lock
One percent of “extra cost” is defined as one percent of the borrowed amount.
Now, this incremental price chart is just a rough guideline; exact spreads vary from lender-to-lender. Overall, however, it’s fairly close.
That’s why it’s important to manage your closing date vis-a-vis your mortgage rate. Closing in 30 days versus 31 can save you an eighth-percent in closing costs. Assuming a loan size of $200,000, that’s $2,500 saved.
So, when negotiating a closing date on a contract, keep in mind the math of mortgage rate locks. The shorter its length, the more money you might save.
Give the Tucson Mortgage team a call at 520-331-5363 (LEND) to discuss your potential savings based on you lock period.