Archive for April, 2010

Which Home Loan Is Right for You?

Depending upon several factors, some of which include geographic location, credit scores, current interest rates and current income, different loans work best for different home buyers. A good example of this is West Coast borrowers who opted for different versions of an adjustable rate mortgage (ARM) for their home buying needs in recent years. At the time of many of these ARMs, the initial interest rate was significantly lower than those for traditional fixed-rate mortgages, so their payments were quite affordable at the onset of the loan.

One common theory for using an ARM is to buy a home with initial low interest and low payments. This may buy enough time for homeowners to improve their credit scores, and maybe even increase their income. The end goal is to refinance to a traditional fixed-rate mortgage by the time the ARM adjusts to a much higher interest rate and payment. There are definite risks in using an ARM for a mortgage, including the risk of interest rates climbing to the maximum allowed by your ARM contract. That could make your monthly payment unaffordable for your income level.

Other loans that present a risk, but mostly to the loan servicer, are jumbo loans and Fannie Mae (FNMA) and Freddie Mac (FHLMC) `B’, `C’ and `D’ loans, as opposed to conforming `A’ loans. A Jumbo loan is a loan that is for more than the maximum allowed by Fannie and Freddie’s set borrowing limits. Any loans other than `A’ loans indicate that the borrower has experienced some type of financial hardship – e.g., foreclosure, bankruptcy or late payments revealed by credit report. The use of `B’, `C’ or `D’ loans is to provide short-term financing to these borrowers until they can improve their credit and refinance with conforming `A’ financing.

There are many other loan types available that you will want to research before deciding on a home loan. Some conventional and government loans you may want to consider are traditional fixed rate loans and those available through the Federal Housing Administration (FHA), U.S. Department of Agriculture Rural Housing Service (RHS), Veterans Administration (VA), Ginnie Mae (GNMA), Fannie Mae and Freddie Mac. A conventional loan includes all loans other than those offered through FHA, VA or RHS.

A traditional fixed-rate loan is a mortgage where the interest rate and payments remain the same throughout the life of the loan. You typically, but not always, have to come up with 20 percent down, or you have to buy private mortgage insurance (PMI). Depending on your credit score and other factors, your interest rate is often higher with less down.

Most loans through the FHA, RHS, VA, Ginnie, Fannie and Freddie are fixed-rate loans; although, there are some exceptions. The advantage of obtaining a home loan through one of these entities is that you often have flexibility that you don’t have through banking or other financial institutions. There are income limits, however, that disqualify many borrowers.

You won’t know what’s available to you unless you contact a lender for more information. To begin the loan process, contact three different lenders. Find out what each one has available, including type of loans available, interest rate offered and all fees associated with the loan. Request everything in writing. Armed with this information you will be a formidable force in obtaining the best loan that fits your family’s needs.

Ki lives and works in the Austin real estate market. Buyers can search the Austin MLS for homes and properties on his website. The website also provides a mortgage calculator widget for visitors as well as general statistics on the Austin real estate market.

Mortgage Rates Come Back Down To Earth

For the last few weeks the buzz in the real estate industry has been that rates are rising and that rates are going to go up even more. So it was somewhat of a surprise to see rates plummet this week. The 30 year rate dropped from 5.21 to 5.07 this week. 5.07 marks the lowest point in March.

The 15 year dropped even more falling from 4.52 to 4.40. The 5 and 1 year arms both dropped from 4.25 to 4.08 (5 year arm) and 4.14 to 4.13 (1 year arm). For the first time in several months the 1 Year arm is higher than the 5 year arm. This basically knocks out the 1 year arm as a viable product (although we have been recommending against it recently anyway). Below are rates from the weeks from Mar 18, 2010 to Apr 15, 2010

Apr 15, 2010
30-fixed 5.07 15-fixed 4.40 5 ARM 4.08 1 ARM 4.13

Apr 08, 2010
30-fixed 5.21 15-fixed 4.52 5 ARM 4.25 1 ARM 4.14

Apr 01, 2010
30-fixed 5.08 15-fixed 4.39 5 ARM 4.10 1 ARM 4.05

Mar 25, 2010
30-fixed 4.99 15-fixed 4.34 5 ARM 4.14 1 ARM 4.20

Mar 18, 2010
30-fixed 4.96 15-fixed 4.33 5 ARM 4.09 1 ARM 4.12

Oct 01, 2009
30-fixed 4.94 15-fixed 4.36 5 ARM 4.42 1 ARM 4.49

At least for now it looks like instead of rates moving into an era of higher rates we are moving into a period of volatility. It’s also a welcome relief to buyers that were thinking they missed the party last week when rates started to rise.

In addition to interest rates is always good to look at actual mortgage payments. We took rates from April 15th and translated them into a 200k loan. Then we did the same thing with rates from April 8th and September 17, 2009 (6 months ago).

Apr 15
30-year $1082.21
15-year $1519.78
5-year ARM $964.07
1-year ARM $969.88

Apr 08
30-year $1099.45
15-year $1532.03
5-year ARM $983.87
1-year ARM $971.04

Sep 17
30-year $1078.53
15-year $1526.92
5-year ARM $1014.55
1-year ARM $1022.89

So compared to last week a home buyer would save around $17 a month for a drop of 1.56 percent. While not overwhelming $17 a month adds up over time ($204 a year or $6120 over 30 years).

So what do we expect moving forward? It looks like over the short term we should continue to see volatility. Since the government stopped buying mortgage backed securities we should expect to see mortgage rates bounce around this summer. At the same time over time we expect to see mortgage rates rise over the next year. The forces that have kept rates down for so long (a weak economy, government intervention) are coming to an end so mortgage rates can’t stay below 6 forever.

Ki lives in Austin Texas and runs a website covering Austin Texas real estate. It also provides a free mortgage calculator and a mortgage rate widget.

The Current State of the Texas Economy

A recent Associated Press survey on the economy by economists didn’t paint a pretty picture. Home values are stagnant, consumers are still cutting back and not enough jobs are being created. While all of this is true in Texas, too, the Lone Star state still seems to be weathering the economic “recovery” better than other states.

In fact, Austin was the featured city in a recent Time magazine cover story on jobs. At a time when other cities are still shedding jobs, Austin is actually creating new jobs. The article featured tech, construction and energy companies that are hiring in the Austin area. Innovation in these areas, particularly technology and energy, is what Time predicts will be the driving force behind future job creation across the country.

As the government offers tax incentives for companies that are hiring, Time posits that plan puts effort and money in the wrong area. According to the article, the emphasis shouldn’t be on the actual jobs that will be created, but rather on the ideas that will continue to create jobs well into the future. It’s a worthy notion, just difficult to quantify when everyone wants hard numbers on the future of the country’s economy.

Part of what Austin has done right is to foster small businesses and invite larger companies to work in the city, such as Facebook, Inc being offered incentives to open an office in Austin. The Small Business Development Program is a good example of an Austin initiative that helps entrepreneurs get businesses up and running with support services.

Texas has also benefited from not being part of the boom and bust experienced by states like Florida and Nevada. Texas certainly grew during the first part of the decade, but, for the most part, the growth was steady rather than meteoric. Home prices increased, but they didn’t soar like the home values in California.

Unemployment nationwide is predicted to rise again before the end of 2010, but the unemployment rate in Texas is below the national average and has a good chance of holding steady. Even with people moving to Texas from other states, jobs continue to be available and new jobs are being created.

Foreclosures are still on the rise across the country, and home prices are not expected to increase anytime soon. Texas has certainly seen its fair share of foreclosures, but so far the housing market has remained mostly stable, although weaker than in the mid 2000s.

Technology and green jobs are predicted to be the best path to job and economic growth in the future and Texas seems to be headed down that road already. Start-ups in wind and solar energy can be found across the state and Austin is considered a mini Silicon Valley. As Texas continues to hone its economic recovery skills, hopefully the rest of the country will follow.

Ki is a realtor working in the Austin real estate market. His website features information covering Austin Texas real estate. It also provides a graphical search of the Austin MLS along with statistics and news on their blog covering Austin real estate.

10 Things to Know Before Enlisting the Help of a Real Estate Agent

Real estate agents are great sources of information and assistance in the housing industry. Their purpose is to serve the real estate market with integrity. Under contract they have fiduciary responsibilities to their clients. Before enlisting the assistance of a real estate agent, there are 10 things to keep in mind.

1. Before a real estate agent can successfully sell your home, you need to have it in tip top shape. All colors inside and outside of the home should be in neutral colors, including wallpaper, painted walls, and the exterior. If you are a smoker or own a pet, find a way to make the home odor-free. The best option would be to smoke outside only and buy an air cleaner. Clean spotlessly and free the home of all clutter. Nothing turns a potential buyer away more quickly than dirt, clutter or odor.

2. Not all real estate agents are created equal. There is a lot of competition in the market and some real estate agents work harder than others. When you are ready to put your home up for sale, you want an agent that will work hard for you. Your best bet is to use one referred to you by someone you know.

3. The seller pays the real estate sales commission, not the buyer. There is very little exception to this rule.

4. Your real estate agent is not responsible for ensuring that your inspections are carried out appropriately. When you find your dream home and your offer is accepted by the buyer, inspections will ensure. Your real estate agent may be in attendance at your inspections, but your agent is not responsible for following around the inspector and ensuring that everything is noted.

5. If you want to live in an adult community, within a specific religious area, particular ethnic demographic, a low crime neighborhood or one that services a particular school, your real estate agent cannot help you find those areas. It is against the law according to the Fair Housing Act.

6. Until you sign a Seller’s or Buyer’s Agent Agreement, your real estate agent is not bound by law to keep anything you tell the agent private between the two of you. Once you sign, your agent is legally bound by user disclosure. It explains the legal responsibilities of the type of agent applicable to your situation.

7. Once you sign a Buyer’s Agent Agreement, only your agent should be showing you homes in which you are interested. In fact, you should only contact your agent when you find a home in which you are interested. Your agent is your point-of-contact when you have questions.

8. There are advantages and disadvantages to signing a Buyer’s Agent Agreement for more than 60 days. The advantages are that you know your agent by now and you won’t be starting on square one, redoing work already done. The disadvantages are that you and your current agent may not see eye-to-eye on the sale strategy and a different agent may work better for you.

9. Your home may not be priced at the amount you feel it is worth, and the projected price of your home may not cover what you currently owe on your house. You may have to concede on what you think your home is worth based on the agent’s best estimate of your home’s value. If it is less than you owe and you need to sell, you may want to consider a short sale.

10. Understand that when you finally enlist the assistance of an agent, if the situation becomes unmanageable, you can legally fire your agent. You’re only legally obligated to an agent if that agent fulfills his legal and contractual obligation to you. If at any time an agent violates your confidence, continually does nothing to promote your home or in any other way violates your agreement, then you can legally fire him. It is best, however, if you and your agent can jointly agree to dissolve the contract.

Selling or buying a home is a huge undertaking and you shouldn’t go into it blindly. Understand your rights and responsibilities, and your transaction will go more smoothly and be less stressful for you and your family members.

Ki is a real estate broker in the Austin real estate market. His site provides a free search for homes in the Austin MLS along with news and statistics on Austin real estate. It also provides a real estate blog with updated news and commentary.

Mortgage Rates Are Starting to Rise

Mortgage rates rose substantially this week. Ever since the government stopped buying mortgage backed securities the writing had been on the wall that mortgage rates were going to increase. And the general expectation is that over the next month rates are going to continue to rise. The 30 year rate rose from 5.08 to 5.21 this week. This is the 5th week in a row where rates have risen. Although rates have been rising this week those rose as much as the last 4 weeks combined.

Looking at the other major mortgage products the 15 year rose from 4.39 to 4.52. The 5 and 1 year arms rose from 4.10 to 4.25 (5 year arm) and 4.05 to 4.14 (1 year arm). Below are rates from the weeks from Mar 11, 2010 to Apr 08, 2010. We also have rates from October 1, 2009 (6 months ago).

Apr 08, 2010

30-fixed 5.21 15-fixed 4.52 5 ARM 4.25 1 ARM 4.14

Apr 01, 2010

30-fixed 5.08 15-fixed 4.39 5 ARM 4.10 1 ARM 4.05

Mar 25, 2010

30-fixed 4.99 15-fixed 4.34 5 ARM 4.14 1 ARM 4.20

Mar 18, 2010

30-fixed 4.96 15-fixed 4.33 5 ARM 4.09 1 ARM 4.12

Mar 11, 2010

30-fixed 4.95 15-fixed 4.32 5 ARM 4.05 1 ARM 4.22

Oct 01, 2009

30-fixed 4.94 15-fixed 4.36 5 ARM 4.42 1 ARM 4.49

So in the last month the 30 year rate has risen from 4.95 to 5.21. In addition to rates it’s always interesting to look at actual mortgage payments. Using our mortgage calculator we took today’s mortgage rates and translated them into a payment on a 200k mortgage loan. We then did the same thing with rates from March 25th and rates from October 1st 2009.

Apr 08

30-year $1099.45

15-year $1532.03

5-year ARM $983.87

1-year ARM $971.04

Mar 25

30-year $1072.42

15-year $1513.68

5-year ARM $971.04

1-year ARM $978.03

Oct 01

30-year $1066.32

15-year $1515.71

5-year ARM $1003.88

1-year ARM $1012.18

Compared to just two weeks ago the mortgage payment on a 200k loan has risen by $27.03 a month for a rise of 2.52 percent. This is in contrast to what we have seen for months with rates staying remarkably flat. Compared to 6 months ago a mortgage payment today is 3.1 percent higher or one would pay $33.13 more a month on a 200k loan.

So what is going to happen moving forward? For the most part I doubt we are going to see rates fall. Rates are rising and the general expectation is that they are going to continue to rise over the summer. With the tax credit now might still be a good time to buy a house.

So what is our advice for people looking for a home and a mortgage? First lock in as soon as possible. According to some experts we could see rates as high as 5.5 in a week or two. So the benefits of locking in early could be substantial. In addition, it’s a good idea to start checking your credit sooner rather than later to clear up any potential problems that could stand in the way of you getting a loan.

Ki works in Austin and writes updates on the mortgage market. His site has a graphical search of Austin Homes. His site also provides a mortgage rates widget along with a mortgage calculator widget.