Attention First Time Home Buyers: This Is For You

Buying a home is one of the most intimidating processes you may ever go through.  The excitement you feel when initially pre approved, to the mix anxiety, anticipation, uncertainty and joy you receive when getting your accepted offer.  This is all compounded when you’re doing it for the first time.

This is also why it’s important to do your homework up front and figure out what the best option for you is.  There are a variety of loans that can cater to different financial profiles, some lending institutions offer multiple options, and some specialize in a single option.

As a first time home buyer you are eligible for incentives that include lower rates, no mortgage insurance and little-to-no down payment.  It’s crucial you are aware of these options so you can make a good decision.

Let’s go through some of the better first time buying options:

 

WHEDA

My personal favorite because it offers competitive rates, and it doesn’t adjust your rate if your score is not perfect.  It offers the same 30 year fixed rate, and eliminates mortgage insurance without harsh raises in the rate.  This is one of the reasons it’s an excellent first time home buying program.

WHEDA also doesn’t require a down payment up front, you can take the 3% down payment a conventional loan requires, and FINANCE it over a 10 year period.  So you pay it off over time VS, Having to come up with a significant down payment at close.

 

Home Ready:

Another good conventional loan, it has limited adjustments for credit scores lower than 740.  It’s a good alternative to WHEDA because it has LOWER mortgage insurance and good rates for a variety of credit scores.

 

FHA:

We use FHA quite a bit, primarily because it has low rates for lower credit scores, low down payment (3.5%) and it allows people to qualify for more home because the debt to income ratios are more relaxed.

 

These are the 3 primary loans used for first time home buying, because they have low down payments (if any) and low mortgage insurance.  Usually a process of elimination method is used to determine which option is best for you.  Keep in mind that Home ready and WHEDA have high income limits, so your household income cannot exceed a certain threshold.

WHEDA just raised their income limits to $89,125 for a house hold of 3+, Homeready is still at 60% of the CMI (county median income)

 

IF you would like to know more, please contact me directly via email or text / call.

 

Justin Scott

NMLS 878581

(920) 530-4484

Jscott@execmort.com

 

Is it Better to Overpay For Your Home, or Wait?

With the market in full swing and houses selling for over asking price, I’ve run into discouraged buyers who say they’d rather wait until this market settles down, rather than overpay for a home.

Is that really the most financially sound move though?

I did some research and calculated that in fact, it is not the best move.  With mortgage rates rising you will pay more for a house with a higher rate then if you over pay by $10,000.

Based on a $190,000 home purchase:

If you have to pay $10,000 higher on a $190,000 home, you are paying $200,000.  Based on today’s interest rate at 4.5%  and a 5% down conventional loan, your principle and interest payment would be $962.7  for 30 years.  You have paid $364,813.42 for the home in Total.

 

If you wait for the market to settle down and pay $10,000 LESS for the same house, you are paying $190,000 with a higher interest rate. (5%) your principle and interest payment is now $968.96 per month for 30 years.   You have NOW paid $367,328.99 for the home in total.

 

That is a difference of $2,372,57.   Meaning you paid LESS for the house at $200,000 then you would’ve at $190,000.

This only works if you consider home values dropping in the next 6 months.  We are unlikely to see a $200,000 home drop to $190,000 in the upcoming months.  So the more likely scenario is that would be paying a HIGHER interest rate AND over paying for a home in the next several months.

The point is, it’s better to over pay for a house Today, then take a higher interest rate Tomorrow and pay more.

 

If you have questions, please contact me directly.  I can easily work out situations for you that might answer many questions.

 

Justin Scott

NMLS 878581

(920) 530-4484

What is a Mortgage Broker?

My company is a true brokerage, meaning we have several local and national lenders we can access to provide loans for clients.  Often times providing a better deal because we have the ability to negotiate terms with these lenders.  Different then that of a Loan Officer at a bank or credit union who can only provide the rates and cost that financial institution is offering.

Misconceptions of Mortgage Brokers:

Compensation:

Some people believe that a mortgage broker will charge you additional fees for their services, that is actually not true.  While we have an OPTION to charge fees (points) we rarely do.  It’s a highly competitive market right now and those who are charging extra fees are often losing business.

So we have developed a different model, often times we are competing and providing a lower rate and cost.  The lender is the one that pays us “finder fees” for our loans, the borrower is not.

 

Credit: 

I’ve run into a few people that believe your credit score will get pulled many times if you choose to operate with a broker.  This cannot be further from the truth. Unlike car dealerships, we only check credit once, and the lenders we are associated with will accept that credit report.  This prevents us from checking your credit multiple times.

 

Advantages:

It’s obvious that you want to check for the best deal when applying for a mortgage, it’s likely the largest amount of money you will spend at one time.  We provide the capability to shop several lenders, with only on stop.   Often times you will find us getting very competitive to provide you a better deal than your current lender, in this competitive market you will find that brokers have an advantage because they can negotiate your rate and cost much easier than a bank or credit union.

 

A mortgage broker will also provide additional services for you that a bank may not, because a bank is a salaried individual and a broker is commission, you will find a broker will go above and beyond to get the items they need.  I have been known to meet people at their homes and places of employment to ease their schedule.  A bank will typically operate on a 9-5 schedule and expect you to attend during that time.

 

These are just some of the benefits of a broker, of course I am partial.  There are disadvantages to some people, I have found that some clients like the idea of having their mortgage services locally.  They want to be able to pay their mortgage monthly at a local location.  We’ve poised ourselves to be able to provide that as well, we are signed up with several local establishments and can broker the loans to them directly.  So you are able to be services by that institution.

The truth is, no lender can guarantee that they will service your loan for 30 years, blocks of mortgages are sold to free up capital so banks and credit unions can continue to loan out money to new customers.

If you would like to know more, please contact me directly

 

Justin Scott

NMLS 878581

920-530-4484

Jscott@execmort.com

What Were Mortgage Rates 20 Years Ago?

I’ve been writing quite a bit about the increase in mortgage rates over the last several months, with good reason.  When mortgage rates climb it has an effect on everyone.  The prime rate extended by the Federal reserve influences the cost of money across all perspectives, car loans, mortgages, personal loans, 401(K). etc.

A good question is, where were we 20 years ago with mortgage rates?

2002 2001 2000 1999 1998
Rate Pts Rate Pts Rate Pts Rate Pts Rate Pts
January 7.00 0.8 7.03 0.9 8.21 1.0 6.79 0.9 6.99 1.4
February 6.89 0.7 7.05 1.0 8.33 1.0 6.81 1.0 7.04 1.2
March 7.01 0.7 6.95 0.9 8.24 1.0 7.04 0.9 7.13 1.2
April 6.99 0.7 7.08 0.9 8.15 1.0 6.92 1.0 7.14 1.0
May 6.81 0.7 7.15 1.0 8.52 1.0 7.15 1.0 7.14 1.1
June 6.65 0.6 7.16 1.0 8.29 0.9 7.55 1.0 7.00 1.0
July 6.49 0.6 7.13 0.9 8.15 0.9 7.63 1.0 6.95 1.1
August 6.29 0.6 6.95 0.9 8.03 1.0 7.94 1.0 6.92 1.1
September 6.09 0.6 6.82 0.9 7.91 1.0 7.82 1.0 6.72 1.0
October 6.11 0.6 6.62 0.9 7.80 1.0 7.85 1.0 6.71 0.9
November 6.07 0.6 6.66 0.8 7.75 0.9 7.74 1.0 6.87 0.9
December 6.05 0.6 7.07 0.8 7.38 1.0 7.91 1.0 6.74 1.0
Annual Average 6.54 0.6 6.97 0.9 8.05 1.0 7.44 1.0 6.94 1.1

Above is a graph that shows the interest rates from 1998-2002.  The average interest rate for each year is at the bottom.  You can see that throughout this time the rates were considerably higher than we’ve been enjoying for the last several years.  These are displayed with “points” as well, as mentioned in a previous post, points buy down the rate.  So you can actually expect these averages to be about half a point – 1 point higher than they display.

 

Let’s look at 1988-1992:

1992 1991 1990 1989 1988
Rate Pts Rate Pts Rate Pts Rate Pts Rate Pts
January 8.43 1.8 9.64 2.1 9.90 2.1 10.73 2.1 10.38 2.0
February 8.76 1.8 9.37 2.0 10.20 2.1 10.65 2.2 9.89 2.1
March 8.94 1.9 9.50 2.1 10.27 2.1 11.03 2.2 9.93 2.0
April 8.85 1.7 9.50 2.0 10.37 2.1 11.05 2.2 10.20 2.1
May 8.67 1.7 9.47 2.0 10.48 2.0 10.77 2.1 10.46 2.1
June 8.51 1.7 9.62 2.1 10.16 2.0 10.20 2.1 10.46 2.0
July 8.13 1.6 9.58 2.0 10.04 2.0 9.88 2.1 10.43 2.0
August 7.98 1.7 9.24 1.9 10.10 2.0 9.99 2.1 10.60 2.2
September 7.92 1.7 9.01 1.9 10.18 2.1 10.13 2.0 10.48 2.1
October 8.09 1.8 8.86 1.9 10.17 2.2 9.95 2.0 10.30 1.9
November 8.31 1.9 8.71 1.8 10.01 2.1 9.77 2.0 10.27 2.1
December 8.21 1.6 8.50 1.8 9.67 1.9 9.74 2.0 10.61 2.1
Annual Average 8.39 1.7 9.25 2.0 10.13 2.1 10.32 2.1 10.34 2.1

Even higher right?  That’s because mortgage rates have historically been higher than what we see now.

 

Let’s go back even further: 1983-1987

1987 1986 1985 1984 1983
Rate Pts Rate Pts Rate Pts Rate Pts Rate Pts
January 9.20 2.2 10.89 2.3 13.08 2.5 13.37 2.3 13.25 2.2
February 9.08 2.1 10.71 2.3 12.92 2.4 13.23 2.4 13.04 2.0
March 9.04 2.1 10.08 2.3 13.17 2.6 13.39 2.4 12.80 2.2
April 9.83 2.3 9.94 2.2 13.20 2.6 13.65 2.4 12.78 2.1
May 10.60 2.3 10.15 2.3 12.91 2.5 13.94 2.5 12.63 2.1
June 10.54 2.2 10.69 2.3 12.22 2.5 14.42 2.5 12.87 2.1
July 10.28 2.2 10.51 2.2 12.03 2.5 14.67 2.6 13.43 2.2
August 10.33 2.1 10.20 2.1 12.19 2.6 14.47 2.6 13.81 2.2
September 10.89 2.2 10.01 2.2 12.19 2.6 14.35 2.6 13.73 2.2
October 11.26 2.2 9.98 2.1 12.14 2.5 14.13 2.6 13.54 2.1
November 10.65 2.1 9.70 2.0 11.78 2.4 13.64 2.5 13.44 2.1
December 10.64 2.1 9.32 2.1 11.26 2.3 13.18 2.5 13.42 2.2
Annual Average 10.21 2.2 10.19 2.2 12.43 2.5 13.88 2.5 13.24 2.1

As you can see, rates have usually been higher than we know Today.

 

The point is, we have been experiencing an abnormally low interest rate environment, and people have been capitalizing on it with good reason.  A mortgage is probably the most money you will end up financing in your life at one time.   You can plainly see how a difference in interest rates can affect your pay back.

So it’s not time to freak out when we see a rate jump by 1/8th of a point, or 1/4 point.  These are normal adjustments, however we should expect them to continually increase over time, how high they will go is unknown.

 

If you w ant a current rate quote or any other question answered, please contact me :

 

Justin Scott

NMLS 878581

(920) 530-4484

Jscott@execmort.com

What Are Experts Saying About an Impending Housing Bubble?

The United States is certainly a little gun shy about an over inflated housing market.  Now that we have recovered from the 2005-2008 crash, people are throwing around terms like “housing bubble”  and “Real Estate crash”.

This is with good reason, we are seeing similar signs to what we saw 10-12 years ago.  But maybe we are not looking at the key factors that are preventing another crash.

There is no doubt that we are in another bubble, but “bubble” doesn’t necessarily mean “crash.”  There are mitigating factors that are assisting us in preventing a sharp decline in the economic values.  Things like the 2018 Tax cuts that will be a detriment to high end housing markets by eliminating state and government deductions and benefits like mortgage interest and real estate write offs.  Also the new chairman of the federal reserve (Jerome Powell) is indicating he will be raising interest rates throughout 2018; also with the historically low interest rates we’ve been enjoying for the last several years; housing markets have gotten ahead of the local income level.

When you combine all these attributes to the potential “bubble” you will likely find we will see an adjustment in the market rather than a crash.  For the last several years it’s been heavily a sellers market, with rising interest rates we have seen more buyers come out of the woodwork to jump on the bandwagon before it’s too late.  This has contributed to a sudden increase or “bubble” in the market.  Demand has exceed supply and created an illusion that circumstances are worse than they appear.

 

Likely we will see housing prices level out as the demand decreases for a variety of reasons.  Buyers will get tired of overpaying, rates will increase to a level where the average home is not as affordable, when this happens we will see demand decrease and supply increase.  The old economic rule of “supply and demand” dictates that when this happens, values of homes will subside and the balance of the buyer and seller will even out.

 

If you would like to know more, please feel free to contact me directly

 

Justin Scott

NMLS878581

(920) 530-4484

Jscott@execmort.com

Homeowners That Own Multiple Properties: This is For You

Real estate is a great investment, especially in this market.  But there are additional requirements you should expect to meet if you own multiple properties, especially if some of those properties are income producing.

When I mention the term “property” it includes the following:

  1. Primary Residences
  2. Second / Vacation homes
  3. Investment properties
  4. Vacant Land
  5. Property you might be included on through a trust.
  6. An apartment / duplex / house you currently rent (If you intend to stay in the rental)

The average home buyer is moving from a house or rental, into a primary residence.  This is the least invasive type of transition that requires the least amount of paperwork.  The underwriter understands there will be limited liabilities outside of the house and credit report.

Where it gets slightly more difficult is when a person has additional property on top of the property they are purchasing.

Each piece of real estate is subject to real estate taxes and homeowners insurance.  With the exception of vacant land which has no homeowners insurance generally.   These annual obligations have to be taken into consideration as a liability against the borrower because they have to be paid every year.  So if you own vacant land, investment property, a second home, or any other real estate that is subject to taxation; you will be required to provide proof of what those annual payments are.

The good news with investment properties is that you can subsidize the annual taxation / Mortgage cost with the rental income.  There is a formula that calculates your depreciation, taxes , mortgage interest and other deductible expenses for maintaining your rental units.  This will not necessarily be counted as income, but will neutralize your mortgage payment and reduce (or eliminate if you show a profit) your obligation per month.

The important thing about qualifying for a new mortgage in any situation is being transparent and clear about your finances and obligations, lenders do thorough investigations through title , social security and the IRS the verify the information that is given to them.  It is very difficult, if not impossible to exclude obligations from them.

 

If you have any questions about qualifying for investment properties or second homes, please call

 

Justin Scott

NMLS 878581

Jscott@execmort.com

Why Do Some Lenders Quote Your Rate With Points?

As we see rates increase there tends to be an increase in  lenders quoting points with their mortgage rates.  What are points?

“Points”, also known as “Discount Points” are a fee paid to the lender at close to reduce your mortgage rate.  Typically 1% of the loan amount = 1 point.   So if you were to buy a $200,000 house and you wanted to reduce the rate by 1 point, it would cost you $2,000.

How do points affect your loan?  Loan amount: $200,000   No points 1 point 2 points Cost per  point(s) 0 $2,000  $4,000  APR* 4.5% 4.25% 4% Monthly  payment** $1,013.37 $983.88 $954.83 Monthly  payment  savings N/A  $29.49  $58.54  Break even  (time to  recover  point costs) N/A  68 months  68 months  Total payment  savings on a  30-year loan N/A  $10,616.40  $21,074.40

As you can see there is an upfront cost on top of your closing costs and escrow, but the savings over time more than pays for itself.

Most clients are not prepared to pay an additional $2,000-$4,000 to save in the long run, combine that with the fact that most people refinance their mortgage several times in their lifetime it could negate the benefit of buying points in the first place.  That money and time could be

Current loan($210,000)

Refinance $200,000
Current 30 year
Interest rate 4.5% 3.625% 2.875%
Monthly principal and interest payment $1,064 $912 $1,369
Total interest paid $173,054 $128,366 $46,451

Above is an example of someone who would refinance from a 30 year mortgage into a 15 at some point in their mortgage, the specified time isn’t defined.

The interest difference between a current mortgage at 4.5 and another 30 year mortgage at 3.625 is $44,688.  The interest difference between a 30 Year mortgage at 3.625% and a 15 year mortgage at 2.875% is $81,915.

Both of these numbers exceed the benefit in buying points.  Granted not everyone can refinance into 3.625% or a 15 year mortgage, but if you have the ability to and you are weighing options; the refinance method saves you considerably more than the points method.

 

If you want to find out more about points and refinances, please contact be anytime

 

Justin Scott

NMLS878581

(920) 530 4484

Jscott@execmort.com

How The Home Sale Market Reacts to the Rise in Mortgage Rates

Many people are now realizing that mortgage rates are rising, and they’re rising quicker than most anticipated.  We’ve grown accustomed to a long tenure of abnormally low rates; now that they’re rising people are jumping on the bandwagon before they go to high.

But what has that done to the home sale statistics in America?

The listing prices of homes grew a whopping 8% quicker in February of 2018 than they did in February of 2017.   Across the United States listing prices this year have already reached the record high of summer 2017; this means that the cost of a house in February on 2018 is the same as the high in July of 2017.   The market has put to rest the old adage that “winter is the slowest time of year.”

What does this mean for prices?  It means that they are anticipated to hit record highs during this 2018 summer.

What drives prices so high?  That’s simple, it’s demand.  With a low inventory there are fewer houses, but no shortage of people wanting to buy them.  We are seeing record highs in buyers and record lows in home availability.  Which ultimately drives the prices up.

February did increase in inventory across the U.S.A by about 2%.  But that is still 8% down from February 2017.  So the demand for houses has increased 8% since February 2017, and the inventory has DECREASED 8% in the same time.  Creating a large gap.

  Below is the national data compared to Green Bay Wisconsin.

Column 1:  Zip Code

Column 2: City

Column 3: Type of Home

Column 4: Average list price

Column 5: Average list price Compared to National Average

Column 6: Average days on market

Column 7: Average days on market compared to national average

Column 8:  Active listings compared to national average

Column 9: Average listing Price from month (Jan – Feb 2018)

Column 10:  Average Listing price on market, Year 2017-2018

Column 11:  Average days on market from Month to Month

Column 12: Average days on market Year to Year 17-18

Column 13: New Listings

 

54301 Green Bay, WI Single Family Home 144450 0.0653 0.0322 67 0.1167 -0.2872 38.75 -0.5245 -0.2619 26
54302 Green Bay, WI Single Family Home 124950 0.0417 -0.0293 59 -0.0328 -0.1973 49.25 0.1067 -0.1322 12
54303 Green Bay, WI Single Family Home * 104950 -0.0094 53.5 -0.0446 50.5 -0.2811 24
54304 Green Bay, WI Single Family Home * 142925 -0.0138 0.1439 69 -0.0738 45 -0.234 -0.0374 30
54311 Green Bay, WI Single Family Home 269950 -0.0443 0.08 117.5 0.1298 0.0398 47 -0.1931 -0.2598 42
54313 Green Bay, WI Single Family Home * 296150 -0.0127 0.0624 148.5 0.0879 51 -0.3892 -0.15 42

How Irregular Deposits and Transfers Can Sink Your Mortgage Loan

One of the most common obstacles a borrower faces when applying for a mortgage would be the explanation of irregular deposits.

Usually it’s completely unintentional, a client is unfamiliar with the qualification process and doesn’t know what types of things will get questioned.’

It is helpful to know the types of deposits that will get questioned and the types that will not:

 

Questionable Deposits:

  1. Cash deposits exceeding 25% of your gross monthly income
  2. Transfers from bank accounts that your loan officer does not have statements for.
  3. Deposits that state “CUSTOMER DEPOSIT” on the bank statement and have no source

Non-Questionable Deposits:

  1. Payroll, deposits coming from your employer
  2. Cash deposits are always a bad idea, but if they are smaller deposits they typically do not get questioned
  3. Transfers from between accounts that your loan officer has the statements for

Many borrowers get frustrated at this point because they do not understand why the lender cares so much about where the money comes from as long; as they have it.   The reason these types of deposits are so monitored?  There are laws and regulations associated with every mortgage loan, and one of these regulations is that the lender, realtor or seller cannot give you any financial backing to purchase the home.  So if they see unusual deposits in your bank account leading up to close, they questions the validity and source of these to ensure they coincide with regulation.  So do not take it personally if your finances are questioned, it’s regulation.

 

Every loan that is underwritten is tracked in the event of foreclosure.  Meaning that everyone who “touched” that loan can be contacted to verify they did their job accordingly.  They will back track the entire process and see if any fraud was committed, or if the underwriter / lender omitted any facts that led up to this event.  There is significant regulation and governing on this industry, mostly because of a lack of governing nearly a decade ago.

There are other facets of a mortgage loan that can raise questions, if you have any particular questions you want answered, feel free to reach out and talk to me.

 

Justin Scott

NMLS 878581

(920) 530 4484

The Death of Mortgage Insurance

Most people who are looking into purchasing a home have come across this term, and most of them don’t like the concept of it.

What is Mortgage Insurance?

Mortgage insurance is insurance placed on your mortgage in case you (the borrower) do not make payments, it ensures the investor they will get a return on the money.  It is also charged to the borrower in good faith, the lender does not pay it.

 

How much does mortgage insurance actually cost you?

Mortgage Insurance varies based on variables like Credit rating, down payment, loan size and location.   For this example let’s take the following borrower into consideration:

  1.  740 Credit
  2. $180,000 Sale price
  3.  5% down payment ($9,000)
  4. North East Wisconsin location

The monthly obligation for the aforementioned scenario is $84.08 per month.   Considering that mortgage insurance is applicable for the first 10 years of your mortgage (with paying only the minimum monthly payment) you would expect to pay $10,089.60 in just mortgage insurance.

That is combined with the interest you have paid of $74,077.24. and the principle of $32,765.16.    So you can expect a total of $116,932.00 to be spent in the first 10 years with mortgage insurance.

 

What if you could eliminate mortgage insurance earlier?  With the market the way it is our clients are able to do this within 16-24 months, the actual savings ( based on the previous scenario) are incredible.

IF you were to eliminate mortgage insurance with a refinance at the 24 month mark, you would have only paid $2,017.92 in mortgage insurance.  You would have paid $5,405.50 in principle, and $16,002.98 in interest, for a total of $23,426.40 in the first two years.

Assuming you kept the same rate as your previous mortgage before the refinance, you would refinance back into a 30 year term with ZERO mortgage insurance, you could expect to have paid only $108,860.32 by the same 10 year mark.   that is a savings of $8,071.68 in the same 10 year period.

 

If you would like to gather more information on eliminating your mortgage insurance, please contact me directly

Justin Scott

NMLS 878581

920-530-4484

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