The chance to refinance your mortgage at around 5%, or to enter a low-interest one, is going to end soon. The fewer than 5% interest rate is the lowest it has been for a long, long time. It is this low because of the recent recession-border-line-depression. The Fed wants to encourage spending and lending so it keeps its rate low. But this is rapidly changing. For example, during the week of January 7th, the average fixed-rate loan was at 5.09%. This is much higher than the 4.71% the average rate was just one month ago. Furthermore, with the economy showing signs of improvement, there are three main reasons the rate will undoubtedly go up.
First of all, the government program that kept rates as low as it has is coming to an end. The Federal Reserve has been buying up mortgage-backed securities since 2009. Throughout this program, the Fed has purchased over 1.25 trillion dollars worth of assets. This action has tempered rates by creating a market for these “toxic assets.” This program is slated to end on March 31. Then, the Fed will turn the market over to the private sector; they will certainly demand higher rates.
Second, the Treasury’s yield has gone up. A few weeks ago, the yield sat at 3.2% over 10 years, now it is at 3.84%. This represents a 20% rise. Mortgage rates are not directly related to Treasury yields, but the two have an historical tendency to mirror each other. Also, mortgage rates are always higher than Treasury yields because private investors demand a premium. Being virtually risk-free, the Treasury does not. Historically, the difference between mortgage rates and Treasury yields are around 1.7%. Right now, they are at 1.2%
Third, the economy is slowly showing signs of improvement. With these signs, businesses will expand production. This expanded production forces business to borrow more from lenders; therefore, the demand for lending will increase and interest rates will rise. Also, as the economy improves, stocks tend to do better on the market. This will force lenders to compete for stock investment by raising their rates to attract investors interested in maximizing their returns.
All three of these signs combined could cause the average 30-year rate to rise above 6% by the end of the year. And thus, a fall back to 5% is highly unlikely.
With the U.S. housing market implosion, it is nice to know that there are ways to increase the value of your home. And hopefully, you will get more money back from your investment.
Because of the state of the market, buyers aren’t impressed with flashy, unessential improvements. Instead, they are looking for ways to save as much money as they can. Knowing this, there are some improvements you can make to your home that will make it a more valuable commodity.
For example, improvements that lower monthly bills are vital. These include replacing the siding on you home. Fibre-cement or foam-backed vinyl products can recoup around 80% of your cost and lower your monthly heating and cooling bills. Replacing your windows to more efficient ones is a sure-fire way to lower your air conditioning bills. Plus there could be an aesthetic bonus as well, which could increase your home’s value on the market. Although it will be expensive, remodelling bathrooms with newer, high-efficiency appliances will attract buyers. Likewise, a kitchen remodel will have similar benefits. Also, with more and more people opting to stay at home, adding a deck to your home will be a good bonus for your potential buyer.
These aforementioned improvements are a bit on the expensive side. Here are some cheaper ways to add value to your home. Instead of choosing expensive fiber-cement, try using vinyl siding instead. It may not be as efficient as fiber-cement, but it may be an improvement on your current siding. You can also add an attic bedroom. Anytime you add bedrooms to your home, you add value to the home. The dimensions in an attic are small; therefore the cost is small to improve the attic. Likewise, if you have a basement, a basement remodel or upgrade can attract more buyers.
Having said all that, if you do not have the money to invest into your home, you should not undertake an expensive upgrade. Also, you will want to find out if said upgrade will increase the tax you pay on the home.
Navigating this volatile market can be difficult. Specifically, the erratic housing industry, which seems to fluctuate from month to month, scares many people from buying their home. Through January 2000 and April 2006, the average U.S. home price nearly doubled. Since then, the average has fallen 30%. Therefore, protecting the value of your investment is as important as the terms of the loan itself. According to the Mortgage Bankers Association, about 13% of mortgages are behind their payments or in foreclosure. So, the value of your home depends more upon your neighbours keeping their jobs than whether the house has enough bathrooms and parking. Here are a few things to look for when purchasing a home.
Demand depends heavily on the job market. For that reason, purchasing a home in places such as Las Vegas, Atlantic City, or Florida—who depend heavily on tourism during healthier economic times—is not a good idea. Consequently, the average home price has dropped 53% in the Las Vegas metropolitan area in the last three years. So, understand the local economy. Ask yourself: is it slumping as bad, or worse, than the rest of the country? Or is it doing fine even in these bad times.
There are a few ways to answer these questions. First, get a sense of the home supply in the area. You can do this by asking a good real estate agent for statistics about the amount of homes listed for sale and how long it will take to absorb the supply. Anything over six months is a bad sign because, after that, sellers will have to cut prices. You as well, if you wanted to sell your home, would strongly consider cutting the price of your home if no one was to buy it after six months on the market. Furthermore, if it takes six months to sell a home, it is a sign that people are moving away faster than the are moving into this area—a sign of joblessness.
Second, if you don’t want to bother with a real estate agent, take a look around the area and count the “for sale” signs. If there are more than a couple per block, this is a bad sign. Again, if people are eagerly moving away from the area, the prices of homes will fall.
Third, take a look at the job market in the area. One way of doing this is the U.S. Bureau of Labor Statistics provides unemployment numbers by metro area. State and local agencies provide job-market data, as well. One thing you can do is while your looking for “for sale” signs, look for “help wanted” signs.
Always remember: If there is money in the area, jobs in the area, people will want to move or stay in the area. If people want to come to the area, they will buy homes. If people buy homes in the area, supply will shorten and demand will increase. Therefore, the value of your home will retain its value or increase as well.
Because of the state of the economy, lenders have become increasingly picky when it comes to loan approval. Therefore, making a good impression will make everything easier. Even borrowers with good credit and a steady job need to “wow” their lenders. Here are some things lenders look for.
“The four Cs.” Instead of a high income or spotless credit alone, lenders look for strength in four different areas, summed up by four Cs.
Capacity: The borrower’s income compared to the interest and principal due on the loan. Plus, it refers to the ability to cover property taxes, homeowners insurance, and any additional costs that arise out of owning a home.
Character: The borrower’s history of paying debts; basically, their credit history and score.
Capital: The borrower’s down payment or equity, usually a percentage of the total value of the home—the higher the better.
Collateral: The borrower’s value of the home, the safety and soundness of the investment as determined by an appraisal relative to the purchase price.
If you are strong in all four areas, lenders will find it very difficult to reject your loan application. If you are strong in three areas, the loan has a good chance of being approved. Two areas only, it probably will not. Also of note is if you have a down payment of less than 20% of the home’s value, mortgage insurers will get involved; they have a completely different set of standards than the banks do. Borrowers in this situation need to discuss their options with a loan officer or someone who is familiar with insurers’ guidelines.
Once you have the “Four Cs” in order, you need to now think of the next step. This being: have your paperwork in order.
It would be nice if lenders relied on the say-so of the borrower alone. Obviously, this is not the case. At the least, the borrower needs to have the following.
–One month of paycheque stubs.
–Two years of W-2 forms.
–Three months of bank account statements.
Keep in mind: these three items are the minimum. Additional paperwork will be asked for if:
–You’re self employed or earn 25% of your income due to commission or bonuses. If so, you’ll need to submit two years of income tax information.
–If you are divorced, the lender will want to know how much alimony or child-support you are required to pay; adversely, how much you are entitled to receive and the duration of these payments.
–If you have filed for bankruptcy within seven years, you will need to show these papers.
–If you have deferred payment of student loans, you should provide your deferral agreement.
If the repayment is going to be deferred for at least twelve months, the case for approval will be strengthened. If so, you will want to have the account numbers for these loans handy. Keep in mind, student loans are counted as dept, but deferral of payment will help your case.
Once you can prove strength in “the Four Cs,” your paper work is in order, and you have applied for a loan, do not make any major changes to your financial situation. For examples, read these following points.
–Do not increase your debt. The biggest error borrowers make is they become pre-approved for their mortgage, they get excited, then they buy new furniture, cars, TVs, etc. This increases their debt. And since credit is often rerun before closing, their additional debt causes them to be disqualified.
–Do not open new credit accounts. If you transfer money to a new zero-interest card, your FICO score will drop because you have more credit all of a sudden. Do not do this.
–Do not challenge a request for more documents. You may think “Hey, I’ve read ‘How to Prepare for Your Lender,’ and they didn’t mention form so-and-so.” So? Refusing to hand over documentation causes suspicion in the lender. Hand over as much documentation as possible and know that pre-verification is often pointless because the lender’s process will uncover any financial truths you have attempted to hide.
–Do not float your interest rate unless you can afford higher payments. Higher payments will change your debt-to-income ratio (the first “C”), and this could prevent you from qualifying for the loan you have applied for.
–Do not change your employment. Right before closing, every lender will verify that you still have the same job. A job change is less likely to ruin your loan if you stay in the same industry. And, if you do change, expect to earn as much and do not have a gap between jobs.
–Do not delay payment of your bills or rent. You may think “Hey, I have a home now, so I do not care if the landlord gets angry.” This is wrong. Most lenders will check with your landlord to verify that you, indeed, pay your bills on time. This shows them your reliability.
–Do not skip your mortgage payment. Some homeowners do not bother to make their last mortgage payment because they believe that the loan will be paid off when they sell their current home or refinance the loan. This is another mistake. A late payment can ruin your credit score.
–Do not overextend yourself. If your current monthly rent is 1000$ and your new monthly mortgage payment is 3000$, this is a huge adjustment. Your loan is more likely to be approved if the increase is smaller.
With these in mind, you will have no problem being approved for your mortgage.
According to the Mortgage Bankers Association, 66% of mortgage applications were for refinancing in October. Clearly, home owners want to take advantage of historic lows in interest rates and lower their monthly expenditures. However, be advised that refinancing your mortgage does not aid everyone who does so. To achieve a maximum benefit by refinancing your mortgage, read these three tips.
First, if you plan to stay in your home, refinance if the interest rate is at least a 0.5% difference. If you own a 100 000$ home and pay an interest of 6% by thirty years, switching to a 5.5% rate saves you roughly 30$ a month. Over a 30 year period, that really adds up. However, the cost to refinance—things like fees and closing costs, etc.—can amount to up to four percent of the loan’s new value. So, you will probably need a change of at least 1% interest to maximize your savings.
Second, refinance if you need extra money. Homeowners have used their property to cover unforeseen or rare financial needs. However, since housing prices have plunged, banks have become increasingly unwilling to lend this way. But if you have a lot of equity, lenders will be more likely to refinance. You need to understand that the new loan will be for more than the current one—this is so the lender can profit. Also, banks will typically want to retain 30% equity minimum, so this sets a limit to how much cash you can get.
Third, refinance if your adjustable-rate mortgage is going to reset before you plan to sell. With interest rates as low as they are, and the economy recovering, rates have no where else to go but up. Knowing this, homeowners with ARMs may want to get into fixed loans soon. You may miss a year of or low interest because some ARMs are resetting at less than 5%, but you could save thousands over the duration of your loan as rates climb. Only people who plan to sell their homes before their rates are set to readjust should not refinance.
Buying a home is, easily, the biggest purchase we will make in our lives. Before you “take the plunge,” understand the true costs of owning a home.
First, be sure to make a down-payment, these usually are somewhere around 10% of the cost of the home. This is so you can prove to yourself that you have the financial capability and responsibility needed to properly own a home and make monthly mortgage payments. Also, the larger the down payment, the smaller your monthly mortgage costs will be. This is doubly important when the job market is where it is with unemployment around 10%.
Second, while you may be able to pay less per month on your mortgage versus what you pay for rent, be aware that the monthly mortgage payments are not all you will be paying. Be advised that foreclosures in America are at a 40 year high—owning a home is one thing, keeping one is another. One figure we hear often is that you should be able to afford and additional 40% on top of your monthly mortgage payment. Let us explain the adding up costs. When you buy a home, you have to pay property tax. For an example, let us use an easy figure of 100 000$ for the price of your home. If property tax is 1.5% in your area, that is an additional 1 500$ per year, or 125$ a month. Also, you will need homeowners insurance. Typically, this costs 25$ per month per 100 000$. And, if you make a down payment of less than 20%, you will pay Private Mortgage Insurance. That fee is around 45$ a month per 100 000$. Right there, that is an additional 195$ a month. Additionally, these costs do not include the price of maintaining a home. Think about telephone, electricity, broken plumbing, gardening, paint, appliances/furniture, condo fees (if applicable), etc—all these things you will have to cover.
There are many advantages of purchasing property compared to renting.
First of all, in the long run (approx. 5 years), you could make money. While paying rent, you aren’t making any investment; you are giving money to the property owner for the right to live at their property. As an owner, your property value increases (for the most part, in some cases, property value decreases). So, as you pay off more and more of the mortgage, while your property value increases, you make more money back. Let’s say you purchased a home for 100 000$, and your property value increases at 5% a year. After five years, your home could sell for 126 000$. If you rented, that is 26 000$ you will never see.
Second, as a renter, your choices are limited in terms of decoration. You cannot paint the walls, remove the carpets, make rooms larger or smaller, plant a garden (if in an apartment), install a second bathroom, put a bowling alley in the kitchen, etc. As a property owner, the choices you make in terms of design are your own. You could add any one of these aforementioned things. Heck, you could even tear the whole place down and start from scratch. Furthermore, any major addition you make to the home could further increase its value on top of property value increases.
The bottom line is this: as an owner, you’re in command. It may cost more, but you get more back in the long run. Anything you do to the property is yours to do, barring any local by-laws. As a renter, the owner of the property has the say in what goes and what doesn’t. And, they get all the financial benefits.
Applying for a loan online can be daunting. It is new and unfamiliar to most. If you keep in mind these simple steps, applying for a loan can made easier.
First, gather all your financial information that you might need. This includes things like old pay stubs, tax returns, proof of employment, identification, and anything that a lender might require.
Second, list your assets. These include things like tangible funds, bank statements, and major purchases—anything that could be used as collateral and to prove that you are reliable.
Third, narrow your focus to some lenders that suit you best. This can be difficult—there are many disreputable lenders out there. Stick to major, familiar lenders with good reputations, or lenders who are backed by organizations such as the Better Business Bureau. Be wary of hidden fees, penalties, and the like. If it sounds too good to be true, it may just be.
Fourth, once you find reputable lenders, fill out applications. Do not apply many times to the same lender because this could lower your credit score. Instead, apply once to a few lenders. Or better yet, use our program where you only have to apply once, and lenders will compete for you.
Fifth, once the offers come in, be sure to understand all of the fees. Online mortgages can have fees that would not be charged in the real world. Most reputable lenders will not charge you these fees, but be advised that you will always pay some sort of brokerage fee.
Saving money is a good reason to shop online for mortgages. Using our online service, you have access to a wide variety of lenders, all of which are in direct competition for your business. In the real world, there is competition, yes, but that competition is limited to the number of banks in your area. Online, lenders are notified of your loan application, and they know that they will have to compete with over 150 other lenders in order to give you the best deal. This creates a “reverse auction” where lenders improve their deals for you in order for you to choose them and not someone else. This drives the fees and interest rates down much lower compared to a real-world bank that only has to compete with a handful of others.
Saving time is another benefit for shopping online. Using our service, all you have to do is fill out an easy, straight forward, online application—once. Then you will receive offers promptly. In the “real” world, a bank can, and will, ask for a lot of information in order to see if they can approve you or not. This process could take hours. And then, approval can come many days or weeks after the meeting. Furthermore, you would have to shop and walk and talk to each bank and negotiate the process anew. This can be very time consuming. Also, we operate 24/7; you can use this website at your personal leisure. Can the same be said for a bank?
If you have bad credit, it is much easier to be approved for a mortgage online. Typically, your bricks-and-mortar banks will not approve someone with bad credit for a mortgage, and the higher the loan amount, the worse the personal credit, the less likely of approval. Online, it is much easier to receive approval, particularly when 150+ lenders are competing for your business. There are, seemingly, endless websites who specialize in bad credit, low-interest, loans. These can be untrustworthy, yes, but we here at Apply for Mortgages Online are committed to customer satisfaction. Also, our affiliate business is an A+ member of the Better Business Bureau.
Payment options are another good thing about online lending. At a bank, they will give you only a few payment options. Online, you decide, you get to customize your payment plan.
The real estate market is rebounding as home sales in California are increasing. As the demand increases, so does the price of homes in that market. Here is a list of cities that are projected to post housing price gains.
1. San Francisco
2. Seattle
3. Pittsburg
4. Rochester
5. Memphis
6. Oakland
7. Birmingham
These markets are the strongest bets to place your money and gain on your investment.
If you are currently renting and are considering buying your first place, the following US cities are the best places to make this happen.
1. Detroit
2. Pittsburg
3. Rochester
4. Memphis
5. Tampa
6. Cleveland
7. Dayton
8. Columbia
9. Orlando
10. Dallas-Fort Worth
There is an overlap for the cities: Pittsburg, Rochester and Memphis. These cities will offer the new home buyer the greatest opportunity to benefit as they shift from renting to owning.
