Price $99,900
Tuesday, September 28, 2010
310 Lake Gillian Way,ALGONQUIN 60102::
New bank owned listing 310 Lake Gillian Way,ALGONQUIN
Price $99,900
Price $99,900
5 questions to ask before renting out your home
5 questions to ask before renting out your home
Relocating? Tax considerations — not to mention the stress of being a landlord — come into play when you contemplate taking on an investment property.
By Michele Lerner of Bankrate.com
Will bad credit sink your mortgage?
When homeowners suddenly have to relocate, they face the dilemma of whether to sell their home or keep it as an investment property. The recent nationwide drop in housing values complicates the decision.
Homeowners should weigh several factors before deciding whether to sell now or rent and wait for the market to recover, experts say.
“Relocating homeowners need to shift their thinking and recognize that the property is no longer their home; it is an investment,” says Joseph Himali, principal broker of Best Address Real Estate in Washington, D.C. “The decision to sell or rent should depend on whether keeping the home is the best use of their investment dollars.”
Here are five questions to ask when deciding whether to sell a property or rent it out.
1. How much equity do you have?
Homeowners with significant equity should sell, unless their home is a desirable rental and they want to take on the challenges of being a landlord, says Diane Rule-Enos, a registered financial consultant with The Patriot Financial Group in Beverly, Mass.
“Even if you have to sell at a price that is lower than what it was worth a few years ago, if you have equity, it is a much less risky choice to sell,” Rule-Enos says. “The higher-risk decision is to deal with renters who may not pay the rent and who may damage the property.”
Real-estate expert and author Robert Irwin, who lives in California, takes the opposite view.
What's the lowest rate you can get?
“Homeowners with significant equity usually have lower mortgage payments, so they are more likely to have positive cash flow when renting the property,” he says.
For homeowners who owe more on their mortgage than their home is worth or for those with little equity, the decision to sell depends first on whether they have cash to bring to settlement. If not, they can attempt to negotiate a short sale with the lender or hold onto the property and hope its value will increase.
2. What’s the local market prognosis?
Irwin recommends that homeowners ask a real-estate agent about local market trends and research home values online.
“Homeowners should make the calculation to determine how long it will take to reach the break-even point in terms of gaining enough value to make a profitable sale,” Irwin says. “That calculation should be made on as local an estimate as possible.”
Irwin says homeowners should look past national and statewide trends and focus on the health of their neighborhood's housing market.
“Some areas are already increasing in value by 5% or 6%, while others will take years to see positive price improvements,” he says.
Himali says employment is the primary driver of real estate. In areas where employment is steady, housing likely has stabilized.
Lessons for landlords
Tips any landlord should know before renting to someone.
3. What’s the state of the rental market?
Irwin recommends consulting with a real-estate agent who specializes in rentals to estimate rental rates and how long it will take to find a qualified renter.
Homeowners should know that rent is based on market rates, not the amount they need to cover their mortgage payments.
“Homeowners who choose to rent need to be financially prepared for the possibility of negative cash flow, vacancies and the chance that the renters will stop paying the rent,” Rule-Enos says.
4. What are the costs of owning investment property?
Owners who become investors must continue paying principal and interest on their mortgage, property taxes, homeowners insurance, homeowners association fees, and maintenance and repair costs.
Homeowners who hire a property manager must weigh an additional expense. Himali and Irwin estimate property managers charge 8% to 12% of the gross monthly rent.
“The first calculation to include should be a fee for a property manager, because the last thing anyone wants is to have to be on constant call for maintenance issues, especially if they are not local,” Himali says.
Of course, many of these costs are tax-deductible for landlords. Owning a home as an investment property changes owners’ tax liability in ways that may help or hurt them. Talk to a tax professional for more guidance.
5. Are you ready to be a landlord?
Irwin says the emotional cost of being a landlord includes handling tenant complaints, maintenance problems and even the possibility of eviction. The application process should include a background check by the landlord.
“Landlord-tenant laws vary from state to state, so it’s very important to either hire a professional who knows the laws or to make sure you have a thorough knowledge yourself,” Himali says.
In the final analysis, homeowners must weigh the emotional and financial costs of being a landlord against the potential for profit. A real-estate agent can create a statement of estimated net profit or loss based on the potential sales price.
Relocating? Tax considerations — not to mention the stress of being a landlord — come into play when you contemplate taking on an investment property.
By Michele Lerner of Bankrate.com
Will bad credit sink your mortgage?
When homeowners suddenly have to relocate, they face the dilemma of whether to sell their home or keep it as an investment property. The recent nationwide drop in housing values complicates the decision.
Homeowners should weigh several factors before deciding whether to sell now or rent and wait for the market to recover, experts say.
“Relocating homeowners need to shift their thinking and recognize that the property is no longer their home; it is an investment,” says Joseph Himali, principal broker of Best Address Real Estate in Washington, D.C. “The decision to sell or rent should depend on whether keeping the home is the best use of their investment dollars.”
Here are five questions to ask when deciding whether to sell a property or rent it out.
1. How much equity do you have?
Homeowners with significant equity should sell, unless their home is a desirable rental and they want to take on the challenges of being a landlord, says Diane Rule-Enos, a registered financial consultant with The Patriot Financial Group in Beverly, Mass.
“Even if you have to sell at a price that is lower than what it was worth a few years ago, if you have equity, it is a much less risky choice to sell,” Rule-Enos says. “The higher-risk decision is to deal with renters who may not pay the rent and who may damage the property.”
Real-estate expert and author Robert Irwin, who lives in California, takes the opposite view.
What's the lowest rate you can get?
“Homeowners with significant equity usually have lower mortgage payments, so they are more likely to have positive cash flow when renting the property,” he says.
For homeowners who owe more on their mortgage than their home is worth or for those with little equity, the decision to sell depends first on whether they have cash to bring to settlement. If not, they can attempt to negotiate a short sale with the lender or hold onto the property and hope its value will increase.
2. What’s the local market prognosis?
Irwin recommends that homeowners ask a real-estate agent about local market trends and research home values online.
“Homeowners should make the calculation to determine how long it will take to reach the break-even point in terms of gaining enough value to make a profitable sale,” Irwin says. “That calculation should be made on as local an estimate as possible.”
Irwin says homeowners should look past national and statewide trends and focus on the health of their neighborhood's housing market.
“Some areas are already increasing in value by 5% or 6%, while others will take years to see positive price improvements,” he says.
Himali says employment is the primary driver of real estate. In areas where employment is steady, housing likely has stabilized.
Lessons for landlords
Tips any landlord should know before renting to someone.
3. What’s the state of the rental market?
Irwin recommends consulting with a real-estate agent who specializes in rentals to estimate rental rates and how long it will take to find a qualified renter.
Homeowners should know that rent is based on market rates, not the amount they need to cover their mortgage payments.
“Homeowners who choose to rent need to be financially prepared for the possibility of negative cash flow, vacancies and the chance that the renters will stop paying the rent,” Rule-Enos says.
4. What are the costs of owning investment property?
Owners who become investors must continue paying principal and interest on their mortgage, property taxes, homeowners insurance, homeowners association fees, and maintenance and repair costs.
Homeowners who hire a property manager must weigh an additional expense. Himali and Irwin estimate property managers charge 8% to 12% of the gross monthly rent.
“The first calculation to include should be a fee for a property manager, because the last thing anyone wants is to have to be on constant call for maintenance issues, especially if they are not local,” Himali says.
Of course, many of these costs are tax-deductible for landlords. Owning a home as an investment property changes owners’ tax liability in ways that may help or hurt them. Talk to a tax professional for more guidance.
5. Are you ready to be a landlord?
Irwin says the emotional cost of being a landlord includes handling tenant complaints, maintenance problems and even the possibility of eviction. The application process should include a background check by the landlord.
“Landlord-tenant laws vary from state to state, so it’s very important to either hire a professional who knows the laws or to make sure you have a thorough knowledge yourself,” Himali says.
In the final analysis, homeowners must weigh the emotional and financial costs of being a landlord against the potential for profit. A real-estate agent can create a statement of estimated net profit or loss based on the potential sales price.
Wednesday, September 8, 2010
Mortgage Basics
Mortgage Basics
Adjustable or floating rate, 15-year or 30? How much mortgage can you afford? These are just a few of the many questions home buyers will find information on in this report.
Before You StartTake a fresh look at your household budget to determine how much you can spend on a mortgage each month.
Request free copies of your credit report. (You're entitled to receive a free one annually from each of the nation's main credit reporting agencies.)
Familiarize yourself with all of the variables generally associated with financing a home, such as interest rate policies, terms, points, fees, etc.
1 Financing the American Dream
Buying a home is the biggest financial investment most of us will ever make. As with any large project or goal, it requires dealing with a variety of complex issues. The best approach is to divide the process into manageable tasks. The following deals with the first steps of gathering your records, determining what you can afford, and understanding mortgage options.
2 Put Your Own Financial House in Order
Before you go looking for a home, you should determine how much home you can afford. Most lenders will prequalify you to borrow up to a certain amount. Prequalification allows you to focus in on a realistic price range and makes you a more attractive buyer. Whether or not you want to prequalify, eventually you'll need to complete a loan application and it may take some time to gather and assemble the required information.
It's also a good idea to review your credit report. Contact local lenders to determine which credit bureaus they use. Then contact the credit bureaus and request a copy of your credit report (in most states, credit bureaus are required to provide individuals with a free copy of their report). Review your report to ensure that all information is correct. If you have past credit problems, don't lose hope. Be prepared to present a rationale for each slipup, and demonstrate an improvement in your ability to pay bills on time.
3 How Much Mortgage Can You Afford?
The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Two income-to-debt ratios established by Fannie Mae are standard requirements for conventional mortgages. The first requirement is that monthly mortgage principal and interest payments (P&I), plus insurance and property taxes, cannot exceed 28% of the buyer's gross monthly income (some exceptions may apply to increase this limit to 33%). The second requirement limits total monthly debt payments (housing, credit cards, car payments, etc.) to 36% of gross monthly income. In addition to these requirements, you may have to pay 10% to 20% down on the total purchase price to qualify for a conventional mortgage.
Mortgage Rates and Minimum Incomes Needed to Qualify
Interest Rate Monthly Payment Minimum Annual Income
4% $454 $21,770
5% $510 $24,479
6% $570 $27,340
7% $632 $30,338
8% $697 $33,460
9% $764 $36,691
10% $834 $40,017
11% $905 $43,426
12% $977 $46,905
Mortgage companies use ratios to analyze your mortgage payment. The above example shows the monthly payments of principal and interest, and income needed to qualify for a $95,000 mortgage at various interest rates, amortized on a 30-year schedule, assuming a payment ratio of 25%.
Source: National Association of Home Builders, Economics Division.
4 Types of Mortgages
How much house you can buy also depends on your mortgage's term and interest rate. The term is the length of time (usually 15 or 30 years) over which payments will be paid. The rate can be fixed (meaning it doesn't change over the loan's term) or adjustable (it fluctuates with market conditions). Thirty-year fixed-rate mortgages remain the most popular. The longer term lowers the monthly payment, while the fixed rate provides stability over the life of the loan. Given relatively low interest rates, these mortgages are attractive to buyers planning to stay at least six or seven years in their new home. The drawbacks are low principal payments in the early years, and the risk that market rates will decline over the term. However, if your credit history is sound and you have sufficient income, you can usually refinance your mortgage when rates decline.
A 15-year term lowers the interest rate, reduces total interest payments, and increases principal payments. But it also increases monthly payments. If you can't afford the higher payments now, you might opt for a 30-year mortgage. If there are no prepayment penalties, you can make additional principal payments as your income increases. Making just one extra monthly payment a year will pay off a 30-year mortgage in less than 22 years and can save tens of thousands of dollars in interest costs. If you plan to stay in a home no more than three years, you might want an adjustable-rate mortgage (ARM). ARMs offer initial rates that are lower than fixed mortgages. At some point, usually after the first year, rates are tied to market conditions and are subject to potential rate increases. Most ARMs include a cap on rate increases in any given year, as well as over the life of the loan. Some ARMs offer initial rates at least 2% below fixed rates and limit increases to 1% annually and 5% to 6% over the life of the loan. Many home buyers are attracted by the affordability of an ARM during the initial period. However, you should be confident that your future income will be sufficient if both interest rates and your monthly payments increase.
Another popular mortgage involves a balloon payment. A balloon is a lump-sum payment that pays off the loan in full after a fixed period of time. Generally the rates on balloon mortgages are 1/4% to 3/4% less than on 30-year fixed mortgages, but during an initial period of between 3 and 15 years, payments are similar. After this period, the remaining outstanding principal balance is either due in full or subject to refinancing. This is a good option for home buyers who plan to sell before the final payment is due. But because property values fluctuate, you may not be able to sell when you want. You may also face higher payments if you are forced to refinance at a higher rate, and there is also a risk that you may not be in a position to refinance when the balloon becomes due.
Three Steps to Finding the Right Mortgage
Estimate how long you expect to live in the house. If the answer is less than three to five years, consider an Adjustable Rate Mortgage (ARM), which typically starts out with a lower rate. If you plan to live in your new home longer than five years, a fixed-rate mortgage offers protection against rising interest rates.
Shop around for mortgage rates. Banks, credit unions, and mortgage companies all offer mortgages. Compare at least six lenders in your area.
Add up all the costs for each lender. Include fees, points, closing costs, etc., to arrive at the total mortgage cost for each lender.
5 Interest Rate Points
Points are interest paid in advance to reduce the rate on a loan. One point is equal to 1% of the mortgage amount. The general rule is that 1 point is worth 1/8 of 1% off the loan rate. The decision to pay points for a lower rate is based on how much the seller is willing to contribute to points, how long you plan to stay in the house, and how important lower payments are compared to higher closing costs. You will need to calculate the long-term value of points based on these factors, keeping in mind that points are generally tax deductible in the year paid.
6 Other Alternatives
If you cannot afford a conventional mortgage, there are a variety of alternatives. An anxious seller will sometimes offer owner financing. Federal Housing Administration (FHA) loans offer down payments as low as 3%, but may require the buyer to purchase mortgage insurance. (The FHA is a government agency responsible for insuring affordable housing mortgages.) The Veterans Administration (VA) offers no-money-down mortgages to qualified veterans of the U.S. military. Finally, there are local affordable housing advocates that offer low-cost, low down-payment loan alternatives. For further information, contact the FHA, VA, Fannie Mae, or your local mortgage lender or real estate broker.
Summary
The first step in acquiring a home mortgage is to gather the information you'll need to include in a mortgage application.
Review your credit report by ordering a copy from the credit bureaus used by local mortgage lenders.
Prequalifying for a mortgage lets you know how much you can afford and makes you a more attractive buyer.
Conventional mortgages limit housing costs to 28% of gross income and total debt payments to 36% of gross income.
Mortgage terms are usually 15 or 30 years. The longer the term, the lower your monthly payment, but the higher your overall interest costs.
Thirty-year loans often permit additional principal payments. One additional monthly payment per year will reduce a 30-year loan to 22 years.
Interest rates are fixed or variable over the term of the loan. Variable rates may be best for buyers who plan to sell within three years.
Generally speaking, one point is worth 1/8 of 1% off the loan rate.
A balloon payment is a lump sum payable at the end of a specified term.
Points and interest on mortgages or home equity debt are usually tax deductible.
Adjustable or floating rate, 15-year or 30? How much mortgage can you afford? These are just a few of the many questions home buyers will find information on in this report.
Before You StartTake a fresh look at your household budget to determine how much you can spend on a mortgage each month.
Request free copies of your credit report. (You're entitled to receive a free one annually from each of the nation's main credit reporting agencies.)
Familiarize yourself with all of the variables generally associated with financing a home, such as interest rate policies, terms, points, fees, etc.
1 Financing the American Dream
Buying a home is the biggest financial investment most of us will ever make. As with any large project or goal, it requires dealing with a variety of complex issues. The best approach is to divide the process into manageable tasks. The following deals with the first steps of gathering your records, determining what you can afford, and understanding mortgage options.
2 Put Your Own Financial House in Order
Before you go looking for a home, you should determine how much home you can afford. Most lenders will prequalify you to borrow up to a certain amount. Prequalification allows you to focus in on a realistic price range and makes you a more attractive buyer. Whether or not you want to prequalify, eventually you'll need to complete a loan application and it may take some time to gather and assemble the required information.
It's also a good idea to review your credit report. Contact local lenders to determine which credit bureaus they use. Then contact the credit bureaus and request a copy of your credit report (in most states, credit bureaus are required to provide individuals with a free copy of their report). Review your report to ensure that all information is correct. If you have past credit problems, don't lose hope. Be prepared to present a rationale for each slipup, and demonstrate an improvement in your ability to pay bills on time.
3 How Much Mortgage Can You Afford?
The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Two income-to-debt ratios established by Fannie Mae are standard requirements for conventional mortgages. The first requirement is that monthly mortgage principal and interest payments (P&I), plus insurance and property taxes, cannot exceed 28% of the buyer's gross monthly income (some exceptions may apply to increase this limit to 33%). The second requirement limits total monthly debt payments (housing, credit cards, car payments, etc.) to 36% of gross monthly income. In addition to these requirements, you may have to pay 10% to 20% down on the total purchase price to qualify for a conventional mortgage.
Mortgage Rates and Minimum Incomes Needed to Qualify
Interest Rate Monthly Payment Minimum Annual Income
4% $454 $21,770
5% $510 $24,479
6% $570 $27,340
7% $632 $30,338
8% $697 $33,460
9% $764 $36,691
10% $834 $40,017
11% $905 $43,426
12% $977 $46,905
Mortgage companies use ratios to analyze your mortgage payment. The above example shows the monthly payments of principal and interest, and income needed to qualify for a $95,000 mortgage at various interest rates, amortized on a 30-year schedule, assuming a payment ratio of 25%.
Source: National Association of Home Builders, Economics Division.
4 Types of Mortgages
How much house you can buy also depends on your mortgage's term and interest rate. The term is the length of time (usually 15 or 30 years) over which payments will be paid. The rate can be fixed (meaning it doesn't change over the loan's term) or adjustable (it fluctuates with market conditions). Thirty-year fixed-rate mortgages remain the most popular. The longer term lowers the monthly payment, while the fixed rate provides stability over the life of the loan. Given relatively low interest rates, these mortgages are attractive to buyers planning to stay at least six or seven years in their new home. The drawbacks are low principal payments in the early years, and the risk that market rates will decline over the term. However, if your credit history is sound and you have sufficient income, you can usually refinance your mortgage when rates decline.
A 15-year term lowers the interest rate, reduces total interest payments, and increases principal payments. But it also increases monthly payments. If you can't afford the higher payments now, you might opt for a 30-year mortgage. If there are no prepayment penalties, you can make additional principal payments as your income increases. Making just one extra monthly payment a year will pay off a 30-year mortgage in less than 22 years and can save tens of thousands of dollars in interest costs. If you plan to stay in a home no more than three years, you might want an adjustable-rate mortgage (ARM). ARMs offer initial rates that are lower than fixed mortgages. At some point, usually after the first year, rates are tied to market conditions and are subject to potential rate increases. Most ARMs include a cap on rate increases in any given year, as well as over the life of the loan. Some ARMs offer initial rates at least 2% below fixed rates and limit increases to 1% annually and 5% to 6% over the life of the loan. Many home buyers are attracted by the affordability of an ARM during the initial period. However, you should be confident that your future income will be sufficient if both interest rates and your monthly payments increase.
Another popular mortgage involves a balloon payment. A balloon is a lump-sum payment that pays off the loan in full after a fixed period of time. Generally the rates on balloon mortgages are 1/4% to 3/4% less than on 30-year fixed mortgages, but during an initial period of between 3 and 15 years, payments are similar. After this period, the remaining outstanding principal balance is either due in full or subject to refinancing. This is a good option for home buyers who plan to sell before the final payment is due. But because property values fluctuate, you may not be able to sell when you want. You may also face higher payments if you are forced to refinance at a higher rate, and there is also a risk that you may not be in a position to refinance when the balloon becomes due.
Three Steps to Finding the Right Mortgage
Estimate how long you expect to live in the house. If the answer is less than three to five years, consider an Adjustable Rate Mortgage (ARM), which typically starts out with a lower rate. If you plan to live in your new home longer than five years, a fixed-rate mortgage offers protection against rising interest rates.
Shop around for mortgage rates. Banks, credit unions, and mortgage companies all offer mortgages. Compare at least six lenders in your area.
Add up all the costs for each lender. Include fees, points, closing costs, etc., to arrive at the total mortgage cost for each lender.
5 Interest Rate Points
Points are interest paid in advance to reduce the rate on a loan. One point is equal to 1% of the mortgage amount. The general rule is that 1 point is worth 1/8 of 1% off the loan rate. The decision to pay points for a lower rate is based on how much the seller is willing to contribute to points, how long you plan to stay in the house, and how important lower payments are compared to higher closing costs. You will need to calculate the long-term value of points based on these factors, keeping in mind that points are generally tax deductible in the year paid.
6 Other Alternatives
If you cannot afford a conventional mortgage, there are a variety of alternatives. An anxious seller will sometimes offer owner financing. Federal Housing Administration (FHA) loans offer down payments as low as 3%, but may require the buyer to purchase mortgage insurance. (The FHA is a government agency responsible for insuring affordable housing mortgages.) The Veterans Administration (VA) offers no-money-down mortgages to qualified veterans of the U.S. military. Finally, there are local affordable housing advocates that offer low-cost, low down-payment loan alternatives. For further information, contact the FHA, VA, Fannie Mae, or your local mortgage lender or real estate broker.
Summary
The first step in acquiring a home mortgage is to gather the information you'll need to include in a mortgage application.
Review your credit report by ordering a copy from the credit bureaus used by local mortgage lenders.
Prequalifying for a mortgage lets you know how much you can afford and makes you a more attractive buyer.
Conventional mortgages limit housing costs to 28% of gross income and total debt payments to 36% of gross income.
Mortgage terms are usually 15 or 30 years. The longer the term, the lower your monthly payment, but the higher your overall interest costs.
Thirty-year loans often permit additional principal payments. One additional monthly payment per year will reduce a 30-year loan to 22 years.
Interest rates are fixed or variable over the term of the loan. Variable rates may be best for buyers who plan to sell within three years.
Generally speaking, one point is worth 1/8 of 1% off the loan rate.
A balloon payment is a lump sum payable at the end of a specified term.
Points and interest on mortgages or home equity debt are usually tax deductible.
Tuesday, September 7, 2010
5 ways financial reform affects you
5 ways financial reform affects you
Recent changes may make it safer to get a mortgage – and potentially, much harder, too. As rule making continues to play out, here’s what homebuyers should know.
By Luke Mullins of U.S. News & World Report
Although the financial-reform legislation won’t upend the conventions of buying or selling a home, it will precipitate key changes in the mortgage market. Even after all of the new rules are implemented, most consumers will still encounter the same figures — real-estate agents, mortgage brokers, home inspectors — who have long defined the homebuying process.
But the legislation, which President Barack Obama signed into law July 21, includes some specific provisions that, while perhaps less visible to house-hunters, will have a profound effect on the type of mortgage that buyers end up with.
“The interface with a broker or a lender won’t change,” says John Taylor, president and CEO of the National Community Reinvestment Coalition. “It’s just what the broker and lender is offering will be screened to protect the consumer from getting bad loans.”
Here is a look at the main real-estate-related provisions of the financial-reform legislation and what they mean for you:
1. Repayment evaluation. The massive home-price swings in recent years were linked in large part to consumers’ ability to obtain mortgages they often couldn’t afford. The legislation addresses this issue by forcing lenders to ensure that mortgage applicants have the financial wherewithal to repay a loan before lenders grant it. Taylor calls this provision a “critical” step in the creation of a safe mortgage market.
“Had that standard been in place [in the years before the housing boom], we would have avoided in great part the foreclosure crisis,” he says.
2. Incentive structure. During the run-up to the housing bust, brokers in some cases received increased fees for putting borrowers into risky, subprime mortgages — which often carried higher interest rates — says Julia Gordon, senior policy counsel for the Center for Responsible Lending. The reform legislation bans financial incentives based on a loan’s interest rate, as of April 1, 2011.
“You can’t make more [money] if you somehow talk [the borrower] into a higher-rate loan,” says Gordon, who adds that the law “takes aim at some of the underlying bad incentive structures that created the problem.”
3. Risk retention. A key shortcoming of the mortgage market’s “originate and distribute” model was that brokers passed off a loan’s risks when it was sold on the secondary market. As a result, mortgage originators and lenders had less incentive to ensure that the loans they sold were of sufficient quality.
The new law, however, requires firms selling mortgage-backed securities to hold on to at least 5% of the credit risk for all but the safest home loans. By compelling these companies to bear a portion of the risk themselves, the provision is designed to ensure that mortgages are underwritten more soundly.
Recent changes may make it safer to get a mortgage – and potentially, much harder, too. As rule making continues to play out, here’s what homebuyers should know.
By Luke Mullins of U.S. News & World Report
Although the financial-reform legislation won’t upend the conventions of buying or selling a home, it will precipitate key changes in the mortgage market. Even after all of the new rules are implemented, most consumers will still encounter the same figures — real-estate agents, mortgage brokers, home inspectors — who have long defined the homebuying process.
But the legislation, which President Barack Obama signed into law July 21, includes some specific provisions that, while perhaps less visible to house-hunters, will have a profound effect on the type of mortgage that buyers end up with.
“The interface with a broker or a lender won’t change,” says John Taylor, president and CEO of the National Community Reinvestment Coalition. “It’s just what the broker and lender is offering will be screened to protect the consumer from getting bad loans.”
Here is a look at the main real-estate-related provisions of the financial-reform legislation and what they mean for you:
1. Repayment evaluation. The massive home-price swings in recent years were linked in large part to consumers’ ability to obtain mortgages they often couldn’t afford. The legislation addresses this issue by forcing lenders to ensure that mortgage applicants have the financial wherewithal to repay a loan before lenders grant it. Taylor calls this provision a “critical” step in the creation of a safe mortgage market.
“Had that standard been in place [in the years before the housing boom], we would have avoided in great part the foreclosure crisis,” he says.
2. Incentive structure. During the run-up to the housing bust, brokers in some cases received increased fees for putting borrowers into risky, subprime mortgages — which often carried higher interest rates — says Julia Gordon, senior policy counsel for the Center for Responsible Lending. The reform legislation bans financial incentives based on a loan’s interest rate, as of April 1, 2011.
“You can’t make more [money] if you somehow talk [the borrower] into a higher-rate loan,” says Gordon, who adds that the law “takes aim at some of the underlying bad incentive structures that created the problem.”
3. Risk retention. A key shortcoming of the mortgage market’s “originate and distribute” model was that brokers passed off a loan’s risks when it was sold on the secondary market. As a result, mortgage originators and lenders had less incentive to ensure that the loans they sold were of sufficient quality.
The new law, however, requires firms selling mortgage-backed securities to hold on to at least 5% of the credit risk for all but the safest home loans. By compelling these companies to bear a portion of the risk themselves, the provision is designed to ensure that mortgages are underwritten more soundly.
5 ways financial reform affects you
5 ways financial reform affects you
Recent changes may make it safer to get a mortgage – and potentially, much harder, too. As rule making continues to play out, here’s what homebuyers should know.
By Luke Mullins of U.S. News & World Report
Although the financial-reform legislation won’t upend the conventions of buying or selling a home, it will precipitate key changes in the mortgage market. Even after all of the new rules are implemented, most consumers will still encounter the same figures — real-estate agents, mortgage brokers, home inspectors — who have long defined the homebuying process.
But the legislation, which President Barack Obama signed into law July 21, includes some specific provisions that, while perhaps less visible to house-hunters, will have a profound effect on the type of mortgage that buyers end up with.
“The interface with a broker or a lender won’t change,” says John Taylor, president and CEO of the National Community Reinvestment Coalition. “It’s just what the broker and lender is offering will be screened to protect the consumer from getting bad loans.”
Here is a look at the main real-estate-related provisions of the financial-reform legislation and what they mean for you:
1. Repayment evaluation. The massive home-price swings in recent years were linked in large part to consumers’ ability to obtain mortgages they often couldn’t afford. The legislation addresses this issue by forcing lenders to ensure that mortgage applicants have the financial wherewithal to repay a loan before lenders grant it. Taylor calls this provision a “critical” step in the creation of a safe mortgage market.
“Had that standard been in place [in the years before the housing boom], we would have avoided in great part the foreclosure crisis,” he says.
2. Incentive structure. During the run-up to the housing bust, brokers in some cases received increased fees for putting borrowers into risky, subprime mortgages — which often carried higher interest rates — says Julia Gordon, senior policy counsel for the Center for Responsible Lending. The reform legislation bans financial incentives based on a loan’s interest rate, as of April 1, 2011.
“You can’t make more [money] if you somehow talk [the borrower] into a higher-rate loan,” says Gordon, who adds that the law “takes aim at some of the underlying bad incentive structures that created the problem.”
3. Risk retention. A key shortcoming of the mortgage market’s “originate and distribute” model was that brokers passed off a loan’s risks when it was sold on the secondary market. As a result, mortgage originators and lenders had less incentive to ensure that the loans they sold were of sufficient quality.
The new law, however, requires firms selling mortgage-backed securities to hold on to at least 5% of the credit risk for all but the safest home loans. By compelling these companies to bear a portion of the risk themselves, the provision is designed to ensure that mortgages are underwritten more soundly.
Recent changes may make it safer to get a mortgage – and potentially, much harder, too. As rule making continues to play out, here’s what homebuyers should know.
By Luke Mullins of U.S. News & World Report
Although the financial-reform legislation won’t upend the conventions of buying or selling a home, it will precipitate key changes in the mortgage market. Even after all of the new rules are implemented, most consumers will still encounter the same figures — real-estate agents, mortgage brokers, home inspectors — who have long defined the homebuying process.
But the legislation, which President Barack Obama signed into law July 21, includes some specific provisions that, while perhaps less visible to house-hunters, will have a profound effect on the type of mortgage that buyers end up with.
“The interface with a broker or a lender won’t change,” says John Taylor, president and CEO of the National Community Reinvestment Coalition. “It’s just what the broker and lender is offering will be screened to protect the consumer from getting bad loans.”
Here is a look at the main real-estate-related provisions of the financial-reform legislation and what they mean for you:
1. Repayment evaluation. The massive home-price swings in recent years were linked in large part to consumers’ ability to obtain mortgages they often couldn’t afford. The legislation addresses this issue by forcing lenders to ensure that mortgage applicants have the financial wherewithal to repay a loan before lenders grant it. Taylor calls this provision a “critical” step in the creation of a safe mortgage market.
“Had that standard been in place [in the years before the housing boom], we would have avoided in great part the foreclosure crisis,” he says.
2. Incentive structure. During the run-up to the housing bust, brokers in some cases received increased fees for putting borrowers into risky, subprime mortgages — which often carried higher interest rates — says Julia Gordon, senior policy counsel for the Center for Responsible Lending. The reform legislation bans financial incentives based on a loan’s interest rate, as of April 1, 2011.
“You can’t make more [money] if you somehow talk [the borrower] into a higher-rate loan,” says Gordon, who adds that the law “takes aim at some of the underlying bad incentive structures that created the problem.”
3. Risk retention. A key shortcoming of the mortgage market’s “originate and distribute” model was that brokers passed off a loan’s risks when it was sold on the secondary market. As a result, mortgage originators and lenders had less incentive to ensure that the loans they sold were of sufficient quality.
The new law, however, requires firms selling mortgage-backed securities to hold on to at least 5% of the credit risk for all but the safest home loans. By compelling these companies to bear a portion of the risk themselves, the provision is designed to ensure that mortgages are underwritten more soundly.
Monday, September 6, 2010
::Mortgage interest rates continue to fall::
::Mortgage interest rates continue to fall::
Loan type
+/- Rate
30 Yr Fixed 4.49%
15 Yr Fixed 3.92%
30 Yr Fixed Jumbo 5.33%
15 Yr Fixed Jumbo 4.84%
Loans are the cheapest they've been in decades, and even rates on jumbo loans are dropping.
Mortgage interest rates dipped again this week to their lowest level in more than 50 years, and even upper-bracket borrowers are getting better rates than they've seen in years.
The average 30-year fixed-rate mortgage fell to 4.44 percent, down from 5.29 percent last year at this time, according to a weekly survey released Thursday by Freddie Mac. The average 15-year mortgage was at 3.92 percent, down from 4.68 percent last year.
There's been particularly good news for upper-bracket buyers and borrowers in recent weeks, as well, as getting a jumbo mortgage has gotten slightly cheaper and easier.
And that seems to be showing up in the market. Pending sales of upper-bracket houses rose in July, making the high end the only price category to show an increase, according to the Minneapolis Area Association of Realtors.
Data from bankrate.com puts the average 30-year fixed rate mortgage at 4.57 percent, while the average 30-year jumbo mortgage is at a record low 5.27 percent. That's down .07 percent from the previous week.
Loans above $417,000 are considered jumbo in Minnesota, and in recent weeks the spread between rates on jumbo loans and smaller ones has narrowed.
Randy Reichert, area manager in the private mortgage banking division at Wells Fargo Homes Mortgage, said that a year ago the spread was more than a full percent, but has fallen to about a half percent, making it more attractive to buy or refinance higher-priced houses.
"The good news now is that the spread has narrowed and rates have come down," he said.
Brian Call, president of Rubicon Mortgage Advisors in Edina, said he's aware of at least a few wholesale lenders who have re-entered the jumbo market or have increased lendable loan-to-value ratios.
Loan type
+/- Rate
30 Yr Fixed 4.49%
15 Yr Fixed 3.92%
30 Yr Fixed Jumbo 5.33%
15 Yr Fixed Jumbo 4.84%
Loans are the cheapest they've been in decades, and even rates on jumbo loans are dropping.
Mortgage interest rates dipped again this week to their lowest level in more than 50 years, and even upper-bracket borrowers are getting better rates than they've seen in years.
The average 30-year fixed-rate mortgage fell to 4.44 percent, down from 5.29 percent last year at this time, according to a weekly survey released Thursday by Freddie Mac. The average 15-year mortgage was at 3.92 percent, down from 4.68 percent last year.
There's been particularly good news for upper-bracket buyers and borrowers in recent weeks, as well, as getting a jumbo mortgage has gotten slightly cheaper and easier.
And that seems to be showing up in the market. Pending sales of upper-bracket houses rose in July, making the high end the only price category to show an increase, according to the Minneapolis Area Association of Realtors.
Data from bankrate.com puts the average 30-year fixed rate mortgage at 4.57 percent, while the average 30-year jumbo mortgage is at a record low 5.27 percent. That's down .07 percent from the previous week.
Loans above $417,000 are considered jumbo in Minnesota, and in recent weeks the spread between rates on jumbo loans and smaller ones has narrowed.
Randy Reichert, area manager in the private mortgage banking division at Wells Fargo Homes Mortgage, said that a year ago the spread was more than a full percent, but has fallen to about a half percent, making it more attractive to buy or refinance higher-priced houses.
"The good news now is that the spread has narrowed and rates have come down," he said.
Brian Call, president of Rubicon Mortgage Advisors in Edina, said he's aware of at least a few wholesale lenders who have re-entered the jumbo market or have increased lendable loan-to-value ratios.
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