Ready, Set Go!

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So. You have decided that you want to get out of that apartment and purchase a home this year. Congratulations, I support you 150%. (Full disclosure here, I make my living doing mortgages so your successful house hunt, means I get to pay my mortgage-but that aside, even given the fact I have a dog in the hunt, I really do believe whole heartedly that home ownership is the way to go.)

But it is important that if you are planning on purchasing a home this year that you understand the lay of the land. Locally, that is. In the Tippecanoe and contiguous county area there is currently a shortage of homes in certain price ranges. And the price range that most first time home buyer's are looking is a key one.

That being said, it is a very bad idea to go open housing on a Sunday without a plan. You may not intend to buy a house next Sunday, but if you find "The One", it probably won't be available by the time you are ready to write an offer. By ready I mean that you have been to your lender to get your financing in order. You might think you know what you can afford to pay for a mortgage payment, but do you really know if that is what a lender will allow? Do you have a down payment? What if you don't? How is your credit? Is it mortgage ready? What kind of loan are you talking about? All key questions to a purchase agreement.

Every year I have first time home buyers (and some second or third timers who don't realize how vastly different lending is than the first time they bought) present themselves for a quickie pre-approval letter, only to find that the assumptions they have made about what they can buy, or the payment required is vastly different than what they thought. Maybe the credit score is a tick too low for the loan that is being requested, or too low for mortgage lending at all. And before you can say, "Bob's your uncle," "The One' is gone, sold to a buyer who had their financing in place and ready to go. I know, the financing and number crunching isn't the fun part of the process, but it is a necessary part. So please...don't assume anything. Give me a call and get ready, set, to go. You may not find a house for six months, and that's okay. When you do I will have what we need in my file to give you a thumbs up to rock and roll on an offer so you are in the best negotiating position possible.

To Infinity And Beyond-My Apologies to Buzz Lightyear

  If you watch The Big 10 Channel lately (as well as the Super Bowl) you have seen commercials for an online lender that feature this little guy. The commercials are touting the speed of qualification for a mortgage of the space ship mortgage that is offered. It's fast-like a Titan Rocket. The showing of the ad during the Super Bowl has elicited a twitter war that even the CFPB (Consumer Financial Protection Bureau) got into - “When it comes to ‪#‎mortgages‬, take your time, ask questions and ‪#‎knowbeforeyouowe‬,” Maybe not such bad advice. While the Space Ship mortgage company is highly technologically evolved as far as automated systems go, obtaining a mortgage isn't quite the same transaction as purchasing a pair of shoes online. Shoes in the wrong size can be returned in most cases. Mortgages cannot.

  When I was a mortgage broker one of our investors was the aforementioned Space Ship Mortgage Company. I can attest to the fact that they are a highly automated company. The particular process that they are advertising actually allows them to view your assets, taxes and income (you check off that 's ok) through automation so that you aren't hassled with getting those items to a real live person upfront. Or asking that real live person to wing it. I presume you do have to provide hard copies at some point-that was the case when I had transactions with them. And that is where it can all break down. Garbage in, garbage out. While income, assets, and credit are a huge part of the story, it's the details that aren't apparent with just that information that hang a loan process up or kill it all together. Things like child support that add or subtract from income, the fact that someone quit their job a year ago and then was rehired six weeks later, thereby changing their hire date and tossing out the possibility of using any overtime to qualify since the use of overtime funds is a two year average from hire date. This speedo qualifying doesn't pick up nuances of credit. Your loan might not qualify due to credit issues, but maybe your issue can be easily solved. What you know is that you are declined-not what you need to do to fix it. For reasons such as those, I think having a person is good. Someone who knows the mortgage industry and how things work. Of course that is my job- I would prefer to keep my job so in the interests of full disclosure, I have a dog in the hunt. And I am all for automation. Hands down my company does a great automated gig. However, there is a human being on the front end.

  This is the most important financial transaction you will probably ever be involved in. Service from a person you can go see-isn't that worth a little bit of time?

HOW ARE CREDIT SCORES DETERMINED?

Here is a very instructive graphic from MGIC (the mortgage insurance company) illustrating what factors go into creating your credit score. This is a brilliant example of how you can increase yours because if you want a mortgage, you score has everything to do with mortgage eligibility, your interest rate, and the amount of mortgage insurance you will pay

Trendy?  2016?

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Trends-cultural, political, social - - trending seems to be what everyone seems to be interested in. Catching the wave as it goes by, or better yet, being ahead of the wave and reaping the benefits.
Zombies, super heros, and dystopian societies are all trends that are manifesting themselves in entertainment, farm to table in fine dining; so are there trends to be found in housing and mortgages?

Of course there are. From those who are in the know I am learning that open concept is on the way out, as is granite for every flat surface. Mortgage lending can be trendy too - -so for the mortgage hipster, here is what is trending for 2016.

Interest Rates: The trend currently is down. While rates are not expected to hit the lows of a couple years ago,t he short term trend is rates hovering around or just below 4%. However, that trend is expected to reverse itself in 2016 and by the end of the year we could be close to 5%.

Credit Scoring: There are a couple of lenders on the West Coast that are experiencing with doing away with credit scoring in their loan approval process. The idea is to evaluate the history of payments and open debt, rather than assign a number to it. How this plays out with Fannie Mae and Freddie Mac and selling mortgages on the secondary market was not clear to me as loan sales are credit score driven-but it will be interesting to watch. In the meantime, for most of us, there seems to be a trend towards a relaxation of some credit rules which should help more buyers obtain mortgages.

Increasing Rents: There is a definite upswing in the cost of rent according to Fortune Magazine - - 8% for 2016. The reason being increased demand and decreased supply nationwide.

http://fortune.com/2015/10/07/rents-rise-housing/

And that leads us to this trend:

Millennials getting into the housing market. The biggest group will be the older millennials-those that are 35-40 years old, but we should also see large numbers of 25-30 somethings seriously considering purchasing their first home this year. In fact the millennial generation will be the largest percentage of home buyers this year.

Housing Prices: Nationwide should increase 3%

1.5 million new households are expected to be formed.

Sounds like a good year to jump on the trend and buy.

Closing Costs? What Are Those?

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The topic today is closing costs. If you are a first time home buyer, this may be the first time you have heard the phrase. Closing costs are the fees charged by the lender and other service providers in order to get your mortgage closed. "What the heck," you might say. Isn't the down payment enough? The down payment actually benefits you, the buyer. That goes towards the purchase price of the home. However, in order to close a home legally, there is lengthy list of things that have

to happen such as underwriting, appraisal, credit reporting, title searches, upfront mortgage insurance or funding fees etc. These all factor into closing costs which can add significantly to the acquisition cost of the house.

I like to divide closing costs into three parts:

1) Lender fees-the lender fees are for underwriting and processing-the fees the lender requires to actually process and approve your loan. These are the only fees that the lender actually controls. In most cases these fees run around $800-$900

2) Third party fees: These are fees charged by third parties but required by lending such as the appraisal, credit report, up front mortgage insurance or funding fees, title fees. and recording fees. It is hard to quantify these fees as some of them are dependent on the size of the mortgage.

3) The last classification of fees is what is known as pre-paid fees. These fees are to set escrow accounts for the payment of insurance and taxes, and one year of home owner's insurance. Again, depending on taxes and the cost of insurance the cost of this portion of closing fees can vary wildly.

However, the good news is that your lender should be able to give you a fairly solid estimate of how much these fees will run This can be done based upon a specific loan amount with out an actual property using estimates for taxes and insurance . Once a property is identified and the loan process begins a form called the Loan Estimate is issued with the total fees disclosed. If any fees change during the course of the processing of the loan the borrower is notified by the receipt of a new loan estimate. Typically once fees are disclosed, there are no significant changes unless the loan program has to change for one reason or another. The final dollar amount that the borrower brings to closing should pretty closely resemble the dollar amount shown on the Loan Estimate.

As a part of the purchase negotiation, the borrower can ask the seller to pay for some or all of the closing costs. In many cases the seller is willing to do so, however, that could potentially add to the purchase price of the home.

The other thing that buyers need to be aware of is that closing costs don't vary widely from lender to lender. With increased scrutiny from the Consumer Financial Protection Bureau, the costs for these services can't have wild swings, either on the borrower's behalf (such as the lender paying for their costs without disclosure) or undisclosed increases in costs.

For the first time home buyer, familiarity with these costs and a plan to cover them is a critical part of the pre-approval process. Do not hesitate to call your lender for answers to any questions you may have.