5% Mortgage Rates Still a Ways Off

Why 5% Mortgage Rates Are Still

a Ways Off

 

Whether you like it or not, mortgage interest rates are a big driver of the housing market. We’ve been spoiled with ultra-low rates the past few years, with many experts predicting that 2014 would be the year of 5% rates. They were wrong. Furthermore, we’re not going to be seeing 5% mortgage rates anytime soon – here’s why.Credit’s Still Tight

Reality check: As a homebuyer, you either fit the box or you don’t.

Recently, Fannie Mae announced home lending is about to get easier for some borrowers by lowering the minimum down payment to buy a home from 5% to 3%. While this is a step in the right direction, it doesn’t make up for the macro-lending constraints still in place today. Mortgage underwriting has removed the human factor in making “makes sense” loan scenarios and reduced it to a paper checklist anyone can follow.

Case in point: A borrower with a 620 credit score and a previous foreclosure, along with a negative pattern of  credit, can easily apply for an FHA loan with only 3.5% down and be approved. Compare that with a borrower with an 800 credit score, an impeccable payment history, a 40% down payment and a 46% debt-to-income ratio. Today’s lending environment would suggest the borrower with the 800 credit score on a conventional loan would be larger credit risk because their debt to income ratio is just one percentage point over the 45% max debt ratio allowance.

This underwriting concept is a byproduct of the strict lending brought on by the government to reduce overall credit risk within the mortgage markets. While credit might be loosening in small niche areas, like helping first-time home buyers by allowing lower down payment options, the overall market is still incredibly tight. The main separator is that the human element of making a pragmatic lending decision is no longer acceptable by Fannie Mae or Freddie Mac. Instead, lenders now exercise caution when going down the checklist in order to approve a loan application.

Credit & Rates Go Hand-in-Hand

As long the ability to obtain credit continues to be tough, the prospect of mortgage rates rising to 5% is not likely to occur. Here’s why higher rates cannot be supported in the long term by today’s mortgage underwriting approach…

If interest rates were to rise to, say, 5% from the 4% levels they are at now, that would wipe out many potential buyers from the market, causing housing prices to fall because fewer people can afford homes with 5% loans than they can with 4% loans. Higher rates consequently would shut off refinance volume — the other profit pool lenders rely on in new loan activity.

If people are taking out fewer mortgages because interest rates have shot up, the housing market could suffer another collapse. In other words, if rates rise, one of two things could follow suit to offset the risk. Either the Federal Reserve would make an unprecedented move back into a quantitative easing policy, pumping money back into the mortgage market to lower rates to further support housing, or they would began loosening lending guidelines more aggressively to keep the flow of new mortgage originations constant. In short, the housing environment is likely too weak to be dealt the onslaught of 5% mortgage rates. If rates did creep that high, it could be short-lived at best under the current banking standards.

Supporting Higher Rates

The mortgage industry would have to reduce credit standards (allowing more loans to be made) to offset the risk of less mortgage volume. Lowering standards, not to where they were at from 2004-2007, but making them much less strict than the guidelines currently in place would be the option rather than purchasing mortgage securities again.

For example, one approach would be allowing for slightly higher debt ratios on conventional loans with compensating factors (stronger in one area to offset a lower area) to approve. This might mean allowing a debt-to-income ratio as high as 48% to qualify, rather than the 45% threshold. Alternatively, allowing stated income loans for the self-employed borrowers or showing alternative forms of documentation for the self-employed borrowers, such as bank deposits for income calculation, rather than solely relying on tax returns or other methods.

Tiny incremental changes like this would open up the door for people who otherwise are not getting loans in today’s environment. Another change may be allowing homeowners to refinance without loan-to-value restriction, even if their loan is not HARP 2.0 eligible.

As it is, the federal government has stopped buying mortgage-backed securities. The economy is improving, a further catalyst that rates will rise at some point.

When to Worry About Higher Mortgage Rates

When mortgages are easier to obtain, then you can start being concerned about the extra interest and how much more that home will cost you. Until then, mortgage rates are more likely to stay in the low-4% range throughout 2015, with perhaps a few intermittent spikes as high as 4.75%.

Another way to ensure you get the best rates possible is to keep your credit in good shape so you’re in a better position to buy when the time comes. You can use this calculator to see how much home you can afford, and you can see your free credit report summary every month on Credit.com to see where you stand.

Don’t Make These 5 Home Insurance Decisions on Your Own

5 Home Insurance Decisions It’s

Risky to Make on Your Own

 

Who doesn’t feel pride in clearing a clogged sink, changing an element in an oven or replacing a deadbolt lock without calling a handyman? There’s no question that a successful do-it-yourself project can save you time and money — in addition to padding your ego.When shopping online for insurance, many companies allow you to DIY your insurance policy, letting you choose your coverage limits, deductibles and optional coverages. Potential policyholders can select several coverage options and see how they affect the cost of the policy.

But remember that twinge of uncertainty you felt when you first filled the sink, brought the oven up to temperature or locked the new deadbolt? Imagine how nervous you’d feel trying out your home insurance for the first time after you’ve done it yourself.

When it comes to a financial product like insurance that protects your biggest investments, it’s a good idea to rely on the professionals for advice instead of doing it yourself. That doesn’t mean your input isn’t needed during the process — only that there are steps about which you shouldn’t necessarily have the last word. Here are five home insurance DIYs you shouldn’t do yourself.

Setting your dwelling coverage

Dwelling coverage is the part of your home insurance policy that protects the structure of your home from specified perils such as fire, wind and hail. The amount of dwelling coverage you purchase plays a major role in determining how much you’ll pay for protection.

That means a DIY-er could be tempted to set the amount of dwelling coverage low. But this is a terrible idea, because the amount of dwelling coverage you purchase also affects the amount of coverage you have for your possessions, for other structures on the property, and for additional living expenses should your home be declared uninhabitable because of a covered peril.

All those protections — and more — are typically included in a standard home insurance policy. Lowballing your dwelling coverage means you’re also probably lowballing these coverages.

So how much dwelling coverage should you buy? Enough to rebuild your home from the ground up. That’s not the same as the amount you paid for the house, however. It’s the product of multiplying the square footage of your home by local building costs.

You likely don’t have a good handle on local building costs, but a licensed insurance agent will. He or she can ensure you have enough dwelling coverage to rebuild your house the way you want it — which should also give you enough protection in the other parts of your policy.

Deciding on your deductible

Your deductible is the amount you agree to pay toward a covered claim. Many “experts” advise you to set your deductible high because it will reduce your annual premium. But what happens if your deductible is so high you can’t pay it? You don’t get coverage, that’s what.

An agent can make sure you’re not setting that deductible too high, and chasing immediate savings while putting your future at risk.

Protecting your possessions

As mentioned above, standard home insurance typically includes coverage for your possessions. Usually your coverage limit is set between 50 percent and 70 percent of your dwelling coverage limit. For example, if you have $200,000 worth of dwelling coverage, you have between $100,000 and $140,000 worth of protection for your belongings.

Sounds simple, right? Not so fast. Certain high-value items such as jewelry, furs and collectibles can have limits on payouts. That means your most valuable possessions might not be replaced if they’re stolen or destroyed by a covered peril.

A licensed agent can help you schedule endorsements — that is, extend your coverage limits — for these items.

Establishing liability limits

Standard home insurance policies also feature two types of liability insurance that can help if someone gets hurt on your property:

  1. Personal liability protection can assist if the injured person sues. It can help pay your legal defense as well as any award — but only up to your coverage limits. That limit typically is set at $100,000. So who is responsible if your case exceeds $100,000? You are.
  2. Medical payments coverage helps pay medical costs if the injured person doesn’t sue. The coverage limit is set at $1,000. Again, you would be responsible for expenses that exceed that amount.

Most DIY-ers might not realize that these limits exist, or know that you can extend them for a fairly small additional amount.

Dropping coverage when your mortgage is paid off

There’s no law requiring you to have home insurance; however, your mortgage lender will demand you carry a policy to protect its investment.

So what happens when you pay off the mortgage? You could drop your home insurance. But then you’d be left with no help should fire or another covered peril damage or destroy your home. Consider these average claim amounts from the Insurance Information Institute:

  • Fire: $34,306
  • Liability: $18,804
  • Wind/hail: $7,307
  • Theft: $3,428

Without adequate home insurance, you could bear the full cost of these claims.

It’s great to branch out from your comfort zone and take on a challenge on your own. But sometimes Doing It Yourself results in Screwing It Up Yourself. Make sure your DIY home insurance doesn’t turn into SI(U)Y home insurance.

DIY mistakes to avoid

Uh Oh… Costly DIY Mistakes You

Really Want to Avoid

Uh Oh... Costly DIY Mistakes You Really Want to Avoid

(source: http://www.domesticcleaningtips.co.uk/are-you-making-these-costly-diy-mistakes/)

We’ve all been there.  Since the dawn of home renovation TV, we’ve come to consider ourselves DIY experts.  With designers showing us how to repaint, rewire, remodel, and revamp a room in 48 hours, what could go wrong?

Well…lots.  Consider the time my father decided to rewire a ceiling light fixture.  This simple project began well, but when it was time to go into the attic to move the electrical wire things took a turn for the worse.  Next thing I know, his foot (and ankle and knee) were all coming through my ceiling.  Lesson learned.  Not everyone is good at this stuff!

So what do contractors say are the most common and most costly DIY mistakes?

1. NOT KNOWING YOUR LIMITS

Know what you’re capable of and know what you’re good at.  Sure, we all have our special skills, maybe you fancy yourself the guru of grout or the prince of paint.  Kayleen McCabe of DIY Network’s “Rescue Renovation” advises that homeowners should know their limits.  She warns, “I come across homeowners constantly who are in the eye of the hurricane and cannot see the chaos around them.”

If you find yourself obsessively searching for “How To” YouTube videos mid-DIY project, you might want to step back from the computer and pick up the phone to hire a contractor.

However, if you’re an experienced DIYer with a handful of confidence, McCabe says there are a lot of jobs that ANY homeowner can do.  For example, she encourages homeowners to change a toilet or replace water supply lines.  But if you’re contemplating running an entire new water line or moving a toilet to a different location within a bathroom, it’s best to call a plumber.  If your plumbing vents aren’t correct, you could have a lifetime of gurgling noises and strange smells coming from your bathtub and sink.

When in doubt, call the professionals.  It’s their job!

2. IGNORING MOISTURE ISSUES

image

(Thinkstock)

Finishing your subterranean spaces without addressing moisture issues is one of the costliest mistakes.  Water damage won’t only wreak havoc with your walls, but flooding can ruin your newly-laid carpets or hard wood floors.  The Handyguys Brian and Paul say it’s easy to prevent 80-90% of water leaks in your basement by ensuring a few simple things are correct:

-Check that your gutters and downspouts aren’t draining too close to your house.  Contractors time and again see drains right next to a house.  This water will leak directly through the foundation and into the basement.  Rule of thumb is to extend any drainage pipes roughly four to six feet away from your house.

-Ensure that the grading of your yard is sloped away from (NOT towards) your house.

-Avoid excessive mounds of mulch that will hold water too close to your house.

The Handyguys also warn against paints and solutions that claim to waterproof your walls.  They warn, “Don’t do the paints.  They’re not solutions.  They’re not going to help you!  If you’ve got water coming into the wall and you put paint on there to try to block it, you’re blocking the water in the wrong space.  You’ve got to keep it from getting to that point.  By that point, the water is already inside where the damage is going to be done.”

3. LACK OF PLANNING

image

(Thinkstock)

Husband and wife team Mark and Theresa of MyFixItUpLife say “It really comes down to planning.  A lot of rookie mistakes are things that are little things.  You think ‘it’s not going to be a big deal later; it’s close.’  Then, when you get to the end of the line of cabinets and you literally can’t put the cabinet in or you can’t open a drawer.”

McCabe says, “It really comes down to planning.  The first cabinet is the hardest, the first sheet of drywall is the hardest.  That first piece of tile really takes planning before you just start.”

Remember that old adage: “measure twice, cut once.”  Remember to plan things out, measure…and then measure again!

4. NOT TAKING ADVANTAGE OF SAMPLES

image

(Thinkstock)

There’s a reason why you can sample paints, fabrics, tiles, and even cabinet doors: so you can see them in the location they’ll actually be.  Most stores use fluorescent lighting, which probably isn’t the same lighting you have in your house.  After spending months and months on Pinterest and flipping through Home & Garden, you want your dream space to be exactly how you envisioned it.  So, take loads of samples home and put them together in your space to see how they’ll look in your house, next to your things, in the actual lighting and space that you’re renovating.

Learn from the mistakes of others or you might end up ripping out newly-installed countertops or cabinets or trying to paint over a mistake that could have been avoided in the first place.  The cost of re-doing and changing things can frustrate contractors and quickly increase expenses.

Refinance your house now!

Missed out on refi boom? You may

be in luck

 

The housing crash put a lot of homeownership dreams on hold. Lending went from paperless applications and mindless approvals to stringent restrictions, pristine credit requirements and creeping rates. Not only was buying a home growing out of reach for first-timers, but refinancing an existing mortgage was practically out of the question. A lot of people felt like they had missed an opportunity for owning a home of their own. Now, they may be getting a second chance.Housing prices have risen, but moderated. Lenders are once again open for business – and rates have slipped back to those “near historic lows” that tempted us so much in the first place. And revised mortgage fees recently implemented by the Federal Housing Authority could mean even more incentives – for prospective buyers and refinancers alike.

“The average interest rate for 30-year fixed-rate mortgages has fallen 92 basis points since mid-2013, and is currently at a 20-month low of 3.66%,” says Fitch Ratings in its latest quarterly index report. (Also from MainStreet.com: How to Build and Maintain an Excellent Credit Score to Save on Borrowing Costs)

“Conditions are very favorable for first-time homebuyers to start getting back into the market,” says Fitch director Sean Nelson in an analysis. “Mortgage rates are falling, FHA insurance premiums are coming down, home prices are cooling and employment is steady.” The FHA has lowered its mortgage insurance premiums, which guarantee loans issued by lenders. Fitch says that move alone could mean a savings of $900 per year, on average, for new borrowers. The FHA program is preferred by many first-time homeowners because of low down payment requirements.

The National Association of Realtors recently estimated that about 234,000 creditworthy borrowers were “priced out of the market” in 2014 due to high mortgage insurance premiums, before the new, lower fees going into effect. (Also from MainStreet.com: 3 Things Homebuyers Should Think About Before Signing the Papers)

“Over the past four years, as the fees increased, the percent share of first-time buyers using FHA-backed loans shrank from 56% to 39%,” National Association of Realtors president Chris Polychron says in a press release this month. “NAR estimates that a reduction in the annual MIP of 0.50 to 0.85% from the current 1.35% would price-in an additional 1.6 million to 2.1 million renters along with many trade-up buyers, resulting in 90,000 to 140,000 additional annual home purchases.

The good news is not just for first-time buyers, either. Homeowners who thought they had missed out on the refinance boom may be in luck, too.

“Those borrowers that did not already take advantage of the historically low interest rates of 2012-13 may be restricted by credit issues or insufficient home equity,” Nelson says. But now, with the substantial recovery of home values in many areas of the country, combined with the current trend of falling rates, borrowers may be able to revisit their refi opportunities.

“Borrowers who were unable to refinance in 2012-13 because they were underwater on their mortgage may have built up enough home equity to refi after several years of strong home price growth,” Fitch says. “In addition, those who took out a mortgage in the last year and a half when rates were higher could benefit from refinancing with today’s rates.”

Contractor no-nos

8 Things Never to Say to a

Contractor

8 Things Never to Say to a Contractor

(Photo courtesy Glamour Drops/Instagram)

Even the most crafty DIYer can’t do everything his or herself. But when it’s time to call in the pros, do yourself a favor and think carefully before you speak. Even a seemingly innocuous comment can rub contractors the wrong way, cost you money, or create major headaches later on.

Stephen Fanuka has been a general contractor for more than 22 years, and with his own show, Million Dollar Contractor, he’s arguably one of the nation’s most famous. But even with high-profile clients and astronomical budgets, he hears many of the same ill-advised comments as everyone else in his line of work.

Yahoo Makers talked to Fanuka and several other contractors to learn what you should never say, unless you want to end up as a renovation horror story. Are you guilty of uttering these phrases?

1. I hired you because the other guys I hired never showed up. This is always a red flag to Al Davidian, owner of Innovative Constructions in the Los Angeles area. “To me it seems that this is a problem client – why would several people not want to show up for this person’s project?”

2. “I watched a YouTube video, so I probably know just as much as you do about how to do it.” There’s truth to the saying that a little knowledge is a dangerous thing… with all the home renovation how-to videos available, it’s easy for a homeowner to assume that they understand the work involved. But just as you wouldn’t watch a video of a surgery and then try to tell your surgeon how to do your appendectomy, you shouldn’t tell your contractor how to do your renovation. “It’s okay to Google things as a client, you do want to educate yourself,” says Fanuka. “But don’t act like you know more than the tradesman. Try to be respectful that they are the professionals.”

3. “While you’re working on this, can you just do these few other things?” This is a big pet peeve with Davidian – when a client starts adding on unrelated tasks that are beyond the scope of work originally contracted. “I don’t mind doing a few small things here and there without charging extra,” he says. “But when it’s too much, and not part of the contract, that’s an unrealistic expectation.”

Related Story on Yahoo Makers: 10 DIY Projects You Can Actually Do This Weekend!

4. “It’s okay, the neighbors won’t mind.” If you think there might be an issue with zoning, permitting, or any other matter that might affect your neighbors, it’s always best to clear it with your neighbors and not to assume they will be okay with the work you’re doing. John Cummings, a contractor with Clockwork Construction in Decatur, GA, recalls a project he was doing with a roofed deck that was close to the lot line, but for which the client had gotten a variance years ago. “They said the neighbors would be fine with the project,” he recalls, “But the minute we started work, they called the city and got us shut down. Don’t assume you’ve got a good relationship with your neighbors.”

Related Story on Yahoo Makers: What Rev Run Can Teach You About Renovating

5. ”I’m going to fly you to Afghanistan to pick out the marble for my countertops.” No joke, a client actually requested this of Fanuka. His reaction? “You couldn’t pay me enough to go to Afghanistan to pick out your countertop,” he says. (He did, however, fly to Italy on a client’s dime to match the stucco on a house.) Bottom line: Don’t expect your contractor to risk their life just so you can get a certain result.

Related Story on Yahoo Makers: Get Inspired by the World’s 10 Most Expensive Homes

6. “You’ll have the check tomorrow.” The contractors we talked to said this is the number one thing they hear, and the promise is rarely acted upon. Fanuka says he’s even known clients to intentionally not sign checks to buy themselves a few extra days. When you tell your contractor when you’ll pay them, be true to your word.

7. “Since I just told you what I want, there’s no need to put it in writing.” To make sure everyone is on the same page – literally- Fanuka and other contractors recommend that everything is in writing. If you have a conversation, follow it up with an email or meeting minutes so that you have backup if there’s a misunderstanding.

8. “You’re almost done, here’s my final payment.” Even if there’s just some cleanup or a few last finishing touches to be done, it’s always best to hold that last 10 percent of payment until the punch list is done. Once he’s fully paid, some contractors might not be motivated to ensure that their job is completely finished in a timely manner.

Want to by a house and have bad credit? Read this

Top mortgage sources if you have

bad credit

 

Looking to buy a home, but your credit isn’t as good as you would like? That’s going to make getting a mortgage a tough task, but it doesn’t mean you’re completely out of luck.Before you have a reasonable chance of being approved for a conventional mortgage, you need a FICO score of at least 620 (see Investopedia’s article “What Is a Good Credit Score?”) and probably 12 months of on-time payments of all of your bills. Additionally, your debt-to-income ratio, the amount of your monthly income going to debt payments, probably can’t be higher than 43% of your monthly gross income. Of course, few rules are hard and fast, so take these as general guidelines. If you’re close, it doesn’t hurt to apply.

What if your credit isn’t good enough for a conventional mortgage? There are two other options to consider.

FHA Loan

The Federal Housing Administration, or FHA, is part of the U.S. Department of Housing and Urban Development. The FHA helps home buyers purchase a home without meeting the stringent requirements of a conventional mortgage. Because many such buyers aren’t financially able to pay the sometimes high upfront costs of a mortgage, an FHA loan often comes with lower down payments – as low as 3.5% – lower closing costs and lower credit standards.

The FHA doesn’t make the loan, however. The agency partners with banks and insures part of the loan. If you were to default on the loan, the FHA will pay the guaranteed portion, allowing banks to take a risk on borrowers who may not otherwise qualify.

You may be able to qualify for an FHA loan with a credit score as low as 580, but lending banks still make the final decision and don’t have to approve applicants with a score that low. Most will require a higher credit score but perhaps not as high as a conventional loan.

Since the mortgage crisis that was blamed for sending America into a recession in 2008, lenders have tightened their standards considerably but don’t let that keep you from applying for a loan. (See Investopedia’s “Top Reasons to Apply for an FHA Loan” and Top Reasons To Apply For An FHA Loan and “7 Things to Know About FHA Home Loans.”)

Lease to Own

Maybe your credit score is just too low to qualify for a loan, or a 3.5% down payment isn’t something you can afford. Homeowners who can’t sell their home at the price they want might consider a lease-to-own option.

Lease to own, also called rent to own, simply means that part of your monthly lease payment is going toward buying the home while the rest is a rent payment. This option may give you time to save for a down payment, rebuild your credit history, and try out the home before committing to purchase.Lease-to-own contracts often last two to five years and have an option to walk away from the home under certain terms.

You likely won’t find many homes with a lease-to-own option but if you work with a realtor, he or she can do much of the research for you. For more ways to locate one, see Investopedia’s article “Finding Rent-To-Own Homes.”

The Bottom Line

Sometimes life events send your credit score plummeting. You didn’t plan for it to happen but you’re in the situation nonetheless. If that’s the case, you might have to rent until you can rebuild your financial picture.

If you can qualify for a loan, expect the interest rate and other terms to be less favorable than if your credit score were higher.

Before applying for a mortgage, spend time building your score and saving for a down payment. Sometimes that can take a year or more.

Riverside Ranks 5th for Empty Nesters

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