Locking Your Interest Rate when Buying a Tucson Home
December 28, 2009
Getting a home loan can be a big deal. There’s a lot of news out there about interest rates being low – I remember my first interest rate on my home loan was 8% and that was a FABULOUS deal back in 2000. Generally, rates are even lower now; my past few clients have ended up with home loan interest rates between 4.5% and 6% (depending on the loan program they selected and their credit scores).
There comes a point when you buy a home in Tucson that you’ll decide to lock your interest rate. When you’re out shopping for a house, you get pre-approved for a loan and they’ll quote you rates as of that day – but rates can change daily, if not several times a day sometimes. So you don’t know exactly what interest rate you’re going to get until you lock it. And generally, you can’t lock it until you have a home under contract. You have to have an accepted contract on a house to lock that rate.
Contractually, if you used the typical purchase contract and loan approval form in Arizona, you’ve made a couple of declarations and commitments about your interest rate in the contract to purchase your home. For example, you’ll declare a maximum rate that you’re willing to pay for your home loan. If rates go above that maximum, then you’re not obligated to buy the home.
BUT – the pre-approval form we use in Arizona, called the LSR or Loan Status Report, says that you’re going to lock your interest rate in your inspection period. Or else you lose the ability to walk away from the home if rates exceed your stated maximum.
So timelines matter. You need to lock your rate within your inspection period or else you lose that contingency. Which gives you, typically, 10 shopping days to lock that rate. It’s not a huge window of time, but home loan interest rates can fluctuate often. And interest rate locks also often come with an expiration date – most rate locks are good for 30-45 days. Look at your timelines carefully. You want your rate lock to last until you close on the house. If you’ve got a short inspection period and a long contract interval, you need to make that locking decision carefully.
How Mistakes Affect Your Credit Score
December 8, 2009
Interesting article about credit scores from my lender friend Justin McHood in Phoenix.
FICO (the people who created the industry standard in credit scoring) released information on how much your credit score may go down when something bad happens – something like maxing out a credit card, having a late payment, or having a foreclosure on your record.
You’ll notice that the higher your score, the more you get penalized. For all but one of the credit mistakes listed, the minimum smack-down for people with high credit scores is more than the potential maximum for those with lower credit scores.
FICO says that’s because a lower credit score already reflects riskier past behavior. One more risky behavior is not quite as significant to those with lower scores than to those with high credit scores.
But if that is true, then having a high credit score means you have a history of non-risky behavior. So shouldn’t having one of these credit mistakes happen be considered an exceptional event?
Will Mortgage Rates and Home Prices Continue to Decline in Tucson?
November 2, 2009
Question from the blog today – will rates and home prices keep going down?
Answer – depends on what time period you look at.
Let’s start with home prices. Will they continue to go down over the next month? Most certainly. Over the next year? It’s likely. Over the next 5 years? Maybe not. Over such a long term, there’s no way to accurately predict.
If you look at the average sales price for homes in Tucson over the last few years, you can see the decline. I’d argue that the drop in home prices is slowing a bit, but there are several factors in play that could make that change – the availability of financing, the levels of inventory, the economy as a whole impacting salaries and the ability to buy and sell a home.
If we look at mortgage rates, there’s some seasonality there too. I talked about that earlier in this post about rates going up or down. History says rates go down in the fall. But again, there are larger factors at play.
AND – rates are changing rather quickly, as Dan points out in this article about how long a rate quote lasts over the past 2 months. Lenders are changing their pricing often, which changes your rate often.
So why ask if rates and prices will continue to decline? Trying to time the market, buy at the best possible price and rate? I guess you can try. But you’ll never know if we’re really at bottom until we’ve already left it. It’s all just part of the risk you take by deciding to buy or sell at any particular time.
Mortgage Rate Trends – Will Rates Go Up or Down?
October 19, 2009
Over at The Mortgage Reports blog, Dan Green keeps a close eye on interest rates and trends.
If we trust history, mortgage interest rates should continue to decline into 2010. The information in the chart below is from Freddie Mac, since 2006.
However, we’re in a different market than we have been in the past few years. There are several conditions that have an upward push on rates – the Fed is ending mortgage market support, inflation concerns on Wall Street, the weakened US Dollar.
Seasonally, rates should go down. Current conditions say they might go up. Will we break trend this year?
Hard to say. If you’re trying to time the market for the lowest rate, you’d better be paying close attention. As should your lender, to alert you in time for you to lock your rate.
Check out the full story here.
What Kind of Financing do Central Tucson Home Buyers Use?
October 6, 2009
I was talking to someone the other day about the current market in Tucson and about home buyers having more cash than before, and using more FHA financing than ever before. Clearly, there’s been a large change in home financing rules. In my recent experience, I’m helping people buy homes here in Central Tucson largely with FHA financing – or with cash.
So I ran some numbers this morning. Because that’s what I do.
So far, in 2009, the financing for closed home sales in Central Tucson break down like so:
- 263 cash transactions, with an average sale price of $144,401, which is 30% of the sales.
- 342 conventional loan transactions, with an average sale price of $223,091, which is 39% of the sales
- 246 FHA transactions, with an average sale price of $157,661, which is 28% of the sales
- Compare that to 2007, where cash transactions were 13% of the market, conventional sales were a whopping 82% of the market, and FHA was a mere 2% of sales in Central Tucson.
And in 2005, FHA was just 1% of the Central Tucson market. (Conventional was still 82% and cash was 14% of sales.)
Big shift? Yes indeed. The cash is back – but it’s quiet cash and those folks are picking up the bargains, many of them investment properties. And FHA is bigger than ever. If you’re trying to sell a home in Central, it might behoove you to make sure the house will meet FHA financing requirements. Otherwise, you’re cutting out a large chunk of the home buyers out there today.
FHA 90 Day Rule and First Time Buyers
September 28, 2009
I found a lovely house for some of my Buyer clients the other day. It had been listed previously as a short sale and was under contract, but was suddenly withdrawn from the market. Turns out, the property was foreclosed upon and bought at auction by an investor.
The investor put in new carpet, painted it, cleaned up the yard, installed new appliances, and put it back on the market within about 2 weeks, for only $5k more than it was listed last time.
So now, it’s a great house, in really good condition with some nice fresh upgrades at a really good price.
Except my clients can’t buy it.
Like many first time buyers, they’re using FHA financing to purchase their first home. FHA financing lets them come in with a smaller down payment, and the credit score requirements are a bit more lenient than conventional financing. It’s fabulous financing for first-timers who have steady jobs and a little bit of savings, looking to get into that first home.
But FHA says that the owner of the property has to have held it 90 days before any Buyer with FHA financing can buy it. In fact, the offer itself must be dated on the 91st day or later. Which takes this house completely out of the running because it sold on the first day it was listed, and I’m pretty sure they got more than the list price for it.
Of course, not every ‘flip’ is a great deal for home buyers, and certainly many are not well renovated, but it’s frustrating to watch a good one go by and not be able to compete.
HERA, HVCC, and Other Fun Acronyms- Ready for New Lending Rules?
August 3, 2009
Starting July 30th, 2009, there’s some new disclosure rules for mortgages - an update to the Truth in Lending regulation (also called Reg Z, if you want to use the fancy lingo). They call this one HERA - the Housing and Economic Recovery Act. The highlights:
- The new requirements apply to all mortgages where the owner lives in the property as either a primary or secondary residence, and includes refinances.
- Good faith estimates are to be provided within 3 business days after you apply for a loan, and the lender can’t collect any fees before that disclosure is provided - except to collect a reasonable credit report fee.
- Closing can’t happen until 7 days after you get that early disclosure, as a waiting period.
- If your APR increases by more than 0.125%, the lender has to give you an updated disclosure, and wait another 3 days before the loan can close. Remember that an APR includes not only the interest rate, but factors in other closing costs and fees.
So basically, you’re supposed to get disclosures earlier, not pay any big fees until you have time to review them, and if your costs and/or interest rate make a big swing, you’re supposed to get an updated disclosure.
Also - and this rule started May 2009 - for conforming loans, those that conform to Fannie Mae/Freddie Mac guidelines, there’s another rule. This one is HVCC - the Home Valuation Code of Conduct.
HVCC is an attempt to make the appraiser more independent - less likely to be influenced by a lender or an agent or a buyer or a seller - and to make sure a borrower gets to see their appraisal. HVCC states that borrowers receive a copy of their appraisal report no less than 3 days prior to closing their loan - unless the borrower waives this requirement.
There was quite a bit of hubbub when HVCC came out - that agents weren’t allowed to communicate with the appraiser, that they’d delay closing because of long appraisal timeline allocations, that appraisers were working in areas outside their expertise. FHFA issued a document to try and clarify some of those conerns. Fannie Mae has a FAQ about HVCC as well. And of course, links to all kinds of HVCC information over at Realtor.org.
It Could Be More Difficult to Get a Loan – Soon
July 20, 2009
News from the Mortgage Reports this morning that loan approvals will be getting more difficult soon.
You guys remember when we talked about Fannie Mae? No, not the chocolates. The organization that buys loans on the secondary market.
Basically, lenders want to be able to sell their loans to Fannie Mae, so when Fannie Mae comes out with new guidelines, lenders change their guidelines too. The latest update from Fannie Mae is due to become in effect at the start of September.
You can read the whole article about the new Fannie Mae guidelines here In a nutshell, your documentation can’t be more than 90 days old, your tax returns and tip income comes under greater scrutiny, stock market assets are only given 70% of market value, and retirement assets are only assigned 60% of market value. And you can’t use a spouse’s expected income to help qualify, say, when moving to Tucson, until that person actually has a job.
There are also new, more restrictive rules for duplexes, whether you will live in part of the duplex or not.
If you’ve got a loan pre-approval and are waiting on the sidelines, you might want to pick up that phone and have a chat with your lender, see if these new guidelines will impact you and how much you can purchase. And if you’re looking for a lender, send me an email and I can recommend several excellent ones.
Buying Foreclosure Homes with FHA Financing in Tucson
July 15, 2009
What home buyer doesn’t want a bargain?
More and more often in this market, I’m coming across first time home buyers looking for that special foreclosure deal - and want to use FHA financing.
FHA is an attractive option for people who intend to live in the house they purchase, because it only requires a 3% down payment. Lots of home buyers - especially first time home buyers - take advantage of programs like FHA to get into a home with low down payment.
However.
Traditional FHA financing requires that the house be in good enough condition to qualify for that loan. And quite honestly, so many of the foreclosed homes in Tucson that I see aren’t in good enough shape. I’ve participated in enough FHA financing deals that I’ve got a pretty good eye for what will and what won’t pass muster.
There’s good news though - but expect to jump through a lot of hoops.
FHA has a fix-up loan program, the FHA 203k, where you can finance fix-up costs. The funds for repairs are placed in an escrow account and are released in draws as the work is completed. And as with all FHA loans, they can be used on 1-4 unit properties that the owner will occupy.
Those loans aren’t nearly as simple, so be sure you’re working with people that understand the process!
More resources from the HUD site:
Interest Rates are On The Move
June 2, 2009
If you’ve been shopping for a home, you may want to call your lender and check on rates. They’ve been swinging all over the place recently.
Not only have they been moving often, they’ve been making large changes, up over half a point in a day.
In terms of real money, on a $200,000 mortgage, if your rate went from 5.5% to 6.125%, your payment just went up $80/month. That’s not insignificant, especially in the lower price ranges where buyers are more sensitive to monthly payment amounts.
My friend Dan Green over at The Mortgage Reports explains the recent interest rate swings all in more detail. Go check it out - the guy knows the mortgage business like no other and talks about it in very understandable terms.
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