I received the email below from a trusted loan consultant. I found the content informative, so I thought I’d pass it along to the readers of this blog.
Recent announcements from both FHA and Fannie Mae have brought into focus the anticipated underwriting guideline changes that will come in effect later this year.
As buyers continue to become active, investors continue to feel the pinch of recent losses and are doing what they can to ensure that the current pattern, in which we find ourselves, does not continue.
Although there has been tightening of underwriting conditions over the past couple of years, it has been fairly easy for most parties that are ready to buy a home to qualify for their financing. Announcements indicate that these guidelines will continue to tighten impacting more potential homeowners. The two areas where we will see continued tightening is in minimum credit score requirements and maximum debt to income ratios, the later being the greater issue for most people.
I will be seeing changes during the first part of December.
On the interest rate front, the past week has brought a dramatic decrease in interest rates. Unfortunately, I do not anticipate having these historic lows continue into the new year as the Feds have announced that they will not continue to aggressively buy mortgage bonds once the current budget is spent. Today an FHA is at 4.75%. I anticipate by the spring we should be about 5.5%.
I am optimistic that the first-time home buyer tax credit will be extended but do not expect to see this announcement come until just before, or after, the Nov 30 closing deadline.
There are also some changes in regards to the first-time home buyer programs here locally, including my ability to provide financing with the NV rural program and the new Washoe County consortium program. Please feel free to contact me if there are any programs for which you would like any additional information.
Bottom line, 2010 will bring continued inventory of great properties, rates near historic lows, and tightening of underwriting guidelines making it more challenging to qualify for a loan. If you are ready to buy and find yourself ready to buy, now may be the time.
10 comments
“If you are ready to buy and find yourself ready to buy, now may be the time.”
Boy, they said in in 2001. They said it in 2006. They are still saying it today. Spoken like every other Real Estate and Loan Broker I’ve ever met.
Let me see if I can follow the logic. Loan standards are tightening. Fewer prospective buyers will therefore be able to obtain funding. Demand will thus be decreased. With lower demand, lower prices should naturally follow. Therefore, NOW is the time to buy??
Give me a break. If you have marginal credit, perhaps you should jump now, so you can default later. For others with good credit and a down payment, tightening standards are welcome and should yield better prices down the road.
If you look at the ever increasing REO inventory, and tightening loan standards, and you can wait until the spring (or later), I think you’d be a fool to buy right now, unless you find such a great value that you just can’t walk away. It’ll be a long, tough winter for real estate agents, sellers, and loan brokers, IMHO.
Yep, the spinjive never stops. You all better go out and buy TODAY, before you get debt-ratioed out foerever.
“Today an FHA is at 4.75%. I anticipate by the spring we should be about 5.5%.”
Predicting future interest rates is pretty heady stuff. Maybe trusted loan consultant should stop giving advice and start trading Treasury futures. Lots of luck!
A $200,000 30 year fixed loan at 4.75% has a payment of $1,043.29
The same loan at 5.5% has a payment of $1,135.58.
The difference is $92.29, less than the cost of a fancy coffee a day.
QUICK MATH FOR THOSE WHO THINK THE DIFFERENCE BETWEEN 4.75% AND 5.5% IS TRIVIAL
Scenario:
Joe decides to buy now. He gets a $200K 30 year fixed loan at 4.75% for a monthly payment of $1043. Bill waits another 10 months to buy a similar house at a reduced price. He gets a $185K 30 year fixed loan at 5.5% for a monthly payment of $1050.
Both Joe and Bill sell their house in October of 2019 (ten years from now). After making payments for 120 months, Joe’s mortgage balance is $161,444. After making payments for 110 months, Bill’s mortgage balance is $156,119.
Assumptions:
1. First Time Homebuyer’s Credit gets extended and both of them benefit equally from it.
2. The ten months of extra property taxes and insurance that Joe pays is approximately balanced by the benefit he receives on his taxes for 2010.
Math:
Net extra payment made by Joe during the homeownership period = 1043*120 - 1050*110 = $9,660
Net extra cash Bill receives at the Sale in 2019 = 161,444 - 156,119 = $5,325
Net cost to Joe for living in the house for 10 more months than Bill = 9,660 + 5,325 = $14,985
Rental equivalent monthly cost to Joe during the first ten months = $1498.5
Bottomline:
A typical house that you can buy today for $210K (Joe’s mortgage + some downpayment) in a good neighborhood (Damonte Ranch?) is 1500 to 1800 sq-ft in size. Does paying a rental equivalent of $1498.5 per month on such a house makes sense? I think it does.
PriceItRight,
Whatever.
To skeptical,
I agree.
To PriceItRight,
Good logic, although I wonder how many people are looking at a home purchase as a long-term deal, even now.
After reading this article and some of the postings I am in the same position I was before I read anything. I have heard so many people say now is the time to buy and so many others say you’re crazy if you buy now. Still not quite sure what to do, so I guess I will keep researching.
Reno Chiro - I agree with you. It reminds me of a discussion I had today about banks. The banks don’t want to deal with people in default because if they do they might have to deal with people that are under water, but not in default yet. Even though they know they will end up selling the house for 50% of amount due on note.
I can’t say I don’t blame the banks, but the idea of letting 1/2 of a community fail and the 1/2 not, doesn’t make much sense either. Try swimming the English Channel with one arm tied behind your back.
A rising tide lifts all boats.
Although I don’t have the solution, I do think the banks are too close to the forest to see the trees. As long as this confusion prevails, any semblance of a recovery is a ways off, until a recovery begins prices with remain stable or continue down but not go up. I’ve said in the past, that this area could bottom at any time and there would be no need to rush into buying because the price level with remain flat for a year or so. I still think that.
Hey Chiro,
Sorry your not getting spoon-fed enough here. I hear ya, I want someone else to make these multi-hundred thousand dollar decisions for me, cuz it’s just too damn hard.
Heck, I read these posts about all these REOs out there, and I think, it must be the time to buy. Then, I think, well, but that’ll cost money. So, believe me, I know where you’re coming from.
I tell ya what. If I tell you what house to buy and when, can you crack my back for free (and maybe let me crash there once in a while)?