Financing-home loans, Real Estate, The Market

Optimism in the housing market

Fannie Mae headquarters
Image by futureatlas.com via Flickr

Optimism on the Horizon

by: Tim McLaughlin, Weichert Financial

Last week, Fannie Mae released their National Housing Survey for 4Q10. This comprehensive report and survey showed that the majority of Americans surveyed were upbeat and optimistic about the housing sector as compared to where we were 12 to 24 months ago.

The survey showed that Americans are more confident about the stability of home prices than they were at the beginning of 2010, even though there are some lingering concerns about the acceleration of the economy. If fact, over three-quarters of the respondents (78 percent) believe housing prices will hold steady or increase over the next twelve months.

Other takeaways:

Younger Americans are generally more positive about owning a home than the general population. 59 percent of Generation Y (ages 18-34) believes buying a home has a lot of potential as an investment.

As stated above, 26% of the general population thinks housing prices will increase over the next 12 months, with an additional 52% thinking that housing prices will remain about the same.

On average, members of the survey anticipate home prices to increase 0.4% over the next 12 months, while the same subset expects rental prices to increase 2.8% over the same time period. The expectation that rental increases will far outpace home price increases was prevalent with surveyors over the next five years, in fact.

One in four Americans said they would probably buy a home in the next three years (both current homeowners and non-homeowners), and one in three Hispanics and African Americans were of this thought process.

One interesting (and probably obvious) fact: poor credit is the number one stumbling block keeping potential borrowers from owning a home.

Financing-home loans, House and Home, Real Estate

Lower price vs. lower interest rates

Interest Rates are at historic lows hovering around 4.25%. If you are still on the fence, it may be time to seriously consider the advantages of locking in this low of a rate for 30 years.  Additionally, the increase in your buying power is significant. If the rates increase just .5-1%, you will actually end up paying more per month than if you had bought at a slightly higher priced home with a lower rate.  This may also mean that you can afford more home than you would have been able to if the rates had been higher.  This is in the favor of sellers at the same time because they now have an increased buyer pool.

Here is an example:

NOW SCENARIO 1 SCENARIO 2
Homes Decline 5% Homes Increase 5%
1% Rate Increase 1% Rate Increase
HOME PRICE $500,000.00 $475,000.00 $525,000.00
DOWN PAYMENT 3.50%
LOAN AMOUNT $482,500.00 $458,375.00 $506,625.00
INTEREST RATE 4.500% 5.500% 5.500%
MONTHLY PAYMENT $2,444.76 $2,602.60 $2,876.56
Savings – Monthly $157.85 $431.80
Savings – Life of Loan $56,826.00 $155,448.00
Financing-home loans, Real Estate

Applying for a home loan…some great questions to ask potential lenders

The following are some good questions to discuss with potential lenders when applying for a home loan:

  • Are both fixed-rate and adjustable mortgage loans available? (see adjustable rate mortgages below)
  • How long can I “lock-in” the financing at the current interest rate and what is the “lock-in” policy?
  • Is a float down lock available in case rates drop after I have locked in?
  • What are the other fees a lender may charge me in conjunction with my loan?
  • Are funds for a second mortgage available?
  • Is there a pre-payment penalty clause? This involves extra charges for paying off the loan before maturity. About 80% of all loans in the United States are paid off early.
  • What is the “grace” period?
  • How late can a monthly payment be made before a late charge is assessed?
  • What will happen if a payment is missed?
  • If you sell your house, will the new buyer (if he/she qualifies) be able to assume your mortgage at the same interest rate?
  • Do you have to pay “points” to get your new mortgage? Usually lenders charge points for the cost of giving you a mortgage loan. A “point” is 1% of the loan.  Or can you buy down points by selecting a slightly higher interest rate. If you do this and end up with negative points, the bank actually gives you money back at closing. 5% vs. 4.75% is no biggie if you aren’t planning to keep the home for a long time and would prefer to come to closing with a little less money.
  • Will the lender require mortgage insurance?
  • Is the loan serviced locally or is the servicing sold? Ask for a written “good faith deposit”.
  • What will the total closing costs be?

On Adjustable Rate Mortgages

  • How often will the interest rate be adjusted?
  • Is there a maximum limit on each rate change?
  • How often will the monthly payment be adjusted?
  • Is there a ceiling on payment adjustments?
  • Can the term of the loan be extended?
  • What is the maximum rate that can be charged over the life of the loan?
  • Is there any potential for negative amortization?
  • What is the annual percentage rate?

Hope this helps!

Happy Saturday!