Mortgage rates hit 16-month lows in mid-October, spent three weeks slowly inching up, and have now dipped back to those lows.
Rates rise and fall when bond markets sell off or rally, respectively, based on how they interpret daily economic news and data. This rate volatility will continue as the Fed winds down its six-year rate stimulus campaign.
If you understand the loan process, you can capitalize on rate volatility by capturing the lows when they come. Ask your lender the following five questions to align your loan process with this volatile rate market.
1. Did I miss the mini refinancing boom of 2014?
No. Rates are low enough that the mini refi boom from mid-October could resume. But with economic uncertainty driving rate markets up and down daily, you must have a plan. You can’t just lock a rate when they dip and hope your loan closes on time (see #5 below).
The best approach is to contact a lender if you’re considering refinancing. Taking this step ensures you will have the loan process underway, with a rate lock being the last thing you’re waiting for. Then you can set a rate target with your lender based on short- to medium-term rate market expectations, and give your lender a standing order to lock the rate when they see it during volatile daily trading.
2. How do I get accurate rate quotes without submitting all my documentation?
As you begin your loan process, you can find out exactly what lenders are quoting by submitting a custom loan request on Zillow. However, it is important to note that once your credit report is run and your financial and property documentation information is collected, any changes or updates to your original loan request can affect your loan amount and mortgage rate.
Additionally, a lender will analyze whether the math supports paying points on a refinance given your objectives—paying 1 point (which is 1 percent of your loan amount) should lower your rate by at least .25 percent. In this case, the interest cost savings from the .25-percent lower rate repays the cost of the point in four years, and everything from that point forward is pure benefit from the lower rate.
You should also work with your lender to determine whether a cost or no-cost refinance is better for you financially. Refis cost about $2,500 to $4,500 depending on your market, and your rate will be .125-percent to .25-percent higher if you choose a “no-cost” refi. Knowing this, you can prepare for a lender consultation by analyzing cost vs. no-cost refi options in advance.
3. Why should I submit my documents as soon as possible?
Your lender will need to pull your credit report, monthly debt, pay stubs, W-2s, tax returns, asset statements, and anything else impacting your financial profile such as promotions, career changes, job gaps, maternity leave, loans you’ve made or received, and income or debt from divorces.
Your loan officer will have to collect and analyze these documents, which an underwriter at the bank will then have to approve. An appraiser must inspect your property, then submit a full report for the lender to review, along with a title report, insurance, and any other relevant property information (such as a full questionnaire, budget, bylaws, homeowners association rules, and Articles of Incorporation if your property is a condo).
If you start the loan process early by submitting your application and required documents, you can avoid unpleasant surprises or adjustments before you lock a rate.
4. What if rates drop after I lock my rate?
You have options if this happens. Whether you’re locking a purchase or a refi loan, rate markets will move up or down after you lock your rate.
If rates rise, your lock protects your rate as long as your loan closes within the rate lock period (see #5 below).
If rates drop, ask about your lender’s “rate renegotiation” policy. Most lenders follow a model similar to this: If rates drop at least .25 percent, you can renegotiate your rate to capture about half of that drop. So if you locked at 4.125 percent with a lender that followed this type of model, and rates dropped to 3.875 percent, you could renegotiate your rate to 4 percent.
5. Will my loan close before my rate lock expires?
Ask your lender if their quoted rate allows enough time to close your refi given all factors of your profile and their bank’s “turn times.” It’s important to know refinance loans in a rate-fueled market don’t close as fast because lenders will always put their purchase loans ahead of their refis in line for approval.
Be sure to ask your lender about their lock extension fees, and make them clarify who pays the extension fees: you or them? Lock extension fees range widely. They can be .125 percent of the loan amount for 15 extra days, or .125 percent for 5 extra days. On a $250,000 loan, that means a 15-day extension could range from $312.50 to $937.50.
As you prepare to buy or sell a residential property, you may wonder about the roles of the various team members involved in the transaction. It’s not uncommon to feel confused about how agents, attorneys and brokers function in the process, so here’s a guide to help clarify the matter.
The real estate agent
When it comes time to buy or sell a home, most people immediately think of contacting a realty company and a real estate agent. An agent can be an invaluable resource for sellers and buyers — particularly those purchasing a home in a different state or country.
Real estate agents are in a sales position, working for commission under the direct supervision of a real estate broker. Agents can help match buyers with a home within their price range and in their favored area.
For sellers, real estate agents can be an integral component to finding the right buyer for a particular property. Sellers’ agents are often in constant communication with buyers’ agents to find the right match.
The real estate broker
Real estate brokers are much like real estate agents, except brokers have pursued additional education and credentials, which allows them to work independently and supervise other agents.
Depending on the locale and business model, the real estate broker may not always work directly with clients. However, commissions are often payable to a brokerage, then distributed to the agent responsible for the sale of the home.
West Chester, PA attorney Robert Carey recommends “find[ing] a real estate attorney who is also an active licensed real estate broker — that way you can have the best of both worlds without running into the additional attorney fees.”
The real estate attorney
A real estate attorney is an important component of the process after the property is under contract between a buyer and seller. When it comes to land sales, many issues can emerge with regard to the title to the property, boundary lines, easements, oil and water rights, agricultural leases, zoning and more.
As explained by Sean Green, a real estate attorney working in Lubbock, TX, a real estate attorney can review your purchase agreement early in the process, helping you determine if “the seller had a contract drafted that gives them all sorts of recourse while limiting yours.”
Your real estate attorney will investigate the property’s ownership background, legal description and survey. They’ll work with the buyers to ensure that, at the time of settlement, a proper title insurance policy is in place, the buyer fully understands the terms of the mortgage and promissory note, and the title to the property is clear of any encumbrances like mortgages, liens and judgments.
If, along the way, the attorney discovers a major issue affecting ownership, they will advise the buyers not to close on the property until the problem is solved.
“In many transactions, the real estate attorney is the only party who is truly unbiased,” says Tampa, FL real estate attorney Andrew Hoek. “A broker only gets paid if the deal closes. An attorney gets paid regardless and can therefore truly represent your best interests.”
Certain circumstances may also call for a residential or commercial real estate purchase in the name of an entity such as a corporation or limited liability company. Houston, TX lawyer Bruce Ward Bain explains that a real estate attorney can not only assist if the transaction goes south, but “can also help you set up the right entity to acquire [your] properties.”
Real estate attorney fees are relatively low compared with potential hazards that can ensue if a property is sold unchecked and unverified. Fraudulent transfers, boundary line disputes and legal claims from adverse possessors are just some of the real estate conundrums facing buyers who chose to forgo the assistance of an experienced real estate lawyer.
In addition, a real estate attorney will protect the buyer from most of the foreseeable risk associated with a real estate purchase, a service which can be truly priceless compared to the costs of defending against later claims.
“It will be an added expense, but in light of the enormity of the transaction, engaging a real estate attorney to review the contract and attend closing on your behalf is worth it,” says Malvern, PA real estate attorney Nellie Shulz.
After it was announced that Fannie Mae and Freddie Mac would again make available mortgage loans requiring as little as a 3% down payment, many people showed concern. Were we going back to the lower qualifying standards of a decade ago that caused the housing market crash? Won’t lower down payments dramatically increase the default rates? Will we again be faced with an avalanche of short sales and foreclosures?
The simple answer is – NO. Let’s look at the data.
While it was happening (2011)
Back in 2011, as we were just recovering from the worst of the Great Recession, many organizations were looking for the cause of the massive default rate on mortgages.
The National Association of Realtors (NAR), the Center for Responsible Lending (CRL), the Mortgage Bankers Association (MBA), the National Association of Home Builders(NAHB), the Community Banking Mortgage Project and the Mortgage Insurance Companies of America (MICA) issued a white paper on the subject titled: Proposed QRM Harms Creditworthy Borrowers and Housing Recovery.
Let’s look what the report says:
“In the midst of a very fragile housing recovery, the government is throwing a devastating, unnecessary and very expensive wrench into the American dream. First time homebuyers will have to choose between higher rates today or a 9-14 year delay while they save up the necessary down payment…
High down payment and equity requirements will not have a meaningful impact on default rates. But they will require millions of consumers, who are at low risk of default, to either put off buying a home or pay unnecessarily high rates. The government is penalizing responsible consumers, making homeownership more expensive or simply out of reach for millions. We urge regulators to develop a final rule that encourages good lending and borrowing without punishing credit-worthy consumers.”
The report actually studied the impact a higher down payment would have had on the default rates of loans written from 2002 through 2008. The report states:
“…moving from a 5 percent to a 10 percent down payment on loans that already meet strong underwriting and product standards reduces the default experience by an average of only two- or three-tenths of one percent… Increasing the minimum down payment even further to 20 percent… (creates) small improvement in default performance of about eight-tenths of one percent on average.”
Today (2014)
Just last week, the Urban Institute revealed data showing what impact substantially lower down payments would have on default rates in today’s mortgage environment. Their study revealed:
“Of loans that originated in 2011 with a down payment between 3-5 percent, only 0.4 percent of borrowers have defaulted. For loans with slightly larger down payments—between 5-10 percent—the default rate was exactly the same. The story is similar for loans made in 2012, with 0.2 percent in the 3-5 percent down-payment group defaulting, versus 0.1 percent of loans in the 5-10 percent down-payment group.”
Bottom Line
We believe that the Institute concluded their report perfectly:
“Those who have criticized low-down payment lending as excessively risky should know that if the past is a guide, only a narrow group of borrowers will receive these loans, and the overall impact on default rates is likely to be negligible. This low down payment lending was never more than 3.5 percent of the Fannie Mae book of business, and in recent years, had been even less. If executed carefully, this constitutes a small step forward in opening the credit box—one that safely, but only incrementally, expands the pool of who can qualify for a mortgage.”
Housing supply just dropped to 5.1 months, which is under the 6 months’ supply that is needed for a normal housing market. This means that, in many areas, there are not enough homes for sale to satisfy the number of buyers in that market. This is good news for home prices. However, additional inventory is about to come to market.
There is a pent-up desire for many homeowners to move, as they were unable to sell over the last few years because of a negative equity situation. Homeowners are now seeing a return to positive equity as real estate values have increased over the last two years. Many of these homes will be coming to the market in the near future.
Also, new construction of single-family homes is again beginning to increase. A study by Harris Poll revealed that 41% of buyers would prefer to buy a new home while only 21% prefer an existing home (38% had no preference).
The choices buyers have will continue to increase over the next few months. Don’t wait until all this other inventory of homes comes to market before you sell.
2. The Process Will Be Quicker
One of the biggest challenges of the 2014 housing market has been the length of time it takes from contract to closing. Banks are requiring more and more paperwork before approving a mortgage. Any delay in the process is always prolonged during the winter holiday season. Getting your house sold and closed before those delays begin will lend itself to a smoother transaction.
3. There Will Never Be a Better Time to Move-Up
If you are moving up to a larger, more expensive home, consider doing it now. Prices are projected to appreciate by over 23.5% from now to 2019. If you are moving to a higher priced home, it will wind-up costing you more in raw dollars (both in down payment and mortgage payment) if you wait. You can also lock-in your 30 year housing expense with an interest rate in the low 4’s right now. Rates are projected to be over 5% by this time next year.
4. It’s Time to Move On with Your Life
Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?
Only you know the answers to the questions above. You have the power to take back control of the situation by putting your home on the market. Perhaps, the time has come for you and your family to move on and start living the life you desire.
Whether it’s your first time hosting or you’re a seasoned pro, planning and cooking a Thanksgiving feast can be stressful. These 10 tips will help keep the day smooth, your sanity intact and your kitchen a little cleaner. Just don’t forget to take the giblet packet out of the turkey!
Clear the counters
This is the best place to start for a clean mind and clean kitchen. Load the dishes in the dishwasher, put away the random candy still lingering from Halloween and file the bills that are cluttering the counters. Now you’ll have a nice fresh space to sit down and write out your menu.
Finalize and post your menu and shopping list
Grab your cookbooks and holiday magazines, go through your Pinterest feed and don’t forget Grandma’s heirloom recipes. While you’ve got all of the recipes in front of you, make a list of everything you’ll need and post the menu and list on your fridge for inspiration.
Clean oven/stovetop
Next up, clean the oven and stovetop. For a non-toxic approach, remove all of the racks and any loose grime from the bottom and walls of the oven. Then, make a paste of baking soda and water and spread it on any dirty areas. Let sit for 15 minutes, then scrub with warm water and rinse clean.
Clean out the fridge/freezer
These will soon become packed with ingredients, leftovers and of course, a giant turkey. Cleaning them out now will save aggravation later. While you’re at it, throw a fresh box of baking soda with the lid open in the refrigerator to soak up any lingering odors and keep things fresh.
Declutter drawers and cabinets
Get rid of expired food, stale chips and cereal boxes with only crumbs left. You’ll need the space for ingredients and snacks. De-cluttering drawers is a good idea, too, so you can easily reach or direct guests to butter knives or candles when you need them.
Take inventory of your ingredients
Now that you have a clean slate, you should be able to make sure all of your staples such as flour, salt, pepper, butter and olive oil are full and ready to go for the big day. If you already have five cans of green beans, you likely won’t need to buy more. Cross items off your shopping list, but just be sure not to use them in the meantime.
Stock the pantry
Now it’s time to refill the pantry. Don’t forget quick-grab snacks for guests and plenty of coffee. You might also want to have one or two quick meals on hand for when everyone gets tired of leftovers.
Grab containers for leftovers and food wrapping
When you’re at the store, don’t forget to stock up on disposable plastic containers, baggies and food wraps. These will be indispensable. If your guests aren’t traveling far, they’ll be grateful for a take-home container they don’t need to return.
Prep your serving platters, silver, etc.
Once your menu is planned, you can make sure you have enough serving dishes, platters and utensils for each dish you’re making. Use sticky notes to remind yourself what goes on each platter. This way you won’t forget to serve anything, either.
Plan and gather your table decorations
Last but not least, make the tablescape pretty by collecting your decorations ahead of time and keeping them at the ready. You can even set the table the night before. Place cards, centerpieces, candles, napkin holders and cloth napkins will make the meal memorable but can often get forgotten in the last-minute rush. Not this year!
