Mortgage or Marriage Certificate

No, this in not one of those chicken or the egg conversations.  I want to touch on the practical side for those Edmond, Oklahoma friends and neighbors deciding whether or not to purchase a home with their partner before getting married.  Here are three factors to consider when contemplating taking out a mortgage before turning your significant other into your wife or husband.

  1. Mortgage approval.  Banks prefer to see two supporting incomes during the mortgage approval process, even if the couple applying together are not (yet) married; more income equals better ability to repay.  However, if one of the two applicants has a poor credit score their inclusion on the mortgage application can actually hurt your chances for securing financing.  In that case you might consider having the applicant with the superior credit rating apply alone.  Of course that leaves you with only one qualifying income to support your application, translating to an approval for a smaller loan amount.  Hmm…Much to consider.
  2. Down payment.  Are you both able to equally contribute to the down payment on the home purchase?  If not, why not take the practical step of including how much each of you do contribute in the mortgage paperwork just on the chance that the relationship dissolves before anyone ever walks down the aisle.  This way everyone protects their equity, and you both can move forward confidently purchasing a home before signing a marriage certificate.
  3. Title.  How will you, as an unmarried couple take title to the property?  Divorce, and the subsequent division of property can become a very messy ordeal.  Breaking up, for unwed couples who own property together can be just as trying because the individuals are not afforded the same legal protections as married couples.  If you’re considering buying a home before marriage write up a legal contract spelling out who is responsible in the event of a break for ongoing issues like the mortgage, taxes, maintenance costs, capital gains, and more.

Mortgage Market Update

Freddie Mac surveys mortgage lenders every week, compiling the results in a report they call the Primary Mortgage Market Survey (PMMS).  Here are last week’s results with a comparison to the previous week.

30 Year Fixed mortgages came in at 4.20% with 0.6 points.  This was a mere 0.01% lower than the previous week with no change in points.

15 Year Fixed mortgages came in at 3.29% with 0.6 points, 0.03% lower than the previous week with no change in points.

5 Year ARMs came in at 3.01% with 0.4 points.  The prior week was at 3.05% with 0.5 points.

1 Year ARMs came in at 2.43% with 0.5 points, the rate unchanging from the prior week but points actually being higher by 0.1.

The Reality of Less Than 20% Down

The reality is…YES, you can put less than 20% down on the purchase of your new Edmond, Oklahoma dream home.  Yes.  Yes, you can.   But before you do, let’s first take a quick look at the pros and cons for putting less down:

Cons:

  1. Your interest rate will be a little bit higher than if you were able to put 20% down, raising your potential monthly payments
  2. Your lender will require you to carry private mortgage insurance (PMI), also raising your monthly payments
  3. By putting less down you are borrowing more, increasing the principal of the loan and in turn your increasing your monthly payments

Pros:

  1. Putting less down means you are able to save your down payment quicker, and in turn to move into your dream home sooner than if you have to wait until you save the 20%
  2. Getting into your new home gives you all the benefits of your new location like, for example, a new shorter commute to work, or having your children in their new school district.  Maybe you can now have that garden you always wanted, or even a dog.  Maybe it’s the kids being able to have their own bedrooms for the very first time.

The pros and cons of putting less money down on a purchase of a new home really come down to money and time.  Can you afford to put more down?  If so, maybe you should.  It will save you some money on monthly payments and total payments over the life of the loan.  If you don’t have 20% and you really wanted to get into a new home before the new baby is born (another great example), then go with the smaller down payment.  It all comes down to what you’re comfortable with, and the best way to determine that is to consult with a professional mortgage lender you trust and get pre-approved for a loan.  They will help you determine how much you qualify to borrow, what interest rate you will be looking at, and what your monthly payments will look like.

The Pros and Cons of 20% Down

Saving for the down payment on a new Edmond, Oklahoma home?  It’s a difficult task cutting back on other spending just to sock away a few more dollars every month.  And paying less than 20% down, say, 10%, 5%, or even 3.75% can mean the difference between moving into your dream home in six months compared to six years.  So what are the benefits of hitting that 20% down payment in your savings account that make it worth waiting a little longer, and pinching a few more pennies and brown bagging it to work instead of eating out for lunch?  Let’s take a look.

The bank sees you as a more favorable borrower if you can put 20% down on a new home.  According to their approval process you are deemed less of a risk for defaulting on repayment because you are more vested (and invested) in the home, meaning you have more of your own money to risk in any potential default and less of theirs.  Translation here it will be easier for you to get approved for your new mortgage, AND you will get a lower interest rate.  Lower interest rate means lower monthly payments.

Putting 20% down on a home also means you are borrowing less.  Borrowing less means a smaller balance to pay off over the course of the loan, and in turn lower monthly payments.

Finally, with a 20% down payment you will not be required to carry PMI (private mortgage insurance) to insure the lender against potential defaults.  Although this insurance insures the lender, it is paid by you, the borrower.  At 20% down you don’t need PMI which means your monthly mortgage payments will (once again) be lower.

Noticing a trend here?  Putting more money down now not only decreases the amount of your monthly payment in many ways, but it decreases the total amount (principle and interest) you pay over the life of the loan.

The greatest negative of waiting to buy your new dream home until you have 20% down?  Time.  So what if you can’t wait?  Tune in next time when I discuss lower down payment options.

The Contingency

Edmond Oklahoma home buyers looking to protect themselves during the purchase process have a very common contract tool at their disposal called the contingency.  Contingencies in Real Estate contracts allow a potential home purchaser the opportunity to get out of the contract if specified contingent requirements are not met without having to follow through with the purchase, and most of the time without losing their earnest money deposit.  There are three common contingencies that can be exercised at various points in the closing process as long as they are included in the original contract.

First is the Inspection Contingency.  The home buyer’s Realtor will include, as part of the contract, contingency language that states the purchase is dependent on the completion of a property inspection.  The inspection allows for a buyer to discover previously unknown defects in the property, and to negotiate with the seller how any inspection issues are to be resolved.  If a resolution cannot be agreed upon the buyer has the option to back out of the contract.

An appraisal contingency states that if a home does not appraise for the contracted sales price the buyer again has the option to back out of the contract.  If you’re currently in a buyer’s market, and you (as the buyer) still want to follow through with the purchase the bank will require you come up with any shortfall (by way of a higher down payment) when they apply their formula to the appraised value and not the sales price.

A mortgage contingency states that if the buyers are not able to obtain a mortgage to complete the purchase of the home they can walk away from the deal.  Rarely, nowadays, do buyers get to the point of an accepted contract without getting pre-qualified or pre-approved for their new mortgage up front.  Still, the mortgage contingency can protect against not only failure to get a mortgage, but failure to get a mortgage containing agreeable terms.

Mortgage Market Update

Here are the week’s rates and notes for our Edmond, Oklahoma friends and family courtesy of Freddie Mac:

30-year fixed-rate mortgage (FRM) averaged 4.32 percent with an average 0.6 points at the end of the day March 20, 2014, down from last week when it averaged 4.37 percent.  Points remain unchanged.

15-year FRM this week averaged 3.32 percent with an average 0.6 point, down from last week when it averaged 3.38 percent.  Points remain unchanged.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.02 percent this week with an average 0.4 point, down from last week when it averaged 3.09 percent.  Points again were unchanged.

1-year Treasury-indexed ARM averaged 2.49 percent this week with an average 0.4 point, up slightly from last week when it averaged 2.48 percent.  Points were unchanged.

How the New QM Mortgage Rules Affect Borrowers

A new set of rules went into effect at the beginning of the year from the Consumer Financial Protection Bureau aimed at ensuring consumers obtain sustainable loans and keep banks from making questionable loans to unqualified borrowers.  These new rules known as the QM regulations (short for Quality Mortgage Regulations) are in response to the recent housing and financial crisis.

As a potential Edmond, Oklahoma borrower applying for a mortgage loan your total monthly debt payments must be at 43% or lower of your monthly income.  Secondly, lenders are capped at 3% for lender fees on the loans they provide.  By sticking to these two standards a loan earns the QM designation, which means the loan can then be purchased or guaranteed by Freddie Mac or Fannie Mae.  Bottom line, QM loans backed by Freddie or Fannie bring legal protection for the lender against future lawsuits by borrowers or investors.

That’s not to say lenders do not have non-QM loans available.  With the new regulations the onus is still on the bank to complete their due diligence, ensuring borrowers have the ability to repay the loan, but the non-QM loans will not receive the same legal protection as the QM loans.

What does all this mean to you?  Much of the flexibility lenders had in the past is now gone.  Many banks have already gotten rid of quite a few of their mortgage products in the wake of the crisis like the no-documentation loans, interest only, and negatively amortizing loans.  These new regulations are more likely to affect traditional borrowers in any of a number of ways.  An example would be a borrower with a healthy savings account, but who has lower monthly income because they are retired.  Likewise self-employed people may be evaluated under a more powerful magnifying glass as to their ability to repay as banks strive to toe that 43% debt to income ratio.

Mortgage Market Update and Notes

In the weeks after several economic reports including recent weaker housing data have been released we’re seeing mortgage rates down slightly pretty much across the board.  The only rate to inch up from the week previous was the 1 Year Treasury-Indexed ARM which had a negligible increase of 0.01%.  Here are the week’s rates and notes for our Edmond, Oklahoma friends and family courtesy of Marketwired and Freddie Mac:

30-year fixed-rate mortgage (FRM) averaged 4.32 percent with an average 0.7 point for the week ending January 30, 2014, down from last week when it averaged 4.39 percent. A year ago at this time, the 30-year FRM averaged 3.53 percent.

15-year FRM this week averaged 3.40 percent with an average 0.6 point, down from last week when it averaged 3.44 percent. A year ago at this time, the 15-year FRM averaged 2.81 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.12 percent this week with an average 0.5 point, down from last week when it averaged 3.15 percent. A year ago, the 5-year ARM averaged 2.70 percent

1-year Treasury-indexed ARM averaged 2.55 percent this week with an average 0.4 point, up from last week when it averaged 2.54 percent. At this time last year, the 1-year ARM averaged 2.59 percent.

Mortgage Market Update

This week’s Primary Mortgage Market Survey (PMMS) from Freddie Mac looks much like last week’s report:

30 year fixed rates came in at 4.51% with 0.7 points, down slightly from last week’s 4.53% with 0.8 points.

15 year fixed rates came in at 3.56% with 0.6 points, also varying only slightly from last week’s 3.55% and 0.7 points.

5 year ARMs came in at 3.15% with 0.4 points, down 0.10% from last week with no change in points.

1 year ARMS came in identical to the week previous at 2.56% with 0.5 points.

Three Tips for Buying a Foreclosed Home From the Bank

Some areas of the country are still experiencing a heightened volume of foreclosures which means local lenders continue to have a higher than normal volume of REO (Real Estate Owned) properties in their portfolio.  Now, you may have heard you can get a good deal on foreclosure homes because banks want to get them off their books.  It’s true, banks make their money making loans, not as landlords, but purchasing a foreclosure is much different than purchasing other Edmond and Greater Oklahoma City homeowner owned property in your market.  Here are a few suggestions when looking into purchasing a foreclosed home.

First, have your Realtor research Realtors in your area specializing in foreclosures.  How will they do that?  If they don’t already know the specialist they will comb through the local MLS (Multiple Listing Service) and the internet for foreclosure listings in your area to find out which Realtor(s) are listing them for sale.  Banks limit the number of Realtors they work with to sell off their REO assets in any one area to a relatively small number.  These Realtors not only represent current listings, they will also know about other properties soon to hit the market.  Having your Realtor open a dialogue with the local specialist can help you learn about properties before they hit the market.

Additionally, as with any home purchase you are better served to walk into the foreclosure purchasing conversation having already been pre-approved for a new mortgage.  Realtors specializing in bank owned properties and the REO departments of those banks have many homes to manage.  Show them you are a serious by coming in as a pre-approved buyer.

Finally, keep in mind you will be purchasing any foreclosed home “as-is.”  Banks don’t want to put good money in after bad.  They want quick, issue free closings.  As we stated above, REO departments are managing many properties, and do not have the time to manage repair projects.  Their stance is they have already lost money on the property, and justify the reluctance to cover repairs with a lower resale price.   Food for thought.