To be 20% Down Payment, or Not To Be

By Chong Yi, Senior Mortgage Banker

Today’s mortgage industry is quite different than the days of our parents and grandparents.  I remember the day my dad and I discussed the interest rate that he was able to get for the house I grew up in as a child.  It was not the 4% that we are enjoying today.  In 1980, the best rate my parents were able to secure was 18% and this was considered the norm back then.

It was also the norm to put as much of a down payment as possible when purchasing, and to pay off your mortgage as quickly as possible.  At the very least, most homebuyers would put a 20% down payment so they could eliminate needing mortgage insurance. 

With interest rates being at all-time lows, putting 20% down or more may not always be the best option.  Particularly when you consider what your rate of return could be if instead, that down payment was invested elsewhere.   

For example, if a buyer were to purchase a home at $400,000, and put 20% down, the buyer would be financing $320,000.    A principal and interest payment at 4% would equate to $1,527.  If that same buyer instead put 10% down, they will be financing $360,000 with a slightly higher interest rate to offset the monthly mortgage insurance (a topic I’ll discuss further in another blog).   In this scenario, the principal and interest payment will be $1,770.  

The average buyer would look at this situation and determine it unbeneficial for them because they will be paying an additional $243 per month.  However, the savvy buyer may consider the return on investment (ROI) from the $40,000 that the buyer is saving on the down payment.  The buyer will pay an additional $243 per month so it will be an additional $87,480 in 30 years. However, if the $40,000 were to be invested in an investment vehicle that is returning at 7%, that 40,000 will be $324,659.  This will give the buyer a net ROI of $237,179 after the 30 years.

The bottom line is it’s important to not only look at the interest rate and down payment when considering your mortgage. Since there are many factors to consider, it’s imperative you work with a knowledgeable mortgage lender who is able to provide you with all of your options.

Visit us online to try our mortgage calculators, request a copy of our homebuyers guide or get started on your mortgage application!

Want a seller to accept your offer? You need a pre-approval!

By Amy Smith, Mortgage Planner

Have you ever purchased something online and when it shows up at your door a few days later thought to yourself, wow, that was easy and painless?!   Well, buying a home isn’t that easy.  It’s a process and it involves a lot of moving parts.  Before you start to shop, you need to make sure that you qualify for a loan.  This is where the importance of getting a pre-approval comes in.  Without one, no good real estate agent will work seriously with you and no seller will accept an offer you make to purchase their home.  Things you should know about a pre-approval:

1.   A pre-approval is based on three basic things:  Income, Assets and Credit.
   
2.   You must supply supporting documentation on the three items above for a true pre-approval.  Pay stubs, W-2’s and Asset Statements are a few of the basic items needed.  Your loan originator will also request information to pull your credit.
3.  A pre-approval is typically good for 60 days.  At that point, a new credit report will need to be run and you will need to send updated pay stubs and asset statements.
4. The pre-approval process should be completed BEFORE you start looking at homes.  This helps to eliminate the disappointment of finding the perfect home only to discover that you don’t qualify for it or that you do, but you can’t get a pre-approval letter in time to compete with other offers. Don’t let this be you!  Be prepared!

There really is no such thing as casually shopping when it comes to buying a home.  Getting a pre-approval allows you to avoid the disappointment of missing out on your dream home. Not sure if you're ready to get pre-approved? Not a problem, feel free to spend some time playing with our mortgage calculators, download our mortgage app or request a copy of our new homebuyers guide. 

Am I ready to buy a home? Questions to ask yourself before you take the plunge

By Kevin Carey, Senior Mortgage Banker 

Purchasing a home is quite possibly the largest purchase you will make in your lifetime.  Like most people, when I decided I was ready to purchase a new home, I began by trolling the internet and fell in love -  home after home.  I watched video tour after video tour and imagined how I would decorate each room.  I utilized the online mortgage calculator to estimate my payment and then hastily contacted the first realtor who picked up the phone so that I could run out the door as fast as possible to preview my new dream home.  The first words out of my realtor’s mouth were “have you been pre-qualified?” It was at that exact moment that I panicked and thought to myself, am I ready to buy a home? If you have ever felt this way then you need to ask yourself the following questions:

How do I start the process?

The first place to start determining if you are ready to purchase a home is to determine your budget.  The mortgage lender will use your gross monthly income (the income you receive prior to deductions such as taxes, medical insurance, 401K) to determine how much you qualify for. However, since we live on our net income (income you received post taxes, insurance, retirement…) it’s important to create a budget for yourself by first outlining the amount of money you spend on all of your liabilities such as car payments, credit card bills, student loans. You also need to calculate how much money you spend on groceries, eating out, leisure activities, gas, car maintenance etc..  Make sure you build in a buffer to account for home maintenance and utilities.  

How much you would feel comfortable paying for a mortgage each month?   

Keep in mind, many online mortgage calculators do not include property taxes and homeowner’s insurance.  These items are integral parts of your monthly payment. Click here for a great calculator to help you determine whether buying or renting is right for you.

How long you want to live in this house?  

What is your 5 year, 15 year and 20 year plan?  Do you plan to have children while living in this home?   Evaluating your long term goals will help you make an educated decision on the type of house your want to purchase.  

At this point in my home buying process, I realized I had made a lengthy list of questions that needed answering.  Who do I call?  Who can I trust?  Are you ready for the answer?  Are you sitting down?  Your next phone call should be to a qualified, educated and experienced mortgage lender.  The right mortgage lender can help you identify your goals and create a plan to reach them.   

Most of us think of our mortgage as simply the largest debt we carry.  Your mortgage lender will be able to show you ways to utilize your mortgage to save for retirement, and pay for college, but most importantly, your mortgage lender should be an individual that you create a lifetime relationship with.  [Be sure to ask what they will do for you after your mortgage closes. Will they provide you with a quarterly or annual mortgage analysis? 

Take the time for goal setting, self-reflection, connecting with a qualified mortgage lender and most importantly— happy house hunting!

Click here for more information on mortgage planning or to request our guide to buying your next home.
 

The Home Buying Process

By: Stewart Zemil, Chief Operating Officer

Home ownership has always been a major aspect of the American dream.  Regardless of your home buying experience, buying a home can be an overwhelming process. Understanding the steps of this process will help make the experience more manageable and enjoyable. With over 20 years in the industry, I’ve worked with many families to help achieve their homeownership goals and wanted to share the full process and some tips! Now is a great time to buy a home, here are the steps to get you into the home of your dreams:

1. Start savings towards your down payment
2. Set a personal budget
3. Get pre-qualified/pre-approved: Give me a call! We’ll set up an appointment to meet and review your employment/income/assets/debts and pull your credit report to determine the loan size you qualify for, and the type of loan program that meets your needs. Getting pre-approved not only helps you shop smarter because you know your finance options before shop, but it also strengthens your offer and lets the seller know you're serious. More to come on the importance of pre-approvals in a future blog!
4. Pick a Realtor: Your agent will represent you throughout the entire transaction beginning with determining the area in which you want to live and showing you homes in that area that fit your needs at your pre-approved price range, to writing and negotiating the best price for your purchase. They’ll even help manage all of the required vendors (home inspection, pest inspection, septic, handling the repairs, removing contract contingencies, scheduling a final walk through) until the date of your closing. If you currently don’t have a realtor, I’d be happy to recommend one to you.
5. Finalize your loan: Once you have a ratified sales contract, your next step would be to work with my team and I on the following:
1. We’ll prepare the loan application and disclosures with all current information as of the date we meet
2. Order title
3. Order the appraisal
4. Review the sales contract and disclosures to make sure you are in compliance with our lender’s guidelines
5. Order homeowner’s insurance
6. Process the loan application – obtain third party confirmations on all documents you provided to qualify for the loan in order to verify their accuracy
7. Submit the loan to our in-house underwriting department for loan approval
8. At this point, the underwriting department may request any additional documentation required
9. Once those documents are obtained, we’ll resubmit the loan to underwriting for a clear loan approval
10. We’ll send  the settlement company loan closing instructions and review the final HUD-1 settlement statement for accuracy
11. Review the settlement statement line by line to make sure you have no additional questions 
12. Wire closing funds to the settlement company
6. Go to closing: Our last step is to meet with all parties on the contract at the closing company to review and sign your closing papers. This is your chance to ask the seller any last minute questions about the home, and when you’ll receive the keys to your new home!

If you’re considering a move, I’ll be happy to walk through the home buying process with you one on one. For additional information, visit my website or feel free to review  this homebuyer’s handout I put together which further dives into the loan process.

Setting Your Budget: How to Analyze Your Finances to Determine How Much Mortgage You Can Afford

Whether you're buying a home for the first time or you've decided it's about time that you upgraded to a larger, more expansive house, if you're making a real estate purchase you'll need to be aware of how much you can reasonably afford to borrow in a mortgage. In today's post we'll take a look at a few ways that you can analyze your financial situation to help decide how much mortgage you can truly afford.

Prepare An Honest Monthly Budget

The first step in understanding how much of a monthly payment you can afford is to create an honest monthly budget which includes all of your family's income and spending. Although you won't have to pay them every month, it's also important that you include costs that show up irregularly like car repairs, Christmas gifts or tuition bills as these still need to be paid. The more information you can place in your budget, the more accurate your financial picture will be.

Your Down Payment Plays A Huge Role

As you might imagine, the amount you can invest in your down payment plays a significant role in how much mortgage financing you will need. Every dollar that you can place in your down payment today is one less dollar that you'll need to borrow and pay interest on over the amortization period of your mortgage. Take some time to consider how much you can put down, and see if there's any way you can bump this figure a bit higher.

What Interest Rate Will You End Up Paying?

Small changes to your mortgage interest rate can have significant impacts on how much you are required to pay back over the life of your mortgage. As you're shopping around, be sure to consider how long your interest rates are valid for and try to determine the lowest rate you might qualify for. You may also find it helpful to use an online mortgage calculator which can help you to understand how your interest rate impacts your monthly payments.

Consult A Mortgage Professional To Learn More

While building a quick budget to analyze your family's expenses is easy, factoring in all of the various items that a lender will consider might be harder than you expect. If you have questions about the mortgage process and whether or not you're ready financially, contact your local mortgage professional today.

Case-Shiller: July Home Prices Cool Across U.S.

The stifling heat of July did not penetrate U.S. housing markets according to the S&P Case-Shiller 10-and 20 City Home Price Index reports.

San Francisco's sizzling home prices dropped in July and posted its lowest price gains since 2012. According to the Case-Shiller 10 and 20-City Home Price Index reports, month-to-month home price appreciation fell to identical readings of an 0.60 percent increase as compared to a 1.00 percent increase reported in June.

Case-Shiller also reported that home prices grew by 0.50 percent throughout the nation. This was the seventh consecutive monthly increase for national home prices.

Year-over-year, seasonally adjusted home price growth was lower in July. Both the 10 and 20 city index reports showed a gain of 6.70 percent over July 2013 as compared to June's year-over-year reading of an 8.10 percent gain in June. 19 of 10 cities tracked in the Case-Shiller 20 City Home Price Index reports posted lower average home prices in July.

New York posted a 1.10 percent gain in July, while home prices dropped by 0.40 percent in San Francisco. San Francisco showed a marked loss of momentum with July's year-over-year reading of home price growth decreasing to 10.30 percent from June's reading of 12.20 percent

On average, July's home prices were approximately 16 percent below a 2006 peak.

Slowing Demand Puts Brakes on Home Prices

Analysts report that reduced demand for homes is contributing to lower price growth. Rising home prices have put homes out of reach of first-time and moderate income buyers and stringent mortgage credit standards that became effective in January have taken the edge off of high demand and low inventories of homes seen earlier in 2014.

Home prices continue to grow at two to three times the inflation rate according to David M. Blitzer, chair of the S&P Dow Jones Indices Committee. Stagnant wage growth has also quieted housing markets.

New Home Sales Buck Slowing Home Price Trends

The Department of Commerce reported that August sales of new homes grew by 18 percent in August to the highest reading since 2008. August sales of new homes topped out at 504,000 new homes sold on a seasonally adjusted annual basis. Analysts predicted new 426,000 new home sales and July's reading was 427,000 new home sales.

Demand for new homes grew in direct opposition to Case-Shiller's July data for existing home sales in 20 major metropolitan areas. While good news for home builders and those employed by them, new home sales account for only about a tenth of the housing market.

Analysts also note that new home sales readings are somewhat volatile and often subject to revision. Increases in new home sales are seen as a positive sign for the general economy as builders are expected to increase hiring and will buy more materials as home construction increases.