Archive for October, 2009

Holding onto the past

October 29, 2009

The past can hold a lot of great memories… birthdays, wedding day, graduation, one’s favorite TV show that was cancelled by FOX… OK, that last one was a personal example, but you get the idea.

Some people I talk to still reminisce about the “good old days” of buying a home when it was easy to get financing. By fixating on that thought, one may begin to believe that no one can get financing now. That is simply not true!

Banks are still lending money, but they now prefer “safer and more predictable” loans (in other words, fixed financing) instead of the no doc, stated income/stated asset, subprime, etc. programs that helped usher in the current financial crisis we are all struggling through.

Borrowers can still qualify to buy homes with little money down, less than average credit, and can choose from a variety of loan programs. Some examples:

  • Borrowers only need 620 credit score to qualify for an FHA loan
  • A down payment as little as 3.5% can get someone into a home with an FHA loan (5% for a conventional loan)
  • Some foreclosed homes are eligible to be bought with only $100 down, and still others are available with no money down
  • Adjustable Rate Mortgages (ARMs) are also available with as little as 5% down
  • Interest Only ARMs do exist, but the down payment requirement is now 20%

If you are looking to buy or refinance your current home, get in contact with me. We can discuss “how things were” vs. “how things are” and make sure you are ready to move forward with your next loan.

Sometimes it is just best to let go of the past no matter how tough it may be… If we stay in the past, we might miss out on the best buyers market (low rates and lower home values) in years.

One might also miss out watching an actor from their favorite TV show star in his new show on ABC.  If that were true for me, I would have missed this great Halloween episode moment when he paid tribute to his character from the cult TV show FOX cancelled 5 years ago – Malcolm Reynolds from “Firefly”. Enjoy!

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Through the roof

October 26, 2009

Where is the country’s debt level headed? I’ll give you a hint; see the title of the post. 

That’s right, with the $123 billion auction in Treasury bonds due out this week, the debt level of the U.S. is going to be at the brink of the self-imposed ceiling of $12.1 trillion.  This raises some interesting questions with the first one being pretty obvious.

1. What does this mean? – It means that the government will be out of money to operate.  The government will either shut down OR vote to raise the debt ceiling.  The latter is the much more likely scenario.

2. “The government shuts down.” That sounds bad so how will that affect all of us? – Day to day life will go on as it did before the shut down just like it did the last time there was a shutdown in 1995.  It sounds worse than how it will actually play out.

In theory, the debt ceiling should be a resistant level for government spending. Meaning, if it gets to that point, perhaps it is time to reevaluate some policies.  Sadly, that doesn’t happen when you have the alternative of simply raising the ceiling.

3. How would this affect interest rates and the market?  Now this is perhaps the most intriguing question of all, and the potential affect on mortgage rates would be a negative one.

If the government shuts down and/or the debt ceiling isn’t raised, then United States of America finds itself in a situation where we are maxed out on credit – we have no credit – resulting in a loss of value for U.S. bonds.  This scenario would negatively impact other country’s bond investments, individual’s bond investments, and cause interest rates to rise (as bond prices fall, interest rates rise).

That scenario will likely be avoided by a simple vote to increase the debt ceiling.  That said, the debt ceiling isn’t the only development affecting the trading and value of bonds:

  • Bond prices are not only on the wrong side of the 200 day moving average, but are also below the 10, 25, and 50 day moving averages. That means there is no support to hold bond values should the market be given a reason to turn.
  • Fascinatingly enough, a “reason” for turning may occur this week as the Feds plan to auction $123 billion in bonds this week.  If the auction buying is weak, expect bond values to drop pushing interest rates higher.

In short, the technicalities of bond trading point toward bond prices falling and interest rates rising. If there ever was a time to lock in a rate for a purchase, or talk to someone about refinancing an existing loan, now is the time. Don’t miss out on these historically low rates hoping they will improve by another 0.125%.  Get started today

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The end is near

October 19, 2009
5 Minutes to Midnight

5 Minutes to Midnight

I’ll admit that the doomsday clock at about 5 minutes to midnight (meaning the end of the world is upon us) is a little over dramatic – even for me.  The point I’m trying to make is simply this… time is running out on the $8,000 tax credit and low interest rates.

Let me explain…

$8,000 tax credit expires on November 30, 2009– As of this post, there are only 30 business days remaining before the deadline (remember we lose a couple of days because of Thanksgiving). While it may seem like there are 6 weeks to go, there are only 30 working days left. 

There is talk of extending the credit and some people are being creative in trying to define what part of the buying process needs to be completed by the 30th… Bottom line, if you want to be sure to get the tax credit, a first time home buyer’s purchase must be closed on or before November 30th.

Historically low interest rates– Last November, the Federal Reserve announced a plan to purchase up to $1.25 Trillion in mortgage back security bonds.  This would increase their value and push interest rates down (as bond prices go up, interest rates go down – and vice-versa).

Shortly after the announcement, interest rates dropped about a half of a percentage point — on just the announcement of the plan!!!  Once the Feds actually began buying bonds, rates dropped into the 4’s.

Those days are coming to an end as the Feds begin (over the past couple of weeks) to scale back the purchasing of bonds.  They plan to be out of the bond buying business at the start of the new year.

What does this mean for interest rates? Well, the past couple of weeks have seen the market trend in the wrong direction pushing mortgage rates slightly higher.  One can only expect this trend to continue as the Feds move away from buying bonds. 

All hope is not lost. At this moment, it is not too late.  If you haven’t taken advantage of these historically low rates to purchase a home or refinance your existing home (if you current rate is over 6%, we need to talk), rates are still historically low.  Also, there is enough time to still buy a home and qualify for the tax credit if you start today.  Let’s get started by calling or emailing me!

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I’ll be back? It is back!

October 15, 2009

I'll-Be-Back-769930

Like a futuristic machine that won’t quit, conventional loans have fought back against the credit crunch. I’m not saying it’s over, but there is at least one positive sign –  5% down payments* on conventional loans are back!

* – This news is a few weeks old, but  I intentionally pushed off writing about it in case PMI companies changed their mind – they have been known to do that!

The real question… who qualifies for a conventional loan with 5% down? Borrowers with at least:

  • a 5% down payment
  • 720+ credit score
  • and a debt to income ratio of less than 41% – in other words, buying a home one can afford

Anyone out there who doesn’t have a 720+ score of 5% down?  Don’t worry!  Even though there is a credit crunch (less money available to loan), there is still money available to loan! 

FHA loans only require a 620+ credit score with a 3.5% down payment.  There are other loan programs available that one could be eligible to buy a home with less than a 3.5% down payment (see this recent post for more information on these programs).

Looking to buy a home with 5% (or less) down?  Call or email me.  I would enjoy reviewing your situation, explaining the pros and cons of the different loan programs, and helping choose the right loan for you. 

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