Common Mortgage Deal Delays

Common Mortgage Deal Delays. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

A last-minute problem with financing can quickly delay a closing on a home sale. Here are two of the most common financing problems that can surface:

• Failure to disclose key financial information. One of the biggest reasons for a financial issue is the failure of the buyer to disclose key financial information, The New York Times reports. Buyers who are not forthright about their financial circumstances can face a delay. Lenders will quickly find borrowers who are behind on child support obligations or real estate taxes, for example.
• Running up credit as a mortgage application is pending. Buyers may go out and purchase new furniture or a car prior to closing on a home, but doing so, could cause them a delay to the closing of their home sale. Lenders will recheck borrowers’ credit right before the closing date. If new debt obligations suddenly appear, that can be a red flag to a lender. Prior to making any large purchases prior to closing, borrowers should check with their lender, says Douglas Rotella, an executive vice president and loan originator with HomeBridge Financial Services.

In some metro markets, a delay to securing financing could mean missing out on a home. For example, in hot markets like California’s Silicon Valley, sellers may even balk at deals that are contingent on a mortgage approval, says Mia Simon, a real estate professional with Redfin’s Silicon Valley office. Nearly every home is getting multiple offers there so buyers must go beyond pre-approval and receive a loan commitment before they submit an offer, she says. The loan commitment indicates that the borrower’s paperwork has passed underwriting and the only thing necessary for final approval is the appraisal and verifying the borrower’s employment.

Source: “How Mortgage Problems Unravel Home Deals,” The New York Times (Aug. 14, 2015)

New-Home Sizes Are Starting to Shrink

New-Home Sizes Are Starting to Shrink. Image courtesy of fantasista / FreeDigitalPhotos.net

The median size of U.S. homes dropped slightly in the second quarter, edging back from a record set in the previous quarter, the Commerce Department reported Tuesday.

In the second quarter, the median size of a new home was 2,479 square feet – about 40 square feet smaller than the record high set in the first quarter.

The smaller size may be a sign that builders are starting to focus on building more entry-level homes, The Wall Street Journal reports. The National Association of Home Builders has predicted that first-time home buyers, who most often purchase entry-level homes, will comprise 18 percent of new-home sales this year, up from 16 percent last year. Still, that is far short of the 25 percent to 27 percent share of buyers that first-time home buyers comprised in the market from 2001 to 2005. At that time, the median size of new homes ranged from 2,051 to 2,263 square feet.

But anticipating the return of first-time buyers, some builders have announced efforts to focus on the entry-level market. For example, Meritage and D.R. Horton have launched divisions to build starter homes.

In the quarter ended June 30, D.R. Horton completed sales of 1,577 of its Express starter homes, which average 2,000 square feet and cost $188,000. Meritage has announced plans to expand into the entry-level market, which now accounts for 20 percent to 25 percent of its sales. Chief Executive Steven Hilton says he wants the entry-level share to rise to 35 percent in the coming years.

David Crowe, chief economist with the National Association of Home Builders, predicts that the median size of new-homes will continue to shrink over the coming years as more first-time buyers enter the market. Still, it may take a long time for the national median-size figure to reflect the trend further.

“It probably will take the rest of this year and next year before the first-time buyer share is sufficient to affect the median size of all new homes in a sustained manner,” Crowe told The Wall Street Journal.

Source: “Size of New Homes in U.S. Shrinks By One Closet,” The Wall Street Journal (Aug. 18, 2015)

Borrowers Make Fewer Late Payments

Borrowers Make Fewer Late Payments. Image courtesy of photostock / FreeDigitalPhotos.net

The mortgage delinquency rate – borrowers who are late on their mortgage payments by 60 days or more – is rapidly declining, dropping to 2.72 percent in the second quarter, according to a new report by TransUnion. The delinquency rate has fallen 20 percent in the last year alone, and by about half in the last three years, when it stood at 5.39 percent in the second quarter of 2012.

Forty-eight states and all of the top 10 largest metro areas saw double-digit declines in seriously delinquent mortgages. The largest declines were in Miami (down 40 percent from 8.87 percent in the second quarter of 2014 to 5.31 percent in the second quarter of 2015) and Los Angeles (down 29.1 percent from 2.62 percent in 2014 to 2.07 percent in 2015).

“This is the lowest mortgage delinquency level we’ve seen in several years – down from a peak of nearly 7 percent in early 2010,” says Joe Mellman, vice president and head of TransUnion’s mortgage group. “This is largely due to foreclosures and other seriously delinquent accounts continuing to work their way through the foreclosure process, as well as a reflection of the high credit quality of recent originations.”

TransUnion reported mortgage originations to subprime and near prime consumers had a year-over-year double-digit growth of 13.3 percent and 22.4 percent – a possible signal to a slight loosening of credit.

“We believe a major reason for the increase in mortgage originations was due to falling mortgage interest rates,” Mellman says. “The growth in jumbo loans for the Prime Plus and Super Prime risk tiers was another key driver. Despite this increase, it should be noted that there were 1.1 million fewer mortgage originations this past quarter compared to the pre-recession high in the third quarter of 2007.”

The average mortgage balance per consumer rose to $188,237 in the second quarter of 2015. For comparison, mortgage balances were at $186,999 at this point last year.

Source: TransUnion

How High Will Mortgage Rates Actually Climb?

How High Will Mortgage Rates Actually Climb? Image courtesy of TeddyBear[Picnic] / FreeDigitalPhotos.net

The lowest mortgage rates on record have lured buyers during the last few years, but the Federal Reserve has already given plenty of signals that will soon come to an end.

Mortgage rates are already inching up, ever-so-slightly. From January to June, the 30-year fixed-rate mortgage climbed from 3.7 percent to 4.2 percent. Mortgage rates recently have been hovering around 4 percent.

In this latest era of super-low mortgage rates, what’s normal? A 6 percent interest rate is “normal,” says Jonathan Smoke, realtor.com®’s chief economist. He says mortgage rates likely won’t hit that point in the next two years, however.

“We will likely see less than a 100 basis point increase over the next two years, which would bring us to around 5.5 percent in 2017,” he says.

If Smoke’s prediction holds true, mortgage rates will then remain below normal even in two years. However, that increase in rates would translate into a 12 percent increase in monthly payments over current rates, according to Smoke.

For now, mortgage rates remain low, and in 80 percent of the U.S. markets, it’s more affordable to buy a home than rent, according to realtor.com®.

Source: “Just How High Might Mortgage Rates Go?” realtor.com® (Aug. 14, 2015)

10 Ways to Make Moving Easier

Image courtesy of stockimages / FreeDigitalPhotos.net

Peak moving season is underway. While moving can be a stressful undertaking, there are simple ways to make the process more organized. CityLab recently asked moving experts to share some of their top tips to make moving easier. Feel free to share these moving tips with your clients.

First steps

• Document all of your cords: “Take photos or make notes on how all of your media equipment is set up: television, sound equipment, modems and computer equipment,” says Lior Rachmany, CEO of Dumbo Moving + Storage in New York City.
• Update your address: Streamline the change of address process by using Updater, which can save time and money by forwarding mail and also updates numerous businesses including alumni associations, charities, and professional organizations with the new address. Updater even shares moving announcements with friends and family.
• Create a pet plan: The moving process can be stressful for pets too. Consider leaving pets with a friend or a boarder until the move is complete. If that’s not an option, this checklist lists 10 tips for keeping pets safe during a move.
• Schedule touch-up paint jobs: If you’re renting, you will need to see if you’re responsible for paint job touch-ups before moving out. If that’s the case, schedule a painter before the move. “Once you have a moving date set, get a painting bid and plan for the painter to be the last person in before you turn the keys over,” suggests Brendon DeSimone, author of Next Generation Real Estate. “Waiting until the last minute could be a logistical nightmare.”
• Recruit some help. Not using a mover? Make sure you repay family and friends for their help in some way (pizza is always a good incentive!)

Packing 101

• Plan a “first night in the new house” box: The last thing you’ll want to do after moving all day is to dig through numerous boxes to find your toothbrush. Designate a box for your toiletries, medications, deodorant, and a change of clothes so they’re easy to find.
• Your suitcases are your friends:  Use your large suitcases as easily transportable storage! Fill them up with clothes, towels, and light-weight items.
• Be mindful of important documents: Don’t toss your birth certificate or other important but easy-to-lose documents in random boxes. Make a folder with anything important and carry it with you.

Unpacking

• Strategize your layout: Put labels on items for movers so they don’t put them in the wrong room. You can also make signs showing where large items need to be.
• Save all receipts: “In many cases, moving expenses are deductible from federal income taxes,” says Rachmany of Dumbo Moving + Storage. “If you’re moving because of a change in employment, you may be able to claim this deduction even if you do not itemize.” Try to keep track of all moving costs for your accountant.

Source: “13 Tips to Make Moving Slightly Less Hellish,” CityLab (Aug. 6, 2015)

Owners May Underestimate Their Equity

Owners May Underestimate Their Equity. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

A large number of home owners may be erroneously perceiving themselves as underwater on their mortgage, suggests a new analysis by economists at the University of California, Berkeley.

Between mid-2011 and the fourth quarter of 2014, home prices nationally have risen about 20 percent. But in a recent Fannie Mae National Housing Survey, the percentage of home owners who perceived they were underwater on their mortgage averaged about 6 percentage points more than estimates from other national surveys.

According to CoreLogic housing data, from the end of 2011 to the end of 2014, the number of underwater home owners fell from 21 percent down to 9 percent.

However, about 23 percent of home owners surveyed by Fannie Mae say they had negative equity at the end of 2014.

What’s more, by the end of 2014, only 37 percent of home owners with a mortgage in the Fannie Mae survey perceived they had more than 20 percent of home equity, but CoreLogic data showed that 69 percent had significant home equity.

Regardless of an increase in home prices after 2011, the percent of home owners who have perceived significant home equity has barely budged.

The National Association of REALTORS® recently reported that the median existing-home price for all housing types reached $236,400 in June – surpassing the median sales price set in July 2006 at the time of the housing boom.

Many home owners may not be realizing how much values have risen since 2011, economists note. By not realizing those equity gains, they may not see opportunities for selling and buying different homes and their chances of qualifying for mortgages.

The researchers at University of California, Berkeley, refer to it as a “negative perception gap” or an “appreciation gap,” which they say is impeding the housing market. They estimate that at the end of 2014, the gap between the estimated and perceived percent of mortgage home owners who had significant equity was 32 percentage points – which would equate to about 15.2 million home owners.

“The appreciation gap presents a potential opportunity,” the authors note. “It is an opportunity to remove a barrier that may have hindered housing and mortgage market activity. … Better appreciating how much their assets have appreciated ought to strengthen home owners’ demand for housing, as well as their demands for other goods and services. Thus, in addition to the opportunity to help home owners on an individual basis, shrinking the appreciation gap presents a potential opportunity to speed up the recovery of the housing and mortgage markets, better match workers with jobs, and strengthen the economy generally.”

Source: “Are 30 Million Home Owners Underestimating Their Equity?” Real Estate Economy Watch (Aug. 4, 2015)