A Guide to Finding Mortgage Savings

Guide to Finding Mortgage Savings. Image courtesy of stockimages / FreeDigitalPhotos.net

Many borrowers are paying more than they need to for a mortgage because they didn’t shop around for lenders enough, according to a new study released by the Consumer Financial Protection Bureau. In response, CFPB is releasing an interactive online toolkit called “Owning a Home,” which aims to help consumers better understand the mortgage process, compare lenders, and find the best deal.

Three out of four borrowers apply only with one lender or broker when seeking a mortgage, according to the study, which was based on consumers who took out a mortgage in 2013. That means most aren’t checking with multiple lenders to see which one can offer them the best deal.

“Consumers put great thought into the choice of a home, but the mortgage process continues to be intimidating,” says CFPB Director Richard Cordray. “The ‘Owning a Home’ toolkit makes it easy to see how shopping for a mortgage can translate into big dollars saved in the long run. We want to enable consumers to be more savvy shoppers.”

Consumers who inquire about mortgages with multiple lenders or brokers are finding greater savings. CFPB found that interest rates can vary by more than half a percent among lenders for a conventional mortgage going to a borrower with a good credit rating and a 20 percent down payment. That means a borrower seeking a 30-year fixed-rate loan of $200,000 may snag an interest rate of 4 percent instead of 4.5 percent — a savings of about $60 per month. Over five years, the borrower could save $3,500 in mortgage payments. The lower interest rate also means the borrower would be able to pay an additional $1,400 to the mortgage principal in the first five years and build greater equity, CFPB notes.

The agency’s online toolkit offers up a guide to loan options, terminology, costs, and a closing checklist to help borrowers through the mortgage process. It includes a Rate Checker tool, still in beta testing, that helps consumers understand the interest rates available to them based on the same underwriting variables that lenders use, including loan type, property value, loan amount, and credit score.

With the Rate Checker, borrowers can see the rates that lenders are offering as well as a graph of how many lenders are offering each rate. The tool also allows borrowers to compare different interest rates and how much they will cost over the life of a loan, as well as apply different down payments to see how they would impact the cost of the mortgage. The CFPB is also providing steps consumers can take to get a better interest rate.

“Knowing the rates lenders are offering to consumers in a similar situation — buying a home of equal value, in a comparable area, with the same credit score — enables a consumer to enter conversations with multiple lenders armed with greater information and prepared with better questions,” CFPB said in a statement. “‘Owning a Home’ also demystifies mortgage jargon, so consumers can have conversations with lenders more confidently.”

Source: Consumer Financial Protection Bureau

Mortgaged Homes Have Equity Again

Mortgaged Homes Have Equity Again. Image courtesy of ddpavumba / FreeDigitalPhotos.net

About 273,000 homes returned to positive equity in the third quarter of 2014, bringing the total to 44.6 million of all properties with a mortgage, according to a newly released equity report from CoreLogic using data from the third quarter of 2014. That number represents around 90 percent of all mortgaged properties nationwide.

If home prices rose by 5 percent more—which is largely predicted to happen this year—an additional 1 million home owners now in negative equity would also move into positive territory, CoreLogic reports.

“Negative equity continued to decrease in the third quarter as did the level of homes mired in the foreclosure process,” says Anand Nallathambi, president and CEO of CoreLogic. “This should hopefully translate into less friction in the housing market as we move forward. Better fundamentals supporting home ownership in the face of higher rents should attract more first-time home buyers to the market this year and next.”

The largest declines in the negative equity share of home owners occurred in Nevada, Georgia, Michigan, and Florida.

Some home owners holding equity are still considered “under-equitied.” About 9.4 million—or 19 percent—of properties with positive equity have less than 20 percent of equity, and 1.3 million have less than 5 percent of equity in their homes.

Overall, about 5.1 million homes—or 10.3 percent of all residential properties with a mortgage—were still in negative equity territory in the third quarter. That is a slight drop from 5.4 million in the second quarter, but down 3 percentage points year-over-year when the total stood at 6.5 million in the third quarter of 2013.

5 States with Highest Number of Negative Equity Properties in Q3 2014

The following five states alone accounted for about 33 percent of negative equity in the U.S.

1. Nevada: 25.4%
2. Florida: 23.8%
3. Arizona: 19%
4. Rhode Island: 14.8%
5. Illinois: 14.1%

5 States with the Most Amount of Properties in a Positive Equity Position

1. Texas: 97.4%
2. Alaska: 97.1%
3. Montana: 97.1%
4. Hawaii: 96.4%
5. North Dakota: 96.1%

Broken down by metro level, the five areas with the highest amount of properties with equity in the third quarter of 2014 were:

1. Houston-The Woodlands-Sugar Land, Texas: 97.5%
2. Dallas-Plano-Irving, Texas: 97%
3. Anaheim-Santa Ana-Irvine, Calif.: 96.6%
4. Portland-Vancouver-Hillsboro, Ore.: 96.4%
5. Denver-Aurora-Lakewood, Col.: 95.9%

Source: CoreLogic Q3 2014 Equity Report

Best Bets for Housing in 2015

Best Bets for Housing in 2015. Image courtesy of hywards / FreeDigitalPhotos.net

Forbes recently spotlighted the top places to invest in the new year, whether for investors looking for rental properties or young professionals looking to make their first home purchase.

“The key is to buy in cities with strong job growth that people are moving to, so that the stock of potential tenants for would-be landlords is abundant,” the Forbes.com article notes. The cities in its top 20 list all have strong job markets and population growth, relatively low home prices, and many are still considered undervalued.

Using Local Market Monitor data of housing prices and economic data from more than 300 housing markets with populations of at least 550,000, Forbes.com crowned the following 10 housing markets as 2015’s Best Buy Cities:

1. Austin, Texas

• Average home price: $261,923
• Annual price growth: 12%
• Population growth (2010-2013): 8.9%
• Annual job growth: 3.6%

2. Provo, Utah

• Average home price: $211,273
• Annual price growth: 6%
• Population growth (2010-2013): 6.2%
• Annual job growth: 3%

3. Houston, Texas

• Average home price: $214,049
• Annual price growth: 12%
• Population growth (2010-2013): 6.2%
• Annual job growth: 4.1%

4. Orlando, Fla.

• Average home price: $187,568
• Annual price growth: 9%
• Population growth (2010-2013): 6%
• Annual job growth: 9%

5. Dallas, Texas

• Average home price: $197,159
• Annual price growth: 10%
• Population growth (2010-2013): 5.9%
• Annual job growth: 3.8%

6. San Antonio, Texas

• Average home price: $189,080
• Annual price growth: 8%
• Population growth (2010-2013): 5.8%
• Annual job growth: 2.5%

7. Denver, Colo.

• Average home price: $278,130
• Annual price growth: 10%
• Population growth (2010-2013): 5.6%
• Annual job growth: 2.6%

8. Boise, Idaho

• Average home price: $183,649
• Annual price growth: 9%
• Population growth (2010-2013): 5.3%
• Annual job growth: 2.2%

9. Oklahoma City, Okla.

• Average home price: $166,044
• Annual price growth: 4%
• Population growth (2010-2013): 4.8%
• Annual job growth: 3.3%

10. Fort Worth, Texas

• Average home price: $180,312
• Annual price growth: 7%
• Population growth (2010-2013): 4.8%
• Annual job growth: 2.6%

Source: “Best Buy Cities: Where to Invest in Housing in 2015,” Forbes.com (Jan. 9, 2015)

FHA Lowers Its Mortgage Costs

FHA Lowers Its Mortgage Costs. Image courtesy of bplanet / FreeDigitalPhotos.net

The Federal Housing Administration is reducing its annual mortgage insurance premiums by 0.5 percentage points in a move “to expand responsible lending to creditworthy borrowers,” the White House said in a statement Wednesday afternoon.

FHA also said it would take added steps over the next few months to “cut red tape and clarify lending standards” in reducing mortgage costs for hundreds of thousands of creditworthy borrowers, according to the White House.

The FHA’s move comes after several calls from industry trade groups, associations, and members of Congress urging the agency to lower its insurance premiums, which were increasingly blamed for sidelining thousands of would-be buyers. FHA-backed loans allow buyers to put down as little as 3.5 percent of the purchase price, and they are a major financing resource for first-time buyers.

FHA’s mortgage insurance premiums will be reduced from 1.35 percent to 0.85 percent. The reduction in premiums on mortgages could save an average borrower $1,000 a year on a $200,000 loan, says Mark Zandi, chief economist at Moody’s Analytics.

“We are optimistic that more affordable FHA loans will have a positive impact on first-time buyers who have been entering the market at a lower-than-normal rate,” National Association of REALTORS® President Chris Polychron said in a statement. “NAR is a strong supporter of the FHA and its vital role in the mortgage marketplace for home buyers. We will continue our work with the administration to help make the dream of home ownership a reality for millions more Americans.”

In 2013, the FHA required a $1.7 billion bailout from the government after suffering losses from a high number of loan defaults in the aftermath of the financial crisis. Since 2008, FHA has increased its annual premiums for FHA borrowers five times. The National Association of REALTORS® has estimated that nearly 400,000 creditworthy borrowers were priced out of the housing market in 2013 because of the higher costs in FHA insurance premiums. But in recent months, FHA has turned a profit, which has renewed calls from other groups to lower their insurance premiums to help open the credit box to more qualified borrowers.

“This action will make home ownership more affordable for over two million Americans in the next three years,” says Julian Castro, secretary of the Department of Housing and Urban Development, which oversees FHA. “By bringing our premiums down, we’re helping folks lift themselves up so they can open new doors of opportunity.”

President Barack Obama is expected to announce more about FHA’s new policy on Thursday in a speech in Phoenix. The housing policy is expected to go into effect by the end of the month.

Source: “White House Says FHA to Cut Mortgage Insurance Premiums,” Reuters (Jan. 7, 2015) and “Plan Trims Cost of Some Mortgages,” The Wall Street Journal (Jan. 7, 2015)

Smaller Cities Saw Biggest Rent Hikes in 2014

Smaller Cities Saw Biggest Rent Hikes in 2014. Image courtesy of dexchao / FreeDigitalPhotos.net

Surging rental costs continue to grip national headlines, but some of last year’s biggest leaps in rental costs were in small to midsized cities.

Nationwide, apartment rents increased 3.6 percent, on average, in 2014, pushing the average monthly lease rate to $1,124.38, according to Reis Inc., a real estate research firm. That marks the largest increase since Reis began tracking the market in 1980.

Most of the drive in rental costs has been due to a short supply of vacancies at a time when demand has been high. The vacancy rate in 2014 was 4.2 percent, the lowest point since 2000, Reis reports.

All 79 metros that Reis tracks posted rental increases last year, but some of the steepest increases occurred in smaller to midsized cities – a break from the traditional pattern of seeing the highest rent increases mostly centered in the largest metros.

For example, average rents surged 7.9 percent in Denver; 5.5 percent in Charleston, S.C.; and 4.8 percent in Raleigh, N.C., Reis says. On the other hand, typical big rent cost places like New York and Chicago saw much smaller rent increases last year, mostly because those markets have had lots of construction and have added more units to their inventory to meet demand, according to Reis’ report.

“The apartment-construction boom generally has added more supply in the largest cities, while secondary cities saw less supply growth,” says Ryan Severino, a senior economist at Reis. “That left renters in some secondary cities with strong job growth more susceptible to rent increases than their peers in tier 1 cities.”

The following markets saw the highest effective rent increases in the fourth quarter compared to a year earlier:

• San Jose, Calif.: 9.2%
• Denver: 7.9%
• Oakland, Calif.: 7.5%
• San Francisco: 7.3%
• Seattle: 6.1%
• Miami: 6%
• Charleston, S.C.: 5.5%
• Boston: 4.9%
• Raleigh-Durham, N.C.: 4.8%
• Dallas: 4.7%
• Nashville, Tenn.: 4.7%
• Portland, Ore.: 4.6%
• Houston: 4.5%
• Palm Beach, Fla.: 4.3%
• Austin, Texas: 4.2%

Source: “Smaller Cities Led Way in Rent Increases in 2014,” The Wall Street Journal (Jan. 5, 2015)

Hike in Interest Rates Likely by Mid-Year

Hike in Interest Rates Likely by Mid-Year. Image courtesy of zirconicusso / FreeDigitalPhotos.net

Many economists believe mortgage rates will be on the move upward this year after sitting near historic lows the past few weeks. The 30-year fixed-rate mortgage rose above 4 percent for only two weeks since Oct. 16, according to Freddie Mac’s weekly mortgage market report. That has helped to lower borrowing costs for home buyers — but that may soon change.

The Federal Reserve is expected to boost its short-term interest rate target around the middle of the year if economic growth continues to move at a solid pace.

“Bond yields and mortgage rates will begin moving higher as the timetable for Fed interest rate hikes comes into focus, with rates on credit cards, auto loans, and home equity lines of credit responding after the fact,” says Greg McBride, Bankrate.com’s chief financial analyst. “The bulk of next year’s increases will come in the back half of the year.”

McBride is forecasting the 30-year fixed-rate mortgage to remain below 5 percent this year, but he says it could see lots of volatility.

“We’ll see rates near 4 percent on the low side if there’s an economic stumble or geopolitical crisis, and rates as high as 4.8 percent or 4.9 percent if the Fed missteps or misspeaks,” McBride says.

Lawrence Yun, chief economist for the National Association of REALTORS®, expects the Fed to act sooner with its uptick in rates due to inflationary pressures of rising wages and rents. Jonathan Smoke, chief economist at realtor.com®, is forecasting mortgage rates to reach 5 percent in 2015.

Source: “Bankrate.com: Expect Fed to Move on Interest Rates by Mid-Year,” HousingWire (Jan. 5, 2015)