Things first-time home buyers need to know


WOODLAND PARK, N.J. – July 22, 2016 – The economy is improving, interest rates are low and many consumers now find themselves in a great position financially to become a first-time homeowner. There’s a small problem though for some locations around the country – the booming real estate market is resulting in rising home prices and increased competition for the most desirable properties.
The S&P/Case-Shiller national home-price index recently estimated that 2016 prices are within four percent of the peak in 2006. In some areas, low inventories around the country are making the situation even more challenging.
These conditions are introducing first-time buyers to common challenges and frustrations while searching for their dream home. “Don’t get discouraged,” says Travis Peace, executive director of mortgage at USAA Bank. “Buying a home requires some fortitude and the process intimidates many – not just those doing it for the first time.”
As a result, Peace says it’s easy to concentrate too much on home buying “can’ts” rather than “can-dos,” and he offers this advice on how to overcome some common barriers.
“I Can’t” No. 1: I can’t figure out the home-buying process.
Peace notes that it’s essential to do research and to be equipped with basic information, but also be willing to ask for help when needed. For example, an experienced real estate agent can keep a buyer apprised of everything from area sales trends to the latest changes in state and federal laws that could impact a mortgage application.
“This is where experienced, licensed professionals can help,” Peace says. “Real estate agents can be an advocate for the buyer throughout the entire process.”
In addition, free tools like USAA’s Real Estate Rewards Network can connect buyers with an agent and even provide rewards based on the sale price of the home.
“I Can’t” No. 2: I can’t find the perfect home for my family.
Finding the perfect home may not be realistic, but shoppers can find the right home. Personal situations will dictate buyers’ ability to wait for a home in a particular neighborhood or design style to come on the market, but not everything has to be left to chance.
Peace says the key is to set realistic expectations and not fixate on negatives that can be changed. “Whether it’s the number of bedrooms or distance to work or school, it’s alright to have some non-negotiables. However, buyers should be willing to be flexible on things that can be relatively easy to change, like paint colors or landscaping.”
“I Can’t” No. 3: I can’t afford a 20 percent downpayment.
Putting 20 percent down on a home has become more of a guideline than a rule. Today, not being able to put 20 percent down does not mean buying a home is out of reach. Peace notes that depending on a buyer’s financial situation, there may be a responsible way to get into your new home without putting 20 percent down.
Government-sponsored loan programs from the Federal Housing Authority, Fannie Mae and Freddie Mac provide loan options that require downpayments as low as three percent. Veterans Affairs (VA) loans don’t require any downpayment. While those programs are often great options for consumers who qualify, Peace notes that buyers should keep an eye on their potential total monthly payment.
“Some of these loans include fees and private mortgage insurance (PMI) that could significantly impact your overall cost,” Peace says.
Even private lenders are offering more competitive loan options. For example, USAA Bank’s Conventional 97 loan allows borrowers to acquire a mortgage with only three percent down and the bank pays the PMI costs.
Scott McEniry, a USAA member, recently moved into his new home with the help of the Conventional 97 loan. “It felt like a lifeline had been thrown to me as suddenly a house purchase was within reach again,” McEniry says.
Whether a house-hunting novice or seasoned expert, Peace underscores that being informed, getting the right help and having a healthy dose of determination are the best ways to turn a dream home into a reality.
Copyright © 2016 Argus, North Jersey Media Group, Inc. All rights reserved


Extra credit: Paying more helps mortgage approval

WASHINGTON – July 14, 2016 – Knocking off more credit card debt every month may now be a better deal for anyone looking to buy a home.

Fannie Mae, the government-sponsored enterprise that buys mortgages and sets rules on how to assess the risk of loan applicants, is rolling out revised underwriting software that rewards those who make more than the minimum required payments over time.

The use of what’s called “trended credit data,” now slated to go live this fall, is likely to help first-time homebuyers and even those with no credit scores get a mortgage.

“This change will help,” says Mindy Armstrong, product manager for Fannie Mae, and will not penalize mortgage applicants who only pay the minimum monthly amount on credit card debt.

Until now, when evaluating a potential borrower’s standard credit report, the automated process took into account only how much you owe, who you owe it to and if you make payments on time.

The revised software relies on trended credit data, pulling payment records from the last 24 months to determine not only if you pay on time but how much you pay toward your credit card balances. The data helps determine what type of risk a borrower is likely to represent for a lender.

The Fannie Mae program doesn’t prescribe a certain amount over the required minimum that must be paid or how long or consistently the bigger payments must be made. Rather, a snapshot of a mortgage applicant’s payment habits is what’s captured, explains Armstrong.

Traditional factors, such as income, assets and credit score, remain key metrics in determining who gets a loan.

© Content That Works, Marilyn Kennedy Melia; © Copyright © 2016 Tri-Town News. All rights reserved.

Mortgage rates almost unchanged near historic lows

WASHINGTON (AP) – July 14, 2016 – Long-term U.S. mortgage rates moved little this week, remaining near historically low levels in the wake of financial disarray in Europe.

Mortgage giant Freddie Mac says the average for the benchmark 30-year fixed-rate mortgage ticked up to 3.42 percent from 3.41 percent last week, staying close to its all-time low of 3.31 percent in November 2012. The average rate is down sharply from 4.09 percent a year ago.

The 15-year mortgage rate slipped to 2.72 percent from 2.74 percent last week.

After Britain’s recent vote to leave the European Union, investors fled to the safety of U.S. Treasury bonds, driving up their prices and lowering their yields. Long-term mortgage rates tend to track the yield on 10-year Treasury notes.

AP Logo Copyright © 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Fla.’s foreclosure rate dropping, state now No. 4

IRVINE, Calif. – July 14, 2016 – While Florida continues to have a higher number of foreclosures, the total number continues to drop, and the state’s U.S. ranking is in decline as it moves from its often No. 1 spot down to No. 4 in RealtyTrac’s 2016 U.S. Foreclosure Market Report.

New Jersey now tops RealtyTrac’s foreclosure-rate list (0.98 percent of housing units with a foreclosure filing) followed by Maryland (0.90 percent) and Delaware (0.78 percent). In fourth place, Florida (0.70 percent) still outranks its long-time competitor for the top spot, Nevada (0.68 percent).

The top 10 list of foreclosure-rate states for the first six months of 2016 is rounded out by Illinois (0.61 percent), Ohio (0.54 percent), South Carolina (0.54 percent), Connecticut (0.48 percent) and Indiana (0.47 percent).

In a look at foreclosure rates by metro area, Florida has three cities in the top 10: Lakeland-Winter Haven was No. 4 (0.91 percent), Tampa-St. Petersburg was No. 8 (0.85 percent) and Jacksonville was No. 9 (0.80 percent). The top U.S. foreclosure cities were Trenton, New Jersey (1.31 percent) and Baltimore (0.96 percent).

“South Florida saw a 34 percent drop in foreclosure filings year-over-year,” says Mike Pappas, president and CEO at Keyes Company. “With strong employment, low interest rates and with lenders continuing to carefully scrutinize borrowers – foreclosures will soon be at the lowest levels in a decade.”

The length of time it takes from first foreclosure notice to final judgment continues to impact the Florida market. In the state with the longest foreclosure timeline, New Jersey, it takes 1,249 days. It’s followed by Hawaii (1,236 days), New York (1,058 days), Utah (1,025 days) and Florida (1,012 days).

According to RealtyTrac, investors buy 1 in 4 foreclosed homes: 27 percent of all properties sold at foreclosure auction were purchased by third-party investors. It’s the highest share for the first six months of any year since 2000 – the earliest national data is available.

National foreclosure details

The U.S. had a total of 533,813 U.S. properties with foreclosure filings – default notices, scheduled auctions or bank repossessions – in the first six months of 2016, down 20 percent from the previous six months and down 11 percent from the first six months of 2015.

Counter to the national trend, 19 states posted year-over-year increases in foreclosure activity in the first half of 2016. Among the nation’s 20 most-populated metro areas, five posted year-over-year increases in foreclosure activity.

“Although there are some local outliers, the downward foreclosure trend continued in the first half of 2016 in most markets nationwide,” says Daren Blomquist, senior vice president at RealtyTrac.

“While U.S. foreclosure activity is still above its pre-recession levels, many of the states hit hardest by the housing crisis have now dropped below pre-recession foreclosure activity levels,” he adds. “With some exceptions, states with foreclosure activity continuing to run above pre-recession levels tend to be those with protracted foreclosure timelines still working through legacy distress from the last housing bust.”

States where Q2 2016 foreclosure activity was still above pre-recession averages: Florida (26 percent above pre-recession levels), New Jersey (215 percent above), Illinois (36 percent above), New York (127 percent above), Indiana (2 percent above), South Carolina (376 percent above), Massachusetts (127 percent above) and Washington (29 percent above).

© 2016 Florida Realtors®


New FHA rules created to protect at-risk homeowners

WASHINGTON – July 1, 2016 – HUD announced changes to its Distressed Asset Stabilization Program (DASP), which sells severely delinquent FHA mortgages to private investors. HUD says the new rules should protect homeowners from “payment shock.”

According to HUD, “certain families with distressed mortgages insured by the Federal Housing Administration (FHA) may soon be eligible for a reduction of their outstanding loan amounts should their mortgages be sold through DASP.”

On average, mortgages sold through DASP are 29 months delinquent at the time of the auction.

Additional details on the latest enhancements are posted on HUD’s website.

“While thousands of homeowners avoided foreclosure through this note sales program, we continue to explore new ways to help these families and to offer more opportunities for public-minded organizations to have a seat at the table,” says Ed Golding, HUD’s Principal Deputy Assistant Secretary for the Office of Housing.

FHA’s new DASP enhancements include:

  • Principal reduction/capital arrearage forgiveness
    Principal forgiveness is the first option investors must consider when evaluating borrowers for a modification
  • Payment shock protection
    FHA will limit interest rate increases to no more than one percent per year after a five-year period where the rate is fixed
  • Walk-away prohibition
    FHA prohibits any purchaser of single-family mortgages under DASP from abandoning lower value properties in order to prevent neighborhood blight
  • Alternative bidding for non-profit buyers
    Qualified non-profit organizations may now bid on a partial pool of notes – up to five percent of a National Pool – and to pay the reserve price. This offers another opportunity for non-profit organizations and local governments to participate in DASP, HUD says
  • Streamline direct sales to government entities
    FHA is providing new standard guidance on the sale of distressed mortgages directly to qualified government entities and local governments
  • Target loans for DASP sales based on the non-profits and local governments
    FHA says it will enhance its efforts to identify and offer loans in targeted distressed areas to non-profits and local governments

FHA strengthened DASP last year, too. It expanded a foreclosure moratorium from six-to-12 months, requiring purchasers of these distressed mortgages to suspend any foreclosure action. It also provided advanced notice of pending sales and extended the due diligence periods; offered a “first look” opportunity for non-profits to purchase vacant properties; and created specific pools of mortgages exclusively for non-profit organizations and local governments.

© 2016 Florida Realtors®

Buy vs. rent: 5 things to consider

PITTSBURGH, Pa. – July 1, 2016 – Buying a house is the largest investment most people ever make, and it’s not a decision you should enter into lightly, say personal finance experts at the Pennsylvania Institute of Certified Public Accountants. If you’re considering making the leap from renter to owner, there are some things you should consider.

Where you are
A 2016 study from the National Association of Realtors found that more than one-third of all homebuyers are 35 and younger. While people five or 10 years older might still be recovering from the housing crash, millennials seem ready to start a new chapter in their lives. And this group may be onto something.

In 70 percent of the major markets across the nation, buying beats renting in less than two years. A Zillow analysis of rent vs. purchase costs found that it takes an average of 1.9 years to break even on a home purchase. In larger cities, you would need to live in a home for three years or more to break even on comparable rent, but that number drops to 1.5 years or less in Cleveland, San Antonio, Kansas City, Houston, Atlanta, Detroit and Indianapolis.

When to buy
A study from Black Knight Financial Services analyzed national price appreciation and household income. Today, 21 percent of median income is required to purchase a median-priced home with a 30-year fixed-rate mortgage. Considering the current rate of home price appreciation, combined with a 0.5 percent annual increase in mortgage interest rates, it may become more difficult.

If home prices and interest rates continue to rise at the same pace, the average monthly payment on the median home will rise by $114 within 12 months and would be $240 more per month in 24 months.

How long to stay
House prices fluctuate year to year. And you’re leveraged when you buy, so a price drop of just 5 percent could mean a huge loss if you have to sell. However, if you own for five or more years, there’s much less risk. Home prices are more likely to move at least a bit higher over longer periods of time. And you’ll have built up more equity in your home by paying down the mortgage over five years that will cushion you against a drop in prices.

CPAs advise not spending more than 28 percent of your gross pretax income on your monthly housing payment. Another rule of thumb is that your combined debt (housing expenses, credit cards, student loans, alimony, car loans, etc.) should be between 30 percent and 40 percent of your pretax income.

Costs of remaining a renter
Renters aren’t immune from price increases. If you live in a popular neighborhood with no rent control, your rent is most likely to rise over time. A fixed-rate mortgage won’t increase, and you will build equity if you own rather than rent. Also, there aren’t any tax write offs available to renters; your landlord generally gets those honors.

When you sit down and crunch the numbers, does it make more financial sense to buy or rent? There are many free calculators online to help you create and analyze different financial scenarios. If now isn’t the right time, you can continue to save for a downpayment until you’re ready.

A CPA can help
As a trusted, independent financial advisor, a CPA understands the different options available to you.

Copyright New Pittsburgh Courier Jun 8-Jun 14, 2016


‘Jumbo’ mortgages now cheaper than smaller loans

NEW YORK – July 1, 2016 – Banks will give you a better interest rate if you buy a more expensive and, presumably, bigger home.

The interest rate on a 30-year jumbo loan currently stands at 3.71 percent – a notch below the rate for a “conforming” mortgage, which weighs in at 3.73 percent, says Greg McBride, senior vice president and chief financial analyst for Bankrate.

The lower rate on jumbo mortgages is a reversal from the typical trend over the years, in which banks have charged higher interest rates for larger loans on the theory that they are inherently riskier.

However, the two rates “have gradually compressed over a couple of years,” McBride notes. “About 12 months ago, they flipped.”

Jumbo rates spiked during the Great Recession, rising to more than 1.5 percentage points higher than conventional, conforming loans before settling out one percentage point higher around 2011, according to HSH, an online mortgage resource site.

While smaller, conforming loans are backed by federal mortgage giants Fannie Mae and Freddie Mac, jumbos are not, which makes them inherently riskier to banks. However, conforming loans have become relatively more expensive for banks to offer. That forces them to charge somewhat higher rates compared to jumbos.

Bankers have also determined that while jumbo loans may be bigger, the more affluent homebuyers who take out jumbos are better bets overall, with lower default rates. As a result, lenders feel less pressure to include the cost of future foreclosures in the cost of a jumbo mortgage.

Source: Boston Globe (06/28/16)

© Copyright 2016 INFORMATION, INC. Bethesda, MD (301) 215-4688

Gated community homes sell for more

 BOCA RATON, Fla. – July 1, 2016 – Homes in gated communities command significantly higher prices – almost $30,000 on average – compared to similar homes in communities without a gate. However, gated neighborhoods’ additional amenities can also reduce sale prices because they bring maintenance costs that outweigh the benefits of the amenities, according to recent research published by the American Real Estate Society (ARES).

“This study provides clear evidence that homes in gated communities sell at a premium relative to comparable homes in non-gated communities,” says ARES Publication Director Ken Johnson, Ph.D., a real estate economist at Florida Atlantic University’s (FAU) College of Business and co-developer of the Beracha, Hardin and Johnson Buy vs. Rent Index.

The study examined 11 gated communities and a sample of matched non-gated properties, using a data set of housing sales in Shelby County, Tennessee. The researchers found that residential properties in gated communities command a noticeable price premium of approximately $30,000, most likely resulting from actual or perceived benefits associated with additional privacy, homeowner associations’ tighter controls on maintenance, home design and the added assurances against crime and other undesirable activities.

“Additional maintenance costs associated with these amenities often outweigh their benefits, and it appears that while a gate has value, additional neighborhood amenities do not always provide additional value,” says Mark A. Sunderman, Ph.D., University of Memphis.

So, what does all this mean to buyers and sellers?

“The long-held belief that gates add value is supported by the data, as long as the impact of the amenities is properly factored in,” Johnson says. “This should set buyers’ minds to rest as to whether or not they are actually receiving a boost in value when they purchase inside a gated community.”

© 2016 Florida Realtors®

Avoid buyer remorse from commuting woes

WASHINGTON – June 22, 2016 – During the home search process, it’s important for buyers to understand the average commute time for each property they’re considering. A recent U.S. News & World Report article shared some commuting-related questions home shoppers should consider when deciding where they want to buy.

How much will your commute impact your lifestyle? “I always ask people how long or how far they are willing to commute,” says Judy Moore, a real estate professional for The Higgins Group Realtors® in Lexington, Mass. “We get a lot of people moving from Boston proper – younger folks who are starting a family and moving out of the city and the ‘burbs. And they figure it’s only 11 miles, so it’s not too far.” However, in rush hour that typical half-hour trip to the airport can easily be closer to an hour, she says.

What are the pros and cons of living farther out? A longer commute may have some benefits, such as possibly better schools or more land. But do those potential benefits outweigh the longer commute?

How will you commute, and what will the costs be? Will you drive or take public transportation? A survey from HNTB Corp., an infrastructure solutions firm, shows that 55 percent of Americans are willing to pay extra for a home if commuting via public transit is an option. Whether taking public transportation or driving your own, home shoppers should factor in costs, such as parking (some major cities charge $30 a day to park in a garage) and gas fees or public transit rides.

Are you willing to pay more? If you want to be in walking distance to public transportation, be willing to pay more for the home but expect some perks from that at resale too. Homes near a train stop tend to sell for higher prices, found a 2013 study by the American Public Transportation Association and National Association of Realtors®. Homes near transit stops outperformed homes in the rest of the metro area by 41.6 percent. “The better proximity that a resident has to a good commuting option, the higher the value of the residence,” says HNTB senior vice president Mike Sweeney.

Source: “5 Questions to Ask About Your Commute Before You Move to Your Next Home,” U.S. News & World Report (June 6, 2016)

© Copyright 2016 INFORMATION, INC. Bethesda, MD (301) 215-4688

Goal of owning home still strong and 8 other housing trends

WASHINGTON (AP) – June 22, 2016 – Americans still want to own homes – if they can afford to. That’s the finding of a report released Wednesday by the Harvard University Joint Center for Housing Studies.

The pressures of student debt, rising rents and the leftover wreckage from the nearly decade-old housing bust have restrained people’s ability to buy, even though the dream remains alive. The report sees reasons for both optimism (more millennials are poised to leave the nest) and concern (rising numbers of renters face extreme costs).

Those factors could determine whether the share of Americans who are renting keeps rising or whether the nation’s homeownership rate can rebound from a near 48-year low of 63.5 percent.

Here are eight other major trends documented in the report:

More household formation

Americans formed 1.3 million new households in 2015, a return to normal pace of growth. Household formation had floundered during the Great Recession and amounted to a paltry 653,000 in 2013. Much of last year’s increase reflected an aging population in which more households consist of adults older than 65. But the Harvard analysis says the increase in households should continue because of the influx of millennials, which it defines as those born between 1985 and 2004.

During the recession and the sluggish recovery, many millennials returned to their childhood homes or lived with roommates, a trend that limited household formation. But as the largest generation in U.S. history, millennials are reaching an age when more of them will move out on their own. Millennial household formation is expected to average more than 2 million annually over the next several years, a surge that will likely further raise demand for rental units.

Larger houses, smaller apartments

Some people might love those tiny houses built on tractor trailers. But most yearn for extra space. The median size of a newly built single-family house was a record-setting 2,467 square feet last year. By contrast, the median unit in a new multifamily building has shrunk to 1,074 square feet from a peak of nearly 1,200 square feet in 2007. This decline likely reflects a shift in multifamily buildings away from condominiums toward rental apartments.

Home building up but still low

Homebuilders broke ground on 1.1 million properties last year, a healthy 10.8 percent annual increase from the depths of the recession. The problem is that figure still ranks among the worst years in the past half century. “In the long sweep of time, it’s still a pretty small number,” said Chris Herbert, managing director at the Harvard center.

Before 2016, apartment buildings, more than single-family houses, drove much of the increase in construction. But even as developers are stepping up single-family construction, they’re focused less on increasing the number of homes and more on catering to a smaller pool of affluent buyers who can generate more profit per house.

High rent

The government considers renters who spend more than 30 percent of their incomes on housing to be “cost-burdened.” Renters who spend more than 50 percent are considered “severely” burdened. The number of renter households that pay at least half their income reached a record 11.4 million in 2014, rising by 2.1 million from 2008 even as the economy began pulling out of the recession.

Poor dwellers can’t afford food

Compared with those who can find affordable housing, the poorest 25 percent of cost-burdened households spend on average 41 percent less each month on food. These same people also spend less on health care, not to mention retirement savings.

Housing aid eludes the neediest

Just one fourth of income-eligible renters receive any kind of public assistance. The shortfall is the result of inadequate government support, Herbert said. It’s true that the government can cut its housing expenditures by limiting its financial aid. But when people can’t afford rent, it creates an unstable situation where evictions become more common.

Housing instability can often increase people’s dependence on other social programs that raise costs for taxpayers in the long haul, Herbert said. It becomes harder to keep a job or learn in school when shelter is a constant uncertainty and increases dependence on other forms of welfare, he said.

“We can spend a little now, and in the end it’s going to create people who are much more financially stable on their own,” Herbert said.

Clusters of the poor

Between 2000 and 2014, the population in neighborhoods with poverty rates of at least 40 percent more than doubled to 13.7 million. That poverty overlaps with racial segregation. About 25 percent of poor blacks and 18 percent of poor Hispanics live in these high-poverty neighborhoods, compared with only 6 percent of whites.

Aging construction workers

The layoffs after the housing bust left builders with older construction crews. The share of building trades workers older than 55 rose to 16 percent from 10 percent in 2007. Just 13 percent of newly hired construction workers were under 25. Vocational training and immigration could help ease the coming labor shortage as older workers retire. So could opening up the industry to women, who make up less than 3 percent of construction workers.

AP Logo Copyright © 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.