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How to Compare Mortgage Lenders

6/30/2022
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Your Berkshire Hathaway HomeServices network professional may be able to help you find good lenders, but it’s up to you to determine which lender and loan program is right for you. 

In order to get an accurate side-by-side comparison, you’ll have to apply for a mortgage to a minimum of three lenders. They each will pull your credit and are required to provide you a three-page loan estimate within three days of your application. This is the lender’s solid offer that can’t change within the grace period you’ve agreed upon. 

Choose the terms you want. In a low-interest-rate environment, you won’t overpay if you get a fixed rate mortgage, as interest rates change over time and are more likely to go up than down. A variable or adjustable rate mortgage costs a little less but is preferable only if you think you’ll be selling your home after a short time. 

Make sure you’re comparing apples to apples. Supply each lender you interview with the same personal financial information, home price, down payment, type of loan, and other pertinent information.  

Once you receive the loan estimates, compare line by line, which is easy because all lenders use the same loan estimate sheet, according to Bankrate.com. The APR stands for annual percentage rate, which is the true cost of the loan. The advertised or non-application rate quote does not include the additional loan costs which vary from lender to lender. That’s why lenders are required to show the APR as well as the advertised rate. 

There are a number of reasons why the loan estimates may vary, including which credit reporting bureau they pull your credit from, junk fees, and day and time you submit your application online. Examples of finance charges include but are not limited to the following fees: Application, administration, processing, underwriting and/or funding. If you don’t understand the reason for a fee, ask for an explanation. Typical fees are clear, and include:  

  • Application fee

  • Credit report fee 

  • Appraisal fee

  • Underwriting fee

  • Property taxes and other government fees

  • Points 

Mortgage rates can change throughout any given day.  Rate swings of a quarter of a percent, while not a common occurrence, does happen. On a $200,000 home, a ½ point reduction in a 30-year fixed-rate interest rate would reduce monthly payments by $56 per month or $20,000 over the life of the loan. 

What does that mean?  It means that you need to do your rate shopping not only on the very same day, but at the same time of day.  You might get a rate quote from a lender on a Friday morning of 3% then call another lender the following Monday afternoon and get a quote of 2.75% for the very same loan.  That doesn’t mean the second lender is always lower than the first lender, it means the markets may have changed and rates have gone up or down.  You need to call back the first lender and get their updated rate quote.

Allow your lenders to earn your business, just make sure they’re all competing under the same conditions: the same loan program at the same time.

Homeownership Builds Middle Class Wealth

6/23/2022
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A new study by the National Association of REALTORS (NAR) found that between 2010 and 2020, nearly 980,000 households shared $2.1 trillion in housing wealth. How did they do it? Time and patience.

NAR defines a middle-class homeowner as one earning an income of over 80% to 200% of the area median income in markets with 50,000 or over middle incomers. If they purchased in 2010 at $162,600, they were likely to accumulate $229,400 in housing wealth, 86% of which is attributable to price appreciation over time. Within these markets, median single-family residences appreciated by 8.3%.

The top 10 rising middle-income housing markets were Phoenix-Mesa-Scottsdale (103,690), Austin-Round Rock (61,323), Nashville-Davidson-Murfreesboro-Franklin (55,252), Dallas-Fort Worth-Arlington (53,421), Houston-The Woodlands-Sugarland (52,716), Atlanta-Sandy Springs-Roswell (48,819), Orlando-Kissimmee-Sanford (35,063), Portland-Vancouver-Hillsboro (34,373), Seattle-Tacoma-Bellevue (31,284) and Tampa-St. Petersburg-Clearwater (28,979).

Another word for housing wealth is equity – the percentage of ownership you have in your home as opposed to the bank. When the housing market is good, it raises the value of your home because homebuyers want homes like yours. You can also build equity by paying down your mortgage, making extra payments toward your principal, and making attractive improvements to your home.

Housing typically increases in value by two to three percent annually, so the record gains of the past few years are atypical. However, housing inflation plus mortgage interest rates well below overall inflation are inspiring homebuyers to leap into the market. While quick gains are possible, the buy and hold strategy works better for most homeowners.

Hit the Deck with Easy Upgrades

6/17/2022
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It’s time for fun in the sun, and not too late to make some improvements to your deck. Before you have family and friends over for summer barbeques, take a weekend to make your deck more attractive, comfortable and better integrated with your backyard.

You want your deck and yard to look like they flow together. One way to do that is to plan around what you’d like to view, such as side gardens with flowers. The deck steps can lead down to the landing area or pavers in the grass that allows you and your guests to walk around and admire the plants up close.

Just as you want to orient your deck to pleasing views, you want to block out views that aren’t as nice. It’s easy to add screens, outdoor curtains or lattices so that you can enjoy the fresh air with more privacy. BobVila.com recommends adding a pergola to the deck. It’s a regal touch and the open slats of the roof will still allow airflow.

Lowes.com says to plan your deck for how you’ll use it. Is the space large enough for a barbeque, portable fireplace, or hibachi? Do you want to dine outdoors? You can buy outdoor dining furniture or build in a banquet. You can also add bench seating to one side. Anything that’s built-in and well-cared-for will add value to your home.

Top off the new look with planters for pops of color. And don’t forget soft lighting for evenings.

Housing Sales Take a Breath

6/9/2022

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If you’ve been anxious about being able to buy a home, you’ll like the latest news in March 2022 from the National Association of REALTORS (NAR) and the Mortgage Bankers Association (MBA). Housing sales are slowing down.

In February 2022, existing home sales were down 2.4% from one year ago and down 7.2% from January. Supplies of listed but not-yet-sold homes totaled 870,000 units, up 2.4% from January, but remain 15.5% lower than a year ago (1.03 million.) The supply is 1.7 months at the current sales pace, up from 1.6 months on hand in January.

As interest rates cross the 4% threshold and prices continue rising, monthly house payments have risen by 28%, says NAR Chief Economist Lawrence Yun. The median existing-home sales price rose to $357,300, up 15.0% from a year ago ($310,600), marking 120 consecutive months of year-over-year price increases. This is the longest-running streak on record, according to NAR.

Rising interest rates are conflating with rising home prices, which is impacting new home construction and sales. With mortgage interest rates a full point higher than they were a year ago, applications to purchase a new home were down for the third consecutive month, hitting the lowest sales pace in seven months at 791,000 units. And the MBA Builder Application Survey showed that mortgage applications for new home purchases decreased 3.9% year-over-year in February 2022.

The good news is you may be able to get a proverbial foot in the door soon.

Inflation, Interest Rates and Monthly Mortgage Payments

6/2/2022
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National average 30-year fixed rate mortgage interest rates have been at or near record lows for a decade. They should stay low forever, right?

Economists predict that rapid inflation is among the reasons the Federal Reserve will start raising overnight borrowing rates to banks, which will, in turn, raise interest rates to consumers and businesses when they borrow money.

Inflation is measured as the annual rise in the cost of living. When inflation rises more than 2%, there are numerous consequences. Goods cost more, causing workers to seek higher wages. This can cause uncertainty for businesses that may slow their investments down as a means of demonstrating caution. Interest rates go up to increase borrowing costs in order to slow down consumer consumption. Mortgage interest rates will increase, and things can change quickly for homebuyers and sellers.

Consumer behavior during inflationary periods is unpredictable. Some consumers decide to pull back and not make new purchases, while others leap in to make purchases before prices go up any further. This is one of the reasons why the demand for housing is driving up home prices. Interest rates have been unnaturally low for over a decade, so the anticipation of rising interest rates has some homebuyers scurrying to get in a home before home prices go any higher.

Eventually, homebuyers reach their pain threshold and the market for homes can slow down suddenly and dramatically. Once demand ebbs, prices begin to come down. Borrowing rates won’t come down as long as inflation is higher than 2% to 3%, but eventually, low market activity will cause borrowing rates to fall. Lower housing prices coupled with lower interest rates are irresistible and homebuyers will flock back to the market.

The ebb and flow in demand and affordability are constantly changing. To illustrate changing mortgage interest rates and their impact on your monthly

payment, consider what a difference even a small rise in interest rates means to you.

If you take out a mortgage for $400,000 with a benchmark fixed-rate 30-year mortgage with a commitment rate of 3%, your principal and interest payment would be $1,686.42. Assuming you make all 360 total payments, you’ll pay $207,109.81 in interest over the term of the loan. That’s $400,000 you’ve paid back plus 207,109.81 in interest for a total of $607,109.81.

If interest rates go up, say to 3.25%, your payment will be $1,740.83 and the total interest you’ll pay will be $226,697.10. With just a quarter point rise in interest rates, that’s a difference of $54.41 more per month and an additional $19,587.29 in interest.

What if interest rates go up as economists predict? If you’re interested in buying a home, mortgage rates are unlikely to stay low much longer, but you have to weigh that against current home prices and whether or not you want to take the risk that they’ll rise further or whether it’s better to wait and see what happens.

It’s said in real estate that it’s always a good time to buy a home. Even if the value of your home goes down because of market fluctuations, eventually it will recover and hopefully deliver a profit to you when you sell.

How Credit Scores Impact Loans

5/26/2022
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Mortgage lenders check your credit history before approving a home-buying loan, so your credit scores are crucial to getting the amount you want to borrow at a good interest rate.  

Your income versus your debt, your payment history, the length of time you’ve had credit, new credit you’ve opened, and the types of credit you owe (such as student loans or consumer debt) are all calculated in a valuation system known as credit or FICO scores. 

FICO scores range from 300 to 850, but because mortgage loans are so large and have such a long payback period, most lenders require scores between 520 to 700 and above, depending on the type of loan – conventional or conforming. Credit score minimums required by banks to qualify for these loans can change, depending on market conditions and the bank’s assessment of their own risk. 

Conventional loans
According to QuickenLoans.com, conventional mortgages meet the minimum criteria required by Fannie Mae and Freddie Mac, entities that purchase the loans from banks and package them into securities to be sold on the secondary, which is why your loan service can change from your original lender. When the bank is allowed to sell their loans, it can borrow more money overnight from the Federal Reserve and make new loans. Conventional loans are ideal for those with good to excellent credit; they offer competitive rates and flexible terms. However, they aren’t guaranteed by any government entity, and therefore require higher credit scores to qualify. 

If you have a score of 620 or higher, you can qualify for a conventional loan. Those with scores of 740 or higher can usually get by with a lower down payment and still are able to qualify for a low interest rate. 

Conforming loans
Conforming loans are loans that are insured by the federal government. They’re less risky for lenders than conventional loans and therefore easier for homebuyers to qualify for them both as purchase loans and when homeowners want to refinance their mortgages. 

FHA loans?are insured by the Federal Housing Administration and can be obtained for as little as 3.5% down, which makes them the ideal product for borrowers with lower credit scores or for those who must spend a greater portion of their income on housing. 

The advantage of an FHA loan is that a smaller down payment allows you to get into a home of your own much faster, which is why most first-time or lower income homebuyers go FHA. In 2021, the FHA requires a minimum FICO score of 580 to qualify for a 3.5% down payment loan and a FICO score of 500 to 579 for a 10% down payment.   

There are some requirements and restrictions. FHA loans are only available for primary residences. Your debt-to-income ratio can be no larger than 43%, and you must have steady income and proof of employment. The maximum FHA loan amount is $331,760 and $765,600 for high-cost areas. In addition, non-removable mortgage insurance is required. 

U.S. Department of Veteran Affairs is the guarantor for VA loans and the eligibility requirements are far more complex. You must be a member or veteran of the U.S. Military or a member or veteran of the U.S. Military Reserves or National Guard and apply for a certificate of eligibility. Approximately 90% of VA loans are granted with no down payment required, but borrowers are required to pay an upfront funding fee of about 2.3% of your loan. 

While the VA sets no minimums on credit scores and doesn’t require private mortgage insurance, lenders require a minimum FICO score of 620. 

For any loan, the larger your down payment, the lower your credit score can be. Credit scores also impact interest rates. The better the score, the better the rate.



Set the Mood with Lighting

5/20/2022
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Every space in your home has multiple functions requiring different lighting.  Even within the same room, you’ll need multiple light sources to set the right mood for the time of day and the activities you have planned.

Lighting comes in five major categories:

General purpose - any lighting fixture that is plugged into an ordinary socket, such as lamps or overhead fixtures.
Decorative - any lighting where the bulb can be seen, such as a chandelier, bathroom strip lighting, pendant lighting or sconces.
Track or Recessed - lighting that is usually a floodlight or spotlight in tracks or recessed fixtures.
Specialty - unusual lights found in appliances or furniture such as cabinet lighting and appliance lighting.
Outdoor - lighting that is specially designed for use outdoors such as security lights, lamp post lights, porch or entry lights.

The key to mood lighting is temperature. Lighting is either cool or warm, so the bulb you choose can put out yellow, soft white, bright white or natural daylight. Smart bulbs connect to mobile devices to be turned on and off, dimmed or brightened, or color changed with an app.

Layering your lighting gives you more options. Overhead lighting on tracks, ceiling fans, or recessed lighting provides central lighting. Floor lamps or torchieres, uplights, and downlights can accent architectural features and art displays. Sconces add stylish indirect light anywhere you place them.

Be sure to check any fixture you buy for the manufacturer's instructions on the type of bulb and maximum wattage allowed.



Pending or Contigent?

5/12/2022
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Each home listing has a status that’s updated by information that the listing agent feeds into the multiple listing service (MLS). A home listed contingent or pending are under contract, but there’s still a chance for you to buy it.

Most purchase offers for the buyer to back out if they can’t get financing, the home doesn’t pass inspection, or the home price doesn’t meet appraisal. In some cases, the listing agent will update the listing with showing instructions, according to Rocketmortgage.com, such as:

Contingent - continue to show (CCS), the seller wants to pivot to a backup offer is the buyer can’t perform.
Contingent - no show, the seller believes the buyer will have no problem removing the contingency.
Contingent - with kick out, the buyer has a limited time to remove the contingency or risk the contract being voided.
Contingent – probate, a deceased homeowner’s assets are going through the probate process, so the home may not be available for purchase for some time.

When a listing is pending, the contract is closer to closing, but there are exceptions:

Pending- taking backups, the seller is accepting backup offers in case the buyer can’t perform.
Pending- short sale, the mortgage holder has been asked to take less money than the seller owes on their mortgage.

Your Berkshire Hathaway HomeServices franchise network professional can advise you about your chances. In a hot market with low inventory, shopping contingent or pending homes could be a great way to make offers with less competition.

Decreasing Demand or Supply Constraints?

5/5/2022

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In 2021, existing-home sales rose 8.5% during 2020, the highest level since 2006 as supplies of homes for sale fell to an all-time low of 910,000, equivalent to 1.8 months of available inventory.

In December 2021, housing sales declined 7.1% over December 2020. The National Association of REALTORS (NAR) explained that the dip was likely due to supply constraints over decreasing demand from homebuyers. Employment in December rose by nearly 200,000 and the unemployment rate was 3.9%. Also favoring homebuyers, salaries rose 4.7% year-over-year, even while those gains were countered by the highest rate of inflation since 1982, a 7% increase from 2020.

The cost of housing, including owner-occupied and rented homes, rose 4.1%, the fastest rate since 2007. Meanwhile, the U.S. Bureau of Labor Statistics reported that building costs rose nearly 19% in 2021 which slowed construction, along with materials and labor shortages. For these reasons, the housing industry is unlikely to increase supplies of new homes by only 2% in 2022, which will make existing homes more coveted.  

Homeownership is an excellent hedge against inflation, primarily because buying a home at a fixed price and interest rate where it applies. While home prices and interest rates continue to rise, the cost of housing decreases as long as the homeowner retains the property.

With signs positive that housing demand will continue, NAR predicts that mortgage interest rates will stay under 4% and that home prices will rise 3% to 5% by the end of 2022. 

How Real Estate Agency Works

4/28/2022

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Real estate professionals are licensed by regulators in the state where they practice. A candidate must be sponsored by a licensed real estate broker, take state-approved training, pass the licensing test, and then join the sponsoring broker’s firm as a salesperson and agent of the broker.

State licensing laws allow certain types of representation in fairness to consumers. Some agents act as fiduciaries for their clients which means they owe loyalty to the one who hired them, but in that case, they also owe honesty and fairness to other parties in the transaction. Other agents act as facilitators which means they can work with both parties in the transaction honestly and fairly but they can’t show favoritism to either side.

seller's agent, also called a listing agent, has signed representation and listing agreements with the seller. The agent can show the seller’s home to buyers, but can’t share confidential information from the seller to move the sale along. A buyer’s agent works the same way with the buyer and can’t disclose confidential information to the seller. 

Buyers and sellers can use the same agent under dual agency, but both parties must sign a consent form. Dual agency is common when a listing agent finds a buyer for the seller’s home. If both parties want fiduciary-level service, the real estate broker can assign a different agent to assist the buyer.

Contact your Berkshire Hathaway HomeServices network agent for more information about the levels of service they offer. 

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