Tag Archives: mortgage

What is a Jumbo Loan & Would I Qualify

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It’s over halfway through 2015 and the luxury housing market is booming. According to the Washington Post, soaring prices and sales in the luxury market are factors due to the rapid growth of “jumbo loans” in the Washington area and around the nation. Nearly 1 in 4 mortgages originated in 2014 around the country were jumbo loans, spurred also by lenders’ efforts to make the mortgages more attractive to buyers. 

What is a Jumbo Loan?

A Jumbo Loan is a conventional mortgage with a loan amount that is higher than $417,000 in most areas of the United States, exceeding conforming loan limits imposed by Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac, the large financial agencies that purchase the bulk of US residential mortgages from banks and other lenders, allow for institutions to free up money to lend more mortgages to those looking to purchase homes. Jumbo loans happen when Fannie Mae and Freddie Mac do not cover the full amount of the loan, which normally occurs when homebuyers are looking to buy larger, more luxurious homes, which come with a higher price tag.

Difference between Jumbo Loan and Conventional Loan

 In the past, jumbo loans have required higher interest rates from buyers, but according to the WSJ, low interest rates triggered a refinance flurry in the first few months of 2015 and the volume of jumbo mortgages—those above $417,000 in most places and $625,500 in some high-price areas—reached an estimated $160 billion in the first six months of 2015, up about 36% from a year ago at the same time, says Guy Cecala, publisher of Inside Mortgage Finance, which covers the industry. Since these normally higher interest rates have stayed relatively low, the main difference between a Jumbo Loan and a Conventional Loan is just the higher monetary amount and monthly payments that the loan is for.

Qualifying

So how do you know if you as a borrower qualify for a jumbo loan? To secure a jumbo loan, you must start by having a high credit score (greater than 700), and low debt-to-income ratio (no more than 45%)  . As a lender, there are some risks associated with providing jumbo loans since they are worth more money (and come with the potential to lose more). In order to secure a jumbo mortgage, you will have to put down a higher down payment than with a conventional loan. Along with a higher down payment (typically around 20% of the price of the home), the monthly payments and interest rates will also be higher- although in recent years interest rates for jumbo loans have been reduced. The Washington Post reports that today, the interest rates and down payment requirements are more aligned with conforming loans, making them more appealing for borrowers. Jumbo loan borrowers still typically need to prove they have cash reserves in the bank, a high credit score, a solid employment history and a low debt-to-income ratio in order to be approved.

Remember- jumbo mortgages are great solutions for those looking to buy higher-priced homes, and it is critical to do your research when trying to secure the best value. In the very near future, interest rates for jumbo loans are expected to rise especially if the Federal Reserve raises its interest rate benchmark (expected in September), so for the best rate, don’t wait! Need more assistance? We can help. Contact Alpha Mortgage today and make the first step in securing your jumbo loan.

Can I Afford A House?

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When it comes to purchasing a new home, there are always many questions and factors to consider before putting down an offer. “Why is the owner selling? Do I like the location and surrounding area? Does the home have all of the amenities I am looking for?” The first, however, should be “Can I afford this home?” What would seem to many to be a simple ‘yes or no’ is actually one of the more complex questions when it comes to home-buying-101.

The question, ‘Can I afford this home,’ seems for the most part straightforward. You either can or you can’t. But what goes into determining the answer is where the complexity sets in. Below we have compiled a list of 5 important things to keep in mind when determining if you can afford a home or mortgage that you are interested in purchasing.

  1. Income Factors
    • Income before taxes is one of the most important factors in determining if you can afford a home and mortgage payment. But “income” doesn’t only refer how much you make per year before taxes. Income should also be evaluated by job security (the probability that you will keep your job), opportunity for raises and bonuses, confidence in keeping steady commission if your job operates off of this, chances that salary will stay the same or increase, and other considerations such as if you are planning on having kids soon.
  2. Monthly Spending
    • Monthly spending or your typical monthly budget is another factor that should be evaluated when determining if you can afford a house. Living expenses such as bills/utilities, transportation, health, fitness, home, kids, travel, personal care, pets, shopping, taxes and other expenses should be calculated, multiplied by 12, and then subtracted out of your income to get a clear picture of how much money you have left to work with. It is extremely important to be honest with yourself when calculating your monthly budget.
  3. Down Payment & Closing Costs
    • Monthly mortgage payments are not the only thing that you have to worry about paying when you plan to purchase a home. Once you decide on a home and have calculated your monthly spending and compared it to your yearly income, the next things that should be considered are down payments and closing cost. According to Mortgage 101, ‘Traditionally mortgage down payments range from 10 to 25 percent of the total purchase price of the property.” However, there are now more options that can potentially lower your down payment that our loan officers can help you decipher and apply for. Just as a rule of thumb, it is best to prepare to pay within that percentage for a down payment. Along with a down payment, closing costs should also be considered when determining if you can afford a home. Closing costs vary individually based on location and property values, but typically will include the costs to transfer property deeds, titles, land transfers, legal fees, loan fees, etc. On top of this remember that typically the closing itself will usually cost you 2-3% of the home price.
  4. Taxes/ Insurance
    • Once you purchase a home, taxes and insurance must be paid in order to protect both you and the lender. The main tax that a homeowner will pay is a yearly “Property Tax.” What a property tax does is quantifies the value of your property and home and gives the tax money you pay to the government. Normally, people set up Escrow Accounts that take money from your accounts monthly to go towards your end-of-year property taxes and insurance bills, and then accumulates that money until it is due (so you don’t have to come up with the lump sum all at once, which can be overwhelming). If you own your property outright, some people do choose to pay their yearly property tax at outright without an Escrow Account.
    • Homeowners insurance varies based on many factors including location, and risk factors, but is also something that you are required to pay. This can also be deposited monthly into an Escrow account. The main thing to remember with homeowners insurance is the more risk your property has, the more money you will pay on a policy. Basic homeowner policies usually include (but are not limited to) Dwelling Protection, Personal Property Protection, Natural Disasters, Other Structure Protection and Injury Liability. Another insurance you will likely have to pay is a mortgage insurance to ensure you will pay your monthly dues. Sometimes Private Mortgage Insurance (PMI) is required if you as a buyer are putting less than 20% down on a house and better protects the lender.
  5. Monthly Mortgage Payment
    • Monthly mortgage payments will be what you pay every month that goes towards the principal (money you borrowed) and interest on that money. They also sometimes include some of the home’s insurance and taxes. Mortgage payments vary depending on the home, location, money put down on the property and individual’s credit score. To see an estimated monthly mortgage payment you can click here, but until you meet with a lender, this will just be a projection.

Along with income factors, monthly spending, down payments and closing costs, taxes and insurance, and monthly mortgage payments, there will usually always be random “other” costs included when purchasing a home including homeowners dues, home maintenance, home inspection, etc. When predicting if you are going to be able to afford a house, it is always best to over-price your projected spendings. Don’t forget that according to CNN, Total debt payments (credit cards, student loans, car payments, etc.) should be less than 36% of gross income because that has been shown to be a level of debt that most borrowers can pay back comfortably.

Buying a house is a difficult process, but here at Alpha Mortgage, we are ready to assist you in any way possible. Contact us today!

5 Things that will Destroy your Credit while looking for a Mortgage

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In the lending process, one of the most important things that brokers look at when determining if an applicant should be approved or denied for a mortgage is credit score. Credit score refers to the three-digit number that represents how well you handle money. Credit scores are calculated through data records that come from previous statements, monetary amounts owed, length of one’s credit history, new credit, and types of credit used. There are three different credit scores: Experian, TransUnion, and Equifax. FICO scores are what most lenders check when applicants are applying for a loan. There are three FICO scores checked, one for each respective bureau, to determine risk. FICO scores range from 300 to 850, and the higher the number is, the better credit one has.

According to the FHA, “Generally speaking, to get maximum financing on typical new home purchases, applicants should have a credit score of 580 or better.” Lenders will look at your score before approving you, and often during the loan process as well to make sure that nothing has changed. If your score is a bit lower than 580, don’t sweat it. As long as your credit future looks promising, you still can potentially get a mortgage, you just may have to pay a higher down payment. If you’re in the clear, congratulations! You are one step closer to owning your dream home. However, regardless of score, it is essential to avoid these 5 things when you’re applying for a mortgage that can potentially destroy your credit score.

1. Opening up a new line of credit– There are two types of inquiries when it comes to someone wanting access to your credit- soft inquiries and hard inquiries. A soft inquiry occurs when you want to check your own credit score, potential employers run background checks on you, or other small questions. A hard inquiry is a serious check into your credit either conducted by a lender, credit card issuer, or other financial institution. These hard lower your credit score for a few points and stay on there for up to two years. They must be authorized. When you open up another or multiple lines of credit during the lending process, this raises a red flag to your lender that you’re desperate for credit.
2. Closing a credit card account– On the opposite end of the spectrum, closing credit card accounts can also lower your credit score and cause issues when you are applying for a mortgage. According to Next Avenue, when you close out a credit card or consolidate all of your credit card debt onto one account, your credit score will take a ding. The article states “when you close a credit card account, you lose the amount of available credit on that card. This increases what’s known as your credit utilization ratio, or CUR, a figure that compares the amount of credit you’ve used with the total amount of credit you have available. The way to maximize your credit score is to have a low utilization ratio.” Avoid this when applying for a mortgage.
3. Not paying your bills on time– This is a given… but sometimes we forget that even the smallest slip in not paying bills can be an issue when it comes to your credit score. If you don’t already, set up reminders for every bill that needs to be paid a few days in advance to the due date.
4. Shopping around for a mortgage– It is extremely important to check your options when looking for a mortgage in order to secure the best rate possible. However, your FICO score takes a hit with multiple inquiries from different lenders. To compensate for this, within 30 days of a mortgage inquiry, additional inquiries are lumped into the first. What does this mean? If you are shopping around for the best mortgage rate, do so within a concentrated 30-day or less period.
5. Co-signing loans– As a parent, helping your child with a loan may seem like the best option to help them build credit, but be very careful when co-signing with your children for finances. It is in fact a good way to build their credit up, however, if they miss a payment it could shave up to 50 points off of your credit score. If you do co-sign, make sure to set reminders for when payments are due to remind your child and ensure that no payment will fall through the cracks. Yikes!

Want to apply for a mortgage? We can help.

Mortgage Market Update 03-17-2014

Economic data had little impact t on the capital markets today as all eyes continue to focus in on the geopolitical news out of Europe. The republic of Crimea has voted to break off from Ukraine and join Russia. President Obama has stated that Crimea’s vote “would never be recognized” by the U.S. and warned of further military action toward other parts of Ukraine.

The New York Federal Reserve reported that its Empire Manufacturing Index rose to 5.6 in March, above the 4.5 recorded in February and nearly inline with estimates. Within the report it showed that both the new orders index and the employment component both saw positive gains. Readings over 0.0 indicates improving conditions, below indicates worsening.

Over in housing news, the National Association of Home Builders (NAHB) March Housing Market Index rose to 47 in March from the 46 recorded in February and below the 50 that was expected. The NAHB said that poor weather and difficulties in finding lots and labor weighed on the index. A number below 50 indicates that more builders view conditions as poor than good.

Mortgage Market Update

Fannie Mae released its January 2014 National Housing Survey this week revealing that consumers are positive regarding access to mortgage credit while their views towards the economy are improving. 52% of respondents thought it would be easier for them to get a home loan today, an all-time high. The share of respondents who say the economy is on the right track increased 8 percentage points from last month, to 39%.

History was made today when new Federal Reserve Chair Janet Yellen became the first woman to head the central bank in its 100-year history. Ms. Yellen is in front of Congress this week testifying on the state of the U.S. economy, along with monetary policy. Ms. Yellen did say that the labor markets have made some progress, but still have a lot of improvement ahead. Ms. Yellen went on to say that the Fed policy makers could pause on easing back on stimulus if the economy weakens.

The Labor Department reported this morning that its JOLTS report, Job Openings and Labor Turnover Survey, showing a second straight month fall in the hires rate, now at 3.2% and the lowest since June of 2012. Compared to December, the total job openings rate fell 0.1% to 2.8%. The hires rate is the number of hires during the month divided by the number of employees who worked or received pay for the pay period that includes the 12th of the month.

Mortgage Market Update

The Labor Department reported this morning that employers added just 113,000 jobs in January, which was below the 175,000 expected, but up from the paltry 75,000 created in December. A freeze in hiring in the health care sector is one of the factors to the lower numbers. The Unemployment Rate fell to 6.6%, the lowest level since October 2008, but that can be due in part to people falling out of the work force than finding jobs.

Filling up at the pumps will begin to be more expensive as spring nears due to more drivers being on the road along with refineries shutting down for winter maintenance, which reduces supplies. The national average price for a regular gallon of gasoline is at $3.26. For 2014, AAA predicts that the nationwide average price will peak between $3.55 and $3.75 per gallon with the average price around $3.49.
The Census Bureau reports that the share of Americans who own their own homes was 65.2% in the fourth quarter of 2013, down from 65.4% in the previous quarter. Higher borrowing costs coupled with tight credit were the two factors behind the decline. The rate peaked at 69.2% in June of 2004.

Mortgage Market Update

Consumers opened their wallets in December and spent on holiday shopping across the nation. Personal Spending rose by 0.4% last month, above the 0.2% expected. However, Personal Incomes were unchanged and below the 0.2% expected. Digging into the report it revealed that consumer inflation pressures were almost non-existent.

Manufacturing activity in the Chicago region declined in January from December. The Chicago PMI fell to 59.6 from 60.8 and was the lowest reading since November. Within the report it showed that the employment component fell, while the prices paid number rose. In addition, Consumer Sentiment fell to 81.2 in late January and down from the 82.5 registered in December.

Today marks the last day in office for Federal Reserve Chairman Ben Bernanke as Janet Yellen takes over the reigns as Fed Chief on Monday. Mr. Bernanke steered the US financial system through one of its worst periods in history after the financial and housing markets blew up in 2008. Ms. Yellen becomes the first woman to head the central bank in its 100-year history.

Mortgage Market Update

The Mortgage Bankers Association reported this morning that its Market Composite Index, a measure of total loan application volume, rose by 4.7% in the latest week as home loan rates fell to lows not seen since November. The refinance index increased by 10%, but the purchase index declined by 4%.

In corporate earning, revenues at Coach were weaker than expected, IBM’s revenue declined while Texas Instruments forecasted weaker than expected net income. In addition, United Technologies beat earnings expectations while revenues fell. There have been 61 companies in the S&P 500 that have reported with 56% topping estimates.

The first Federal Open Market Committee meeting of 2014 will take place next week with the closely watched monetary policy statement being released at 2:00pm ET. The investing public will be looking for any additional news on the Fed’s massive stimulus program, dubbed QE III or Quantitative Easing III. The Fed revealed last May they it may begin to taper its purchases of Treasury and Mortgage Backed Securities, which sent home loan rates for a 30-year fixed from the mid 3% level to the current level of 4.5%. The Fed did begin to taper its purchases from a total of $85 billion per month to the current pace of $75 billion.

May 23rd Moorings

Hello and welcome to this week’s edition of Moorings, your source for local and national news from the Mortgage Industry. Let’s jump right in and take a look at Housing Starts and Building Permits, which are leading indicators of the new home construction market, and both came in below expectations that were already low. If you consider the significant amount of foreclosures and inventory overhang weighing on the market, it is no surprise to see a weak indicator on new home construction. Broadly speaking, foreclosures and short sales are expected to continue weighing on new home construction for the next couple of quarters… but as we all know, real estate is very local. For instance most new construction in our area that is priced right (under $300,000) is moving steadily enough.

 

Also, the major undercurrent theme of the economy is that economic growth will slow, which recent reports seemed to indicate. The recent rally in bonds and home loan rates (rates are down), seem to be sparked by this notion. And when you also factor that the only two ways the government can lower the budget deficit is either by cutting spending or raising taxes – or some mix of both – the austerity measures could indeed slow the economy.

 

Now that we have the major news behind us, let’s take a look at a rate or two for this week. A client looking to purchase a two hundred thousand dollar home, with 5% down on a conventional thirty year mortgage would likely have an interest rate of 4.75%, assuming their credit score and other assets qualify them. Even better are 100% USDA loans which are currently being offered at 4.625%. This is truly a phenomenal bargain on a mortgage for anyone looking at a home that qualifies for USDA financing. Just keep in mind that rates are down right now for a reason, and eventually they will go back up.  Contact your preferred lender now if you want to discuss refinancing or purchasing a home.

 

Last but not least, I thought I would discuss the question of paying off your mortgage early. I recently had a client tell me they were dead set on paying off their newly refinanced 15 year mortgage in less than ten years. I cautioned them to examine this thought process carefully and discuss it with a tax specialist. While not having a mortgage payment may seem attractive to many people, the money you will put into that endeavor may likely be put to better use in a safe investment acquiring interest. In addition, mortgages are what many people consider “good debt” in that it allows you to claim a vast amount of tax deductions over the course of your loan, which can greatly help you each year. A financial planner or tax specialist can help you plan your path to a prosperous future and retirement. Well that’s it for this week, until next, Be Blessed and Numbers 6:24-26 be on you.