LOW MORTGAGE RATES -- BIG REASON WHY OWNING CONTINUES TO
BE MORE AFFORDABLE RELATIVE TO RENTING
MORTGAGE RATES HAVE FALLEN SO FAR THAT THE MONTHLY COST OF OWNING
A HOME IS MORE AFFORDABLE THAN AT ANY POINT IN THE PAST 15 YEARS. IN A GROWING NUMBER OF CITIES, HOME OWNERSHIP
IS LESS EXPENSIVE THAN RENTING. IN 1991, A $1,700 MORTGAGE
PAYMENT ALLOWED A BORROWER
TO TAKE OUT A $200,000 MORTGAGE . TODAY, IT
GETS THE SAME BORROWER A $350,000 MORTGAGE, A 77%
INCREASE IN BORROWING POWER; says Dan Green, loan officer with
Waterstone Mortgage in Cincinnati.
THE AVERAGE RATE FOR A
CONVENTIONAL, 30 YEAR FIXED-AVERAGE RATE
MORTGAGE HAS FALLEN BELOW 4 PERCENT FOR THE FIRST TIME ON RECORD; ACCORDING TO FREDDIE MAC’S
RECENTLY RELEASED MARKET SURVEY WEEKLY.
THE AVERAGE 15-YEAR FIXED RATE FELL BELOW 3.5% “THE LOWEST LEVEL
ON RECORD” THE SURVEY REPORTED.
AS A RESULT, ONE OF THE MOST STRIKING DEVELOPMENTS OF THE HOUSING
TURNDOWNS, MONTHLY MORTGAGE PAYMENTS ON THE
AVERAGE MEDIAN PRICED HOME—INCLUDING TAXES AND
INSURANCES –ARE LOWER THAN THE AVERAGE RENT LEVELS IN 12 METRO AREAS OUT OF 28 AREAS
SURVEYED, ACCORDING TO THE DATA COMPILED FOR THE WALL STREET JOURNAL. "IT’S ONE OF THE MOST STRIKING
DEVELOPMENTS OF THE HOUSING DOWNTURN”, ACCORDING TO PAUL DALES, AN ECONOMIST AT
CAPITAL ECONOMICS.
PRE--QUALIFIED V. PRE--APPROVED
Often times there is confusion between a buyer being pre-qualified
and being pre-approved.
Home loan pre-qualification
and pre-approval
are different and distinct processes, so it is important to understand the
difference. Pre-qualification is a preliminary
process, which requires the buyer to complete a mortgage application and allows
loan officer, loan processor or mortgage broker, to check the buyer's credit to
determine how much may be borrowed on a mortgage loan prior to the buyer making
a formal application. This is a good first step, which enables the buyer to
approximate the price range for the home purchase. But only a mortgage underwriter can
pre-approve a buyer for a loan. To be pre-approved,
the buyer must provide the underwriter with verification of income and asset
documentation (W2’s, bank statements).
The underwriter will then approve the buyer for a specific loan amount
and property value. Once the buyer is pre-approved,
the seller should have comfort that the mortgage contingency clause in the
contract of sale will not be a problem and the transaction will close in a
timely manner.
FIRST-TIME HOME BUYER CREDIT
As part of the President's stimulus package, first-time homebuyers
are eligible to receive a tax credit equal to ten percent of the purchase price
of their home, up to a maximum of $8,000; if they purchase after January 1,
2009, but before December 1, 2009.
Unlike last year’s Congressional $7,500 tax credit, there is no payback
provision. The tax credit will phase out
for those individuals with incomes over $75,000 or married couples with incomes
over $150,000 who file their taxes jointly.
First- time buyer was defined in last year’s law as those individuals who have not owned their home for three
years. There is a forfeit provision if
the homebuyer sells the home within three years. According to the National Association of
Realtors, first-time homebuyers account for approximately 41 percent of total
home sales.
NEW FICO CREDIT SCORE DEBUTS
Fair Isaac Corp. has announced its new-improved-FICO score. The new score is touted to be more accurate
in predicting borrower defaults and more
forgiving of one-time slip-ups, but will take a harder line on repeat
offenders. The score will still range
from 300 to 850 and is programmed to do a deeper analysis of subprime borrowers
or those with “thin” or young credit histories.
According to FICO, more customers with accounts in good standing should
see a slight increase in their credit scores, in addition to improving the
accuracy of lending decisions by as much as 15%. FICO will also factor in credit-card accounts
for authorized users, such as children and spouses. FICO has joined with Trans Union LLC and
Equifax Inc. - two of the three major credit bureaus. The Experian Group Ltd. has declined to
participate.
FREE CREDIT SCORES MAY BE OFFERED
Consumers may soon be able to get “free credit scores”
through their bank or credit unions.
Fair Isaac Corp., maker of the FICO credit score, has announced an
agreement to approximately 200,000 members of the Pennsylvania State Employees
Credit Union. Fair Isaac said that this
is an expansion of an existing program, presently being offered to credit-card
members at Washington Mutual, which is being acquired by J.P.
Morgan Chase. Fair Isaac stated
that they are in ongoing discussions with many of their customers to expand the
program. In addition to getting their
credit scores, consumers will also be advised as to the reasons for their score
and the actions they can take to improve their scores.