Housing Trends Portland Region and Portland Region Real Estate Market Updat

Housing Trends Portland Region and Portland Region Real Estate Market Updat

...Housing Trends eNewsletter- LaTasha Hershey

...Housing Trends eNewsletter- LaTasha Hershey

4 Mortgage Programs For Homebuyers

Whether you’re thinking about buying your first home or you’ve been contemplating an upgrade, you probably already know that there are several different kinds of home mortgages, some that seem pretty much alike at face value. FHA, VA, USDA — what does it all mean?! We’re about to take all the stress out of choosing the mortgage that’s right for you and your family (even if that family is just you and Spot the cat).

Mortgage Basics in a Nutshell

There are a few different elements of a mortgage that are important to understand before we move forward in this process. You already know stuff like interest rates and what your payment and interest payments are, but there are other things that might not be quite so well settled in your mind. Most homeowners have questions about the following mortgage related definitions:

Loan features. When you get a mortgage, it often has other stuff that comes with it. After all, this isn’t the same as borrowing money from your mom, banks have fancy lawyers who make sure they earn their keep. You may notice features like “assumability” and “prepayment penalty” listed on your initial loan form.

Assumable loans are loans that you can literally transfer to another person when they buy your house. This is useful when interest rates are climbing, sometimes people will pay more for a lower interest rate mortgage they can take over.

Prepayment penalties are very bad and you don’t want this. Basically, you’re punished for paying your loan off early. Typically, they’re part of subprime lending, but you never know when one might pop up elsewhere. Since “prepayment” includes the payoff from selling your home, there’s no winning with this one.

Mortgage insurance. There’s been a lot of talk about mortgage insurance, both for better and worse. To put it simply, mortgage insurance makes it possible for you to bring a downpayment as little as about three percent to closing with FHA or conventional type mortgages. It’s a type of insurance that you pay for in case you were to default on the loan. If you do, the insurance company pays out your coverage to your bank, reducing the amount you may be responsible for if the house can’t bring enough at the foreclosure sale to cover your remaining note.

Down payment. Down payments are your initial investment in your home. Many times, home buyers are surprised to see that they have to bring both closing costs and a down payment, having assumed the two were the same. The down payment goes to the bank as proof of your commitment. We’ll get to closing costs.

Closing costs. Closing costs are the bane of buyers everywhere. They can seriously mount as things like appraisals, title insurance, fees to the bank (separate from your down payment) and prepaid items like taxes and homeowner’s insurance add up. Some programs will allow you to ask the seller to pay these on your behalf, but the amount you can ask for is limited to a percentage of the sales price and based on the program you’re using. For many homeowners, closing costs will be similar in price to their down payment, which is where the confusion typically starts.

Pick Your Poison: The Four Basic Home Mortgage Types

Understand that these are not the only mortgages out there, but they are the ones that you’re most likely to use in order to buy a home. Each has its own set of benefits and drawbacks, which we’ll discuss briefly.

Conventional Conforming

If you’ve heard of Sallie Mae or Freddie Mac, you know the family of conventional loans. These loans are written by a wide range of banks, from your hometown locally owned to the fanciest mortgage broker. “Conforming” loans meet Sallie and Freddie’s high requirements, including maximum sales price.

Pros: Generally, you’ll get a better deal on mortgage insurance that automatically drops off (meaning you no longer have to pay it) once your home reaches a 78 percent loan to value ratio. Also, you’ll pay less in closing costs and your debt to income ratio can be somewhat flexible as long as look really good on paper.

Cons: These are generally the hardest loans to qualify for. Even though there are now three to five percent down payment options, your credit score will need to be around 700 (better is better) and your other ducks should be lined up nice and straight. Consistent employment, savings that can be designated as “reserve funds” and few to no scabs on your credit report are helpful.

Federal Housing Authority

The FHA started insuring loans after the Great Depression as a way of helping people get back into owned property. It basically created the 30 year fixed interest mortgage and continues to carefully oversee which homes can and cannot be purchased in its name.

Pros: Good option for first time buyers because of low down payment and credit requirements. FHA will accept “soft” credit lines for people who haven’t established credit yet or have very little, so keep that utility bill paid on time. The program allows up to six percent of your closing costs to be financed into your loan, as “seller paid items,” which can help reduce the actual cash you need to close.

Cons: FHA requires a lot more in closing costs because of the additional upfront mortgage insurance deposit. In addition, if you have less than a 10 percent down payment, under the current programs you’ll be forced to keep paying mortgage insurance for the life of the loan, giving you no options but to refinance or sell down the line if you want rid of it (it’s costly, you want rid of it). Not every banker wants to deal with FHA loans because they can be time consuming to write, so you may have to shop a bit to find a good bank.

Veterans Administration

As part of the benefits that active military members and veterans receive from the government, VA loans are built on a merit-based system. Career military and those honorably discharged early are generally eligible, but short-term members or Reserves may have to meet additional requirements. Anyone who can get this loan will need to bring a Certificate of Eligibility in order to get the ball rolling with an approved lender.

Pros: Favorable interest rates, extremely flexible guidelines and absolutely nothing required as a downpayment (often little to nothing required at closing!) There’s no mortgage insurance, just a one time “funding fee” that varies with your service type, downpayment and times you’ve used your Eligibility.

Cons: Really, there aren’t any. You can’t get this if you’re not military, though, so that could be a con if you really wanted this most excellent loan type.

US Department of Agriculture

In rural areas, the US Department of Agriculture will offer mortgage lending as a way of helping to keep the local economy flowing. Homes don’t have to be on an acreage, but they do need to be located in communities with under 35,000 inhabitants.

Pros: Like VA, USDA are fairly easy to qualify for as the buyer. They can also be zero down loans, though the more you can bring to closing the better. Payment assistance and other types of help are sometimes available for very low income borrowers.

Cons: The house you’re buying will undergo significant scrutiny in order to be approved for the program. In all loan programs, your house has to qualify, but the hurdles USDA puts in front of the building are much larger than most other programs. This is good for you, because it means you’re getting a great house, but it makes the process take a lot longer and can be scary for sellers. In addition, there’s a cap on income for potential borrowers.

Need a Mortgage? Who Ya Gonna Call?

HomeKeepr! Wait, that’s a different thing. But, seriously, whether you’re looking for more answers to your burning lending questions, need a plumber to fix your leaky faucet or a party planner to celebrate your finally closing on that loan, your HomeKeepr community has contact information for them all. Just log in and check out all the specialties your HomeKeepr family has to offer — they’re recommended by your Realtor, so you know you can count on these experts.

WHAT IS THE REAL ESTATE MARKET LIKE IN PORTLAND, OREGON?

Should You Jump Into the Current Real Estate Market?

Deciding you’re ready to buy a house is a big moment in your life, whether it’s a first time purchase or you’re snatching up yet another investment property. The home buying process is fraught with dangers, both real and imagined, as well as very real financial risks.

That’s why there are so many pieces of advice about when to buy a house. The truth is that there’s no one answer for anyone. Because market conditions can vary dramatically, there’s no way to safely predict if or when the neighborhood you’re looking at will be ripe for the picking. These are the times when having a really knowledgeable Realtor comes in handy.

Today’s Real Estate Market: An Overview

You should have some idea of what you’re walking into before you jump in the real estate market. Sometimes, there’s way too much supply (too many houses for sale) and not enough buyers — this is a “buyer’s market,” and that’s who has the upper hand in negotiations. Sometimes there are too many buyers and not enough supply — a “seller’s market.” Often, there are roughly balanced parts supply and buyers, which makes for a very healthy and predictable market.

We’re not in a healthy and predictable market at the national level. There are currently way too many buyers who want to buy at any price and not nearly enough new homes being built, nor are there enough existing homes to meet demand. Generally, this would push prices up. However, since interest rates are increasing, some buyers are starting to get squeezed out of the market entirely, which should be pushing prices back down, but doesn’t seem to be.

What we seem to have right now, as of the writing of this blog, is a market that’s sort of stalling. Normally, the summer is the craziest time of the year for Realtors — no one wants to pull their kid out of school mid-year to move across the city. And although many Realtors are reporting that they have plenty of potential, well-qualified buyers, they’re fighting over scraps as the supply continues to shrink.

Should You Be Trying to Buy Right Now?

Depending on who you are and where you are in your life journey, the competitive, weirdly stalled market we have this year may be as good a time as any for you to buy. Below is a brief breakdown of major buyer types and how the market could affect them if they were to buy today:

First time homebuyers. Jumping into the real estate market as a first timer is always a little terrifying, but the current market may give you a serious complex. If you’re buying a house to live in, not one that you expect will make you a bundle down the road, and your life is fairly settled, there’s no time like the present to go down the home purchase road. Just bear in mind that you will probably have to write several offers before you land that starter home — give yourself plenty of time for houses that will get away.

Maturing family. When you’re looking for that last house, the one you’re going to send your kids away to college from, the most important thing is finding a house that’s suitable for your family. There’s no time that’s better or worse for this purchase, especially if your plan is to hold it indefinitely. Sure, you may end up paying a little bit more now than you would have a couple of years ago, but the value you get from living in the house, as well as natural appreciation, generally ensure you come out a little bit ahead. It beats renting, anyway.

Empty nester. Aging in place is the thing these days, and for good reason. That just creates one big problem: not enough inventory that will accommodate mobility equipment like walkers and wheelchairs that you may ultimately need. Housing starts are really rising, though, so you might as well visit a few Open Houses to see if there’s a builder out there that you can picture building the home where you’ll retire. Although existing homes can work for your needs, new construction gives you the option to create an age in place friendly universal design from the foundation up.

Investor. Investors! You are literally the only group on this list that should be seriously concerned about the timing of your purchases. Since owner-occupied homes tend to be held for the long term, the risk to those buyers is minimal, but you’re looking to buy and almost immediately start making money.

Finding a good price on a listed home may be tricky right now, but switching gears to the building of new homes will introduce a lot of competition. Buying and holding properties as rentals could pay off, but only if you really buy them right. Now may not be a great time for you to buy if you have investments that are already paying for themselves. It would, however, be a pretty good time to unload properties that you’ve fully depreciated or those that just really don’t fit in with your portfolio.

When it comes down to it, the biggest factor you should be considering when purchasing real estate that you intend to occupy is whether or not you’re really ready for homeownership. A close second, of course, is whether or not you can really afford a house, but your Realtor and mortgage lender will help you with that part.

You’ll have to decide for yourself if today is a good day to buy, there’s no way to know what the market will look like in five to 10 years when you may want to buy again.

Let Your Realtor Be Your Guide…

Just like the HomeKeepr community helps you find home pros that can fix just about any problem you might have related to your current or future home, your Realtor is the best person to go to when it comes to the question of timing your real estate purchase. If they tell you to punch it, then all systems go.

Don’t forget your HomeKeepr family as you move through the various buying stages, from securing your mortgage to having your home inspected and appraised. Finding the experts you need is as simple as logging in to HomeKeepr!

County growing, but not as fast

County growing, but not as fast: Clark County’s population is still growing at a fast clip, but the growth rate may have reached its peak.

Assuming a Mortgage 101

It’s the little things that really matter sometimes. The cherry on top of a sundae, the light scent of gardenia on a warm spring breeze and a mortgage that’s assumable are each all about the details, and are sometimes overlooked by people who are in a hurry to get from Point A to Point B. But that assumable mortgage may make your home more competitive if you’re a seller or save you a bundle if you’re a buyer.

What is an Assumable Mortgage?

All mortgages are structured uniquely, such that the majority of any payment made before about halfway through the loan is interest (depending on your down payment and rate), so it would naturally follow that some people would want to shortcut this early period and get on to paying on the meat of the loan. The buyer would then take over the payments from the seller, without the loan changing terms at all. This is, in essence, how an assumable mortgage works. The buyer will also have to bring some amount of money to closing, either in the form of cash or a secondary mortgage loan, to compensate the seller for the remaining value not covered by the assumed loan.

Assumable mortgages can be of any variety, depending on the age of the loan, but the ones you’re most likely to see today are FHA, USDA or VA-type mortgages. To qualify, a buyer still has to meet all the same requirements that the seller had to meet in order to get their mortgage. This wasn’t always the case, but is today.

And although rates are still fairly low right now, in the 4.5 to 5 percent rage, over the next few years several rate increases are anticipated. That means that your mortgage terms themselves might be worth something when you go to sell your home. Provided your buyer can qualify for your loan and come up with the cash it takes to make the total meet your home’s value at the point of sale, you could find yourself with a more than full price offer, or even multiples, just by making it known that your loan is assumable and you’re ok with letting someone take advantage of this feature.

Why Would a Buyer Want an Assumption?

This is a bit of a trickier question, which will require a chart. Let’s say that your mortgage rate is 3 percent on a 30 year fixed note. You’ve had this loan for five years, but it’s time to move on to a bigger home, you had no idea you were going to have triplets when you chose this house! A buyer comes along when rates are at 4.75 percent and wants to assume your mortgage and pay you a total of $250,000 for your place. So far, so good.

This is what the picture looks like for the buyer:

Assuming the buyer’s first payment on the assumed note is number 61, they’ll immediately pay almost $500 of the principle down. If they had taken out their own note, totally ignoring the additional mortgage insurance and upfront mortgage insurance that an FHA would require, they’d only pay down about $400 at this same point (which is five years down the road, remember). They’d also pay almost $350 more in interest.

Keep in mind that the payment at 4.75 percent interest is also higher, but when the higher payment is paying less of the note off each month, there’s nothing about that that makes it a good financial move. If the buyer did manage to pay their note all the way off, they’ll find that they paid $68,552.79 more in interest alone by choosing to get a new loan.

Provided the additional funding required to secure this home wasn’t cost prohibitive, it just makes good sense for a buyer to want to assume a loan. Beyond the savings mapped out above, their closing fees will be considerably smaller, making the net gain even larger.

Of course, both buyer and seller should discuss this with your lender or financial planner to be sure that it’s the right decision for them and their financial pictures.

The Seller’s Side of the Assumption Equation

For a seller, the picture is a little different. Although it doesn’t cost you anything to start the assumption process, it can get ugly if a seller doesn’t know to protect themselves and a buyer ends up defaulting on their assumed loan. You must make certain that you’ve signed and received back a fully executed (all parties have signed it) copy of a release from liability form. Remember, the bank has to also agree to these terms.

Beyond that, it can be a good deal for you as the seller, too. You’ll get a big chunk of cash, you’ll be free of your mortgage so you can buy something a bit roomier or closer to work. Assumptions can be tricky to close, but the more that are closed in the coming years (and there are likely to be a few), the easier they’ll get because everyone will be on the same page.

Note: If you’re a veteran with a VA note that you’re trying to sell to a buyer who wants to assume, the mortgage will retain your entitlement. This is why it’s important to only sell with an assumption to another veteran. With another vet in the equation, the bank can exchange your entitlement for that of the new borrower, allowing you to buy again using a VA loan.

Assuming I Want to Assume, Who Do I Call?

If you’re interested in talking more about assumable loans, as a buyer or a seller, just log into your HomeKeepr community. The lenders and financial planners in our little family come highly recommended by your Realtor and they know their assumptions.