How to Tell if Your Local Real Estate Market Is Healthy

At its simplest level, real estate economics is a matter of supply and demand. Too few houses for sale to meet demand and prices rise. Conversely, if the local for sale inventory exceeds demand, prices will fall.

If supply and demand are in balance, though, prices will stabilize and homes will sell at prices closer to their true values without the unhealthy side effects of an unbalanced market—bidding wars and prices so high that they shut out first-time buyers or so low that they suck away equity from homeowners.

During the current recovery, rapidly rising prices have created bubble-like conditions, threatening some Western markets and raising the specter of the crash that contributed to the default of more than 5 million families.

Markets can change quickly, but it is not hard to tell when supply and demand are so out of balance that they create abnormal changes in the market that make it difficult for buyer or sellers.

Here some ways to assess a market’s health.

Rapidly rising or falling prices.

These are the symptoms that the market is out of balance and is causing damage to either sellers, buyers, or move-up buyers. Generally, an annual increase of 5 percent is a very healthy rate of appreciation.

Prices above that level and prices that are depreciating on annual basis suggest that they market is out of balance. Over the past three years, national average price has risen about 20 percent, according to CoreLogic.

Months’ supply.

Housing economists track the balance between supply and demand with metric known as “months’ supply.” It presents how many months it would take to use up the current supply of homes at the current rate of demand.  It takes into account current inventory, rate of replacement and the rate of disappearance. A six-month supply is considered healthy.

Time on market or days on market. 

This metric is simply the median time that homes are selling in a market. For a specific listing, it’s the number of days a listing is active in a multiple listing service before a buyer makes an offer that the seller accepts.

It is less accurate than months’ supply because MLSs reset the clock tracking time on market if the property is delisted and then listed again, often by another broker. “Time on site” a similar measure, also can be confusing since it measures only the days a listing has been on an aggregator site like Zillow or Realtor.com. It might have been listed on its MLS for s longer period of time than on an aggregator site.

When days on market exceed 90 days, it’s a good sign that either there is something wrong with the property or it is priced too high for the market.

List-to-sale, sale-to-list, or list-to-close ratio.

This is a sales metric used by real estate professionals to measure whether homes are selling more or less than the asking price in the local market. To calculate the metric, divide the actual sale price by the property’s final list price and express the result as a percentage. It can also be calculated using recent sales prices in a market.

Buyers, sellers and real estate agents can use the ratio to determine a strategy for price negotiation. A ratio above 100 percent means that it is a strong sellers’ market and homes are selling for more than their list price, suggesting mufti bid situations. If a home’s ratio is below 100 percent, the property may have had serious repair issues or was overpriced initially. When the ratio is below 100 percent on a market-wide basis, it suggests demand is soft and still softening, forcing owners to lower their prices after they listed their homes.

The bottom line? There are plenty of ways to get a feel for the housing market in your area as long as you’re willing to do a little research.

source: totalmortgage.com

5 Reasons Not to Use Your Sales Price to Test the Market

f you’re thinking about listing your property with a higher or lower price to test the market, don’t be too quick to make this move, as it can prove to be a costly mistake. Pricing your property incorrectly can turn potential buyers off for a number of reasons.

Consider these key moves to help you better understand the pitfalls you should avoid to save time and avoid making a big money mistake.

Sillol

When your home first hits the MLS, it’s fresh on the list of available homes and more interesting to a lot of buyers. That’s why you want to strike while the iron is hot. A buyer who wants to be in your neighborhood may pay a higher amount, but you won’t know if you’ve priced your home too low. For great price comparisons in your area so you know the going rates, check out Realtor, Trulia, or Zillow.

2. You can lose buyers doing internet searches

While a lower price might draw a few potential calls, you can actually turn people away if you price too low. They will want to grab a great deal, but a potential buyer who has done their homework might think something is wrong with a property priced too low.

As the owner, you can also lose buyers doing internet searches because they may not see your listing. Keep in mind that a home should have a competitive price. Sales prices that are dramatically lower might not show up in search results in the same neighborhood.

3. Your listing will get old

If you’re waiting for a buyer, you may end up finding that your property is sitting for weeks or months. And, if you’ve already moved, you still have to cover the mortgage payment. That’s another reason why you want to ensure you’ve priced it accordingly and work with an agent who can help you sell–and advertise–your property the right way.

4. The house won’t appraise

Another problem you can run into is with the appraisal. Price it too high, and the appraisal may come back lower and kill the sale.

Price the property lower than its true value, and it can raise red flags when you get it appraised, as it may get valued at a higher amount. Again, consider the perspective of a potential buyer who may not understand why you’re handing money away.

5. Agents who overprice sound good, but usually have a plan for price reductions

After pricing a home too high, an agent may try to compensate by lowering the price over a period of weeks. On MLS listings, this can make you look desperate A home with several price reductions may result in a buyer who lowballs you because they now think you’re desperate.

Simply find the best rate for your home. This can be done through the inspection, an estimate, or by comparing other properties in the area. The time you take to price your home correctly may help you sell it faster.
Bottom Line

Selling your home can be a time-consuming process, but pricing it right can help with offers. Focus on having a great marketing plan to give your home the visibility it needs, have a floor plan to give potential buyers when they see it, and up-sell the upgrades and improvements you’ve made. That way, you have an investment that future homeowners will see as their future home.

source: totalmortgage.com

How to Close Your Mortgage Like a Pro

Finalizing a deal and closing your mortgage can come with plenty of obstacles, especially if it’s your first time. In some cases, major setbacks can arise that result in delays and unnecessary stress.

However, understanding common complications and preparing yourself ahead of time should make your closing go through without a hitch.

Go Over Your Paperwork

During the closing process, you’ll sign several documents. These include the HUD-1 settlement statement, which lists all the costs related to the sale of the home; the final Truth-in-Lending statement, which details the costs associated with your mortgage loan and its interest rate; the mortgage note, a document stating that you promise to repay your mortgage loan and spelling out what recourse your lender can take if you fail to do this; and the mortgage or deed of trust, which provides you lender with a claim against your home if you don’t follow the terms of the mortgage note.

Once these documents are signed and you present your cashier’s or certified check to the title company, the title agent will make copies of the documents you signed and any other paperwork about your new home for you. You’ll also receive the keys and garage door openers to your new home.

To save time, you should double and even triple check all pertinent documents to ensure that they have been prepared correctly. Check the personal information and home address for any misspellings. Look at payment amount, interest rates and any other numbers for errors.

If anything looks questionable, contact your lender as soon as possible to have the issue resolved. Be sure to get everything organized and you may want to make copies just in case something is lost. To take it one step further, you can scan and save documents digitally onto your computer or on a Cloud-based platform.

Write Down a List of Questions

As your closing draws near, you will probably have some questions for your lender and real estate agent. Writing these questions down and contacting the appropriate party in advance should clear everything up. If you need to take care of something, you can handle it before the finalization and save yourself from frustration.

Take a Final Walk Through

Although you will probably be quite familiar with your new property, it’s a good idea to give it one last walk through a day or two prior to closing your mortgage. This is a good time to check to see if the seller has lived up to their end of the deal and that there are no glaring issues. Make sure that there hasn’t been any recent damage and that plumbing and electricity are working correctly.

If they were supposed to make renovations or repairs, everything should be completed. If the seller agreed to leave you with certain appliances, these items should be accounted for. In the event that the circumstances aren’t what you agreed to, you will need to contact your real estate agent immediately.

Transfer Utilities Ahead of Time

Before the actual closing date, you will want to transfer all utilities accounts to your name. This is especially important if you plan on moving into the property immediately after closing your mortgage. Just ask the seller for a list of all utilities companies and contact each one. If there are any problems, they can be addressed and there will be less on your plate once the deal is finalized.

Know Your Closing Costs

There can be several additional fees that contribute to closing costs. Some of which include inspection charges, attorney’s fees, a loan origination fee and escrow deposit. Consequently, you need to know precisely what you will owe in order to close.

According to Zillow, “home buyers will typically pay between about 2 and 5 percent of the purchase price of their home in closing costs.” That’s why you should have this money ready to go beforehand and have quick access to it.

Bring Your I.D.

Every buyer needs to bring a government-issued photo I.D. Most people will bring a driver’s license. The closing agent will make copies of these pieces of identification.

Bottom Line

The closing process can be a nerve-wracking one. You are, after all, making what is probably the biggest purchase of your life. Knowing how the process works and what is expected of you can ease some of this stress. And if you have any questions during the closing, make sure to ask them. This is not the time to be timid.

source: totalmortgage.com

Real Estate in the Internet Age

It will come as no surprise when I say that the Internet has transformed our lives. For instance, today’s travel industry bears little resemblance to the industry of 20 years ago. Travel agents are largely gone and consumers book flights and hotels or through sites like Priceline and Expedia that are programmed to find the cheapest deal.

From retailing (Amazon) to auctions (eBay) to job searching (Monster), to sending a letter or photo (Email) to advertising, the Internet has dramatically changed the way we do things, making it faster and cheaper to get what we want.

In real estate, big sites like Realtor.com and Zillow make it easy to shop for a house anywhere in the US while wearing your pajamas in the comfort of your home. You can find a mortgage online from Internet lenders like us, Total Mortgage, that offer more attractive rates than you might find locally. There are even “for sale by owner” sites that help spread the word for those sellers who prefer to go it alone.

The Old Way or the Highway

Yet the essential mechanism and cost structure for residential real estate transactions has changed little in more than 100 years. Hiring a professional to sell your house requires you to agree to pay a commission—a percentage of as much as 6 percent of the sales price.

This is more or less the same way your grandparents’ generation sold their homes. In fact, the multiple listing service, which at the center of the housing marketplace, was created in the 19th century not to make life easier for consumers, but to make it easier for their brokers to match buyers and sellers.

Brokerages own and operate the nation’s 900 or so MLSs and a dozen or so national franchises and big regional companies dominate real estate brokerage business. Try as they might, Internet companies and the federal government have failed to bring about wholesale, consumer-friendly changes like those in travel, employment, financial services, and retailing.

Selling your house on your own today is actually harder and more expensive than it used to be. No wonder the percentage of “FSBO” sales declined from 13 percent in 2001 to 9 percent in 2014.

Incremental Change

One of the big reasons sellers still need human agents has nothing to do with the real estate transaction, per se. Federal and state laws governing mortgages and home sales, most of them ostensibly to protect consumers, instead make transactions more complex, and virtually impossible for consumers to take on by themselves. In fact, the paperwork mistakes is the leading reason that 20 percent of real state deal fail to close.

So the real estate has made the relatively painless migration from bricks and mortar to the Internet, but now changes in the choices available are creating cracks in the wall.


 Discount Brokers vs Hybrid Brokers

Sellers care most about saving money. For many years fee-for-service brokerages have uncoupled their services and sell them for a fixed price like menu at a restaurant: listing a property on the Internet, providing a competitive marketing analysis, staging the house, etc. Others simply charge less than their competitors or rebate a percentage of their commission when the deal closes. For some sellers, these have been a good alternatives, yet they constitute a small segment of the real estate industry.

What’s happening today is different. New entrants into real estate business are seeking ways to utilize the things the Internet does well to the real estate business to save money for sellers and save costs for brokers by turning task over to computer platforms that have been handled by real people.

These include proactively matching properties with buyers through social media, technology platforms that take the transaction from lead to closing online, “virtual” agents who handle properties from a much larger geographic area than traditional agents by concentrating on marketing exclusively online, and providing services, like state-of-the-art home valuation, that empower sellers to make more informed decisions.

These brokers are “hybrid” because many offer traditional services or traditional ways to be compensated alongside their new options, affording a choice to consumers. As the real estate industry continues to evolve, expect to see more and more of them.

source: totalmortgage.com

NFL’s Zach Miller Lists WA Home for $2.5M

Former Seattle Seahawks tight end, Zach Miller, just listed his home in Bellevue, WA for $2.5 million.

Miller is currently a free agent due to his release in March from the Seattle Seahawks. He’s done pretty well for himself during his eight seasons in the league, with over 300 receptions and one Super Bowl ring, but his release from the Seahawks means he needs to find a new team and a new home.

Whoever scoops up this palace better like entertaining guests because this house, located in the upscale Clyde Hill area, was designed to impress the biggest party-goers.

The 5,230 square foot, three-story home features 5 bedrooms, 4 full baths and 1 half bath (plenty of room to crash if you had a few too many drinks). Not to mention the house has a massive chef’s kitchen and a great room that leads you to the backyard where you can find two beautiful covered patios, a built-in barbecue, and a fireplace. There’s also plenty of room in the backyard for throwing around a football with some friends.

When the party gets too wild you can sneak away to the 5th bedroom suite located privately on the lower level. You might think there’d be a lot of walking up and down stairs in this three-story home, but you’d be wrong—there’s an elevator!

It also sports vaulted ceilings, a game room, a second kitchen, and a sauna.

On Sundays, you can grab some wine from your very own wine cellar, put your feet up in the theater room and enjoy game day the way you’re supposed to: watching your favorite football team dominate the field.

all photos via Zillow

source: totalmortgage.com

Apple TV overhauled for games, shows, shopping

SAN FRANCISCO -- Apple on Wednesday unveiled a new streaming television device with voice search, touchscreen remote control and an app store in a challenge to Google, Amazon, and video game console titans.

Apple TV was overhauled as people increasingly stream films and television shows on-demand online and turn to mobile applications for entertainment.

"Our vision for TV is simple, and perhaps a little provocative," Apple chief executive Tim Cook said at a media event in San Francisco. "We believe the future of television is apps."

Apple released a software kit for outside developers, and showed off early versions of Apple TV applications already being crafted by show streaming services Netflix, Hulu, and HBO.

Game makers are already working on applications, as are home-sharing service Airbnb and real estate-focused service Zillow, according to Apple executive Eddie Cue.

Siri virtual assistant software built in Apple TV allowed for natural language searches for shows, say by asking for something funny or a certain actor by name.

The new Apple TV will launch in late October at a starting price of $149.

Apple TV has lagged rivals with similar devices. According to the research firm Parks Associates, Roku leads the US market with a 37 percent market share, to 19 percent for Google Chromecast and 17 percent for Apple TV. Amazon's Fire TV devices have 14 percent.

source: www.abs-cbnnews.com

Most Properties Still Sell Below List Price

Even though the housing market appears to be on fire, 63% of properties actually sold for below list price, this according to the May 2015 Realtors Confidence Index Survey.

This may seem rather surprising, given how hot real estate has been over the past few years.

Ask anyone who has purchased a home (or attempted to) and they’ll probably tell you they got into a bidding war, or were forced to include a cover letter with their offer.

Despite that common tale, most properties don’t actually sell above list. In fact, nearly two-thirds do not.



However, this number has trended down lately. A year ago, around 70% of properties sold at a discount. So clearly properties are selling more easily at higher prices.

The Realtors said properties that remain on the market for a longer period of time are more likely to sell at a discount.

Some 84% of properties that sold between 2012 and May 2015 after 12 months were sold at a discount, per the Realtors’ monthly survey.

Meanwhile, less than half of the properties that sold within a month went for below list price. And nearly a quarter (24%) sold for a premium.

Properties that sold after 12 months only sold at a premium a measly six percent of the time.

In other words, price your home right the first time to avoid a price cut and losing money on the sale. Price it really right and you might sell for a premium.

As you can see from the chart below, the longer a listing stagnates, the lower the chance of it selling for list price or at a premium.

 

Surprisingly, 48% of properties listed for less than a month still went for below their asking price. So there’s always room to negotiate, even if the property was just listed.

And don’t worry about offending anyone – if you don’t offend them with your offer you offered too much, that according to a wise man…

In May 2015, it was most common for a property to sell for between 4-11% off list price.

A discount between 0-3% was the second most common outcome, followed by no discount or premium.

Very few properties sold at 20% or more off, and even fewer sold for 11% or more than list.

The Realtors noted that staging a property could help it sell for one to five percent more.

Zestimates Can Help with Pricing 

 

In a related article, the Zillow Research team threw out some pointers to help home sellers list their properties at the right price.

They said despite an improving housing market, it’s wise not to “overheat your listing price.”
Zillow found that properties priced more than 12% above their Zestimate are nearly half as likely to sell within 60 days.

And apparently the “sweet spot,” where homes sell the fastest, is between the Zestimate and six percent above it.

The company also discovered that smaller homes sell the fastest (those under 1,100 square feet) and that the optimal number of photos per listing is 16 to 21.

Your home may take longer to sell if you don’t provide enough photos. And as we know, that could result in a price cut. So take good photos and plenty of them.

source: thetruthaboutmortgage.com

Mortgage Rates on the Rise?

According to data recently released by Zillow, 30 year fixed mortgage rates are currently around 3.73%. After rising to 3.83% over the course of last week, they dropped slightly at the start of this week.

“Rates remained flat for most of last week but jumped sharply after Friday’s exceptionally strong jobs report, before easing back down early this week,” said Erin Lantz, vice president of mortgages at Zillow. “We expect rates to hold steady this week due to little incoming data and the official start of the European Central Bank’s bond purchases.”

Though rates still remain low, many in the industry still expect them to rise later this year, thanks to a slowly improving economy. If you’re considering buying a new home or refinancing, now is the time to do it. To take a look at the rates we can offer, head over to our rates page.

source: totalmortgage.com

Should You Refinance with Your Current Lender?

Refinancing a mortgage is essentially getting a new home loan to replace an existing one. Some people apply for new financing to lower their interest rate, change their mortgage terms, remove a name from a mortgage or tap their equity. However, after you decide to refinance, the next step is choosing a lender.


Just about every bank offers mortgage refinancing, and many lenders will vie for your business. You can apply with any bank or mortgage broker, but there are good reasons to refinance with your existing lender.

Potentially receive a better mortgage rate

Mortgage lending is a competitive business, and if you’re a long-term customer, the bank undoubtedly wants to retain your business. For that matter, refinancing with an existing lender can potentially result in a cheaper mortgage rate. This doesn’t mean you shouldn’t shop around and compare rates with other banks. You never know, a competitor may offer a better deal. If your existing lender is determined to keep your business, the bank may agree to match your best quote.

Streamlined process

Since you have a history with your lender, refinancing with the bank might be quicker than refinancing with another financial institution. Mortgage lending requires a lot of documentation. This includes tax returns, paycheck stubs, bank statements, and information about your various other assets. It can take days to gather your documentation, and it takes additional time for the mortgage lender to review this information. To accommodate existing customers, many banks streamline the approval process. They might request fewer documentation, resulting in a faster process.

Fewer closing costs

Closing costs average two percent to five percent of the loan amount, according to Zillow. And unfortunately, this is one costs many don’t consider when refinancing a mortgage loan. You can pay this expense out-of-pocket, or the lender can wrap closing costs into your new mortgage loan, increasing the total loan balance. Refinancing with an existing lender can prove cost-effective because the bank might eliminate a few mortgage-related fees, resulting in cheaper closing costs. For example, they might waive the appraisal, the title search fee or reduce the loan origination fee.

Avoid a prepayment penalty

A prepayment penalty is included with some home loans, and the purpose is to deter a borrower from refinancing the mortgage before a certain amount of time has elapsed — typically two to five years.
If your mortgage has a prepayment penalty and you refinance during the penalty period, the bank might charge a fee, such as six month’s of interest. This is a tactic used by lenders to stop mortgage borrowers from going elsewhere too soon. This way, the bank can recoup some of their investment plus interest. But if you refinance with an existing lender, the bank might waive the prepayment penalty since you’re remaining a customer.

Bottom Line

Refinancing can help you secure a better, cheaper mortgage. You don’t have to stick with your current lender, but there are sound financial reasons of doing so. Understand, however, that to enjoy the perks of refinancing with an existing lender, the bank must own your loan. If the bank sold the mortgage to a third-party lender, it has to adhere to this lender’s refinancing guidelines, in which case you may not receive the same benefits.

source: totalmortgage.com

Rising Mortgage Rates: Three Things To Keep an Eye On

Thanks to historically low mortgage interest rates, many have been able to live the American dream and purchase a home. Mid-September figures for the 30-year fix-rate mortgage had a national average of 4.28 percent but we all know good things come to an end.

Just as 2015 comes around the corner, many real estate professionals and economists believe this will also bring rising mortgage rates.

According to Stan Humphries, the chief economist for Zillow, the 30-year rate could reach the five percent mark by the middle of next year as the Federal Reserve discontinues their mortgage-backed security purchases.

Should rates go north, prospective homeowners may see their home-buying opportunities change. But it doesn’t have to be all doom and gloom. Here are three things for consumers to keep their eyes on should mortgage rates rise.

A cut in buying power

For most of this year, rates have sat between four to five percent, but are poised to rise around .75 percent in 2015. Borrowers will see this cut into their buying power—perhaps more than they realize.

This increase could produce higher monthly mortgage payments next year by $700-plus in the more expensive U.S. places.

In a comparison by Zillow that reviewed 35 metropolitan areas for a one percent increase in 30-year mortgages (from 4.1 percent to 5.1 percent), with rising increases for home values during the next year, monthly payments could increase for the St. Louis area to $65 per month and $200 per month for the New York metropolitan area. Over in Silicon Valley/San Jose area, there’s a possible $710 jump.

Decreased inventory

Along with spending more per month, consumers will have fewer homes to choose from when they’re ready to buy—especially hard hit will be those first-time homeowners seeking either mid- or lower-priced dwellings.

Real estate broker Redfin has July data supporting this with July property figures. They saw homes under the $375,000 range hard hit from 2011 figures as there were 28 percent less of homes in this price range and for a sticker price $130,000 or less, 50 percent fewer.

But for those seeking homes greater than a $375,000, this inventory rose 16 percent as compared to 2011.

However, when reviewing August numbers, the down trend continued. “Affordable inventory” fell by 9 percent as compared to July’s numbers.

Less competition

Sure, the two aforementioned points are concerning, but here’s one silver lining for consumers: a less competitive housing market. The National Association of Realtors recently reported in August, investors and all-cash purchase dramatically fell.

For prospective homeowners, this is a good thing according to Nela Richardson, Redfin’s chief economist. She said, “Many markets are not going to see the same multiple-bid environment that we saw even earlier this year. It will be easier to win the home of your dreams than it was a few months ago.”

Furthermore, for those first-time buyers, she believes they can take a deep breath as over the next few months as rates will remain low and they can take their time looking around.

While mortgage rates will likely change in the next year, prospective homeowners still have time to take advantage of these historic lows now. But similar to any major investment, it will be important to look at the current market, comparison shop and make an informed decision.

source: totalmortgage.com

Percentage of First-Time Home Buyers Drops

Numbers released recently by the National Association of Realtors show that only 33% of home purchases in 2014 will be made by first-time buyers. That may not sound terrible on paper, but it means a drop of 5% from last year, and the lowest rate in almost three decades.

But why is this happening, when talk of economic improvement and a steadying housing market is so common? The reason is three-fold. Most first time home buyers are in their twenties and thirties, the same age range most crippled by ballooning student loan debt, rising housing costs, and stagnating salaries. Combined, these factors create a generation hard-pressed to save up for down payments.

And that may not be all. According to The Wall Street Journal:

    “Beyond the issues of affordability, some renters might be putting off home purchases because of the damage they saw housing do to the last generation of buyers, said Doug Duncan, chief economist of mortgage-finance company Fannie Mae.” 

To adapt, many are instead renting with roommates or moving in with family, which creates another curious situation. According to a Zillow study, there are 5.4 million fewer households than there would be if the economy was completely recovered.


So how does all this affect you?

Unless home-ownership eludes you for the reasons outlined above, it doesn’t, at least not directly. But in all probability, this is only a symptom of a greater ill. With some worrying about a student debt bubble and others whispering about forgiving student debt, the underlying problem isn’t likely to disappear on its own, and may mean some more turbulence before the economy evens out completely.

source: totalmortgage.com

Realtors’ Chief Economist Says FHA Loans Are a Rip-Off for Consumers

Last week, Zillow hosted its fifth housing forum in the nation’s capital to discuss current real estate matters.

The panel of reporters, real estate gurus, and policymakers discussed a number of issues, ranging from why people move to mortgage rates and affordability.

But perhaps the most controversial comment came from Lawrence Yun, the outspoken chief economist of the National Association of Realtors.

When the WSJ’s Nick Timiraos questioned whether the mortgage credit box was too tight, Yun took the opportunity to express his discontent with the FHA and its new sky-high premiums.


Are FHA Loans a Bad Deal?

He prefaced his comment by saying he might upset the lobbyists in Washington, but went ahead and said, “essentially they are ripping off the consumers,” when speaking of the FHA and its pricey premiums and fees.

Yun noted that FHA loans have historically been aimed at first-time home buyers and moderate-income buyers, so charging premiums that he refers to as “outrageous” almost warrants action from the Consumer Financial Protection Bureau (CFPB).

Sure, he was chuckling when he made that last comment, but it’s clear he’s not happy with their new premium structure, and has made it one of his priorities to whittle them back down to more reasonable levels.

The FHA has raised the upfront and annual insurance premiums multiple times over the past several years, mainly because they had no other choice but to raise capital to stay in business.

Additionally, many FHA borrowers now pay annual premiums for the life of the loan, further increasing the costs of homeownership.

That has certainly pushed the FHA loan share down in recent months, with conventional loans snagging a larger share of mortgages these days.


So When Are FHA Loans the Better Option?

In a related report from the Urban Institute, a nonpartisan think tank in D.C., the thinkers determined when FHA loans made more sense than conventional loans, and vice versa.

They assumed a purchase price of $250,000 with a five percent down payment, along with a mortgage rate of 4.29% on a conforming loan and 4% on an FHA loan.

Even with FHA premiums as high as they are today, a borrower with a loan-to-value of 95% would be better off with an FHA loan when their FICO score is below 680, as seen in the chart above.

If their credit score is above 680, they’re better off going the conforming/private mortgage insurance route.

So in that sense, the FHA is still serving that underserved portion of the population, at least with regard to low credit score and lack of a down payment.

Yes, there are borrowers who lack the necessary funds for a large down payment, but have good credit scores, and these people are essentially stuck paying more.

But that’s pretty much the consequence of having standards that were too loose prior to the housing bust. I don’t really see the FHA budging anytime soon.

A recent survey from NAR also indicated that 5.7% of originations were lost because of the higher FHA fees.

For the record, people move mainly to buy a larger home or for a new job (according to Lawrence Yun, grain of salt), and a lot of the panelists seem to think interest rates will be closer to 5% next year.

They also discussed interest-rate lock-in, which again Yun dismissed for the reasons mentioned above. Still, other panelists fear fewer homeowners will be willing or able to list their homes as interest rates rise. But only time will tell.

source: thetruthaboutmortgage.com