Fake News, What About Fake Economy.  Job Numbers Are Good but Payrolls stagnant.  How Many Real Quality Jobs Created Under TrumpEconomics?

Are you thinking about buying a home? Then you are probably curious to know how the American economy is doing. Generally, under President Trump, Americans think the economy is doing well. How much of that is reality and how much of it is perception is open to question.

A CBS poll from May 2018 found that two out of three Americans believe the economy is in good condition. Most of them also believe Trump’s policies are at least partially responsible. Naturally, more Republicans rate the economy as doing well than Democrats.

That survey has generally tracked Trump support and opposition levels over the first two years of his presidency. These days, more Americans are feeling positive about the economy; the ranks of the strongest Trump backers have gone up 22% from 18% in January. Many of these Trump supporters had had more of a wait and see attitude about Trump.

However, some question how rosy the economy really is; Trump is a good salesman, and it could be that some of what is going on is hype. Consider the following points:

  • Some economists say the economy has not changed much since the end of the Obama administration, in terms of measured economic growth. GDP continues to grow but at a relatively modest rate of 2.3%. That is what it grew at in Obama’s second term, too.
  • Unemployment is doing, but hiring has not been as robust as some believe. Since Trump took over, payrolls have expanded by 186,000 jobs per month. Over Obama’s second term, it averaged 216,000. Also, the unemployment rate was falling under the latter half of the Obama presidency.
  • Wage growth has been disappointing under Trump, but it was under Obama, too. Adjusted for inflation, earnings each hour grew very little over the last year – just .4% in March compared to the year before. Obama did see a few periods of real wage growth above 2%, but his record was not good either. Some companies announced plans after the Trump tax cut to use the money saved to increase worker pay. But many of the companies probably were going to do it anyway and used the big PR announcement to curry favor with Trump.
  • Federal deficits as part of the whole economy did grow under Obama in the first term. This was largely because there was a major financial crisis. Tax revenues shrank. Federal spending went up thanks to unemployment benefits being used and stimulus efforts. As the economy got better, deficits did shrink but they did not disappear. Under Trump, the deficits have exploded again; this is due to spending increases and tax cuts.
  • It should be noted that we have not seen the full impact of the Trump tax cuts yet. But experts contend that their effects will probably be short term and not that significant. Consumers have not really noticed their increased paychecks yet. Also, people who get the most benefit are the wealthy who are not as likely to spend their windfall.

In the end, experts generally agree that presidents get too much blame and credit for good and bad economies. Trump is very good at promoting economic numbers that put him in a good light, and it is true that the economy is much stronger than a decade ago. But a lot of that is just because of the economic recovery that has been occurring under two presidents for a decade. It also is important to remember that Trump is known as a pro-business person, and some of the good ratings of the economy under him could just be because people think a businessman would have to be good for the economy.

If you are thinking about buying a home now, it really comes down to your personal financial situation. Keep in mind that rates are generally on the rise, and home prices have increased by 6% on average since last year in the US. It seems we are generally in a rising interest rate environment in 2018, with it unlikely that rates will fall below 4% again anytime soon.

 

References: https://www.washingtonpost.com/opinions/6-questions-about-trumps-economy-you-were-too-embarrassed-to-ask/2018/04/30/663a3a1a-4cb6-11e8-af46-b1d6dc0d9bfe_story.html?utm_term=.465948d00fd8

Mortgage Insurance Rates Going Up with Interest Rates.  What Does this Mean to First Time Homeowners?

Higher mortgage interest rates and mortgage insurance rates are making it harder for first time home buyers to get a mortgage in 2018. While the US economy is doing well, the higher rates make it more challenging for buyers with no equity in a previous property to be able to afford a home.

In popular metro areas such as Denver, buyers are hurrying to close a deal before the rates get much higher, which stand at approximately 4.7% as of May 2018. While these rates are low in historical terms, they are at least a point higher than last year.

In Dallas some buyers are moving further out to find homes they can afford, as prices in this area are going up as much as 10% per year. In Los Angeles, there is a massive home shortage and most homes that go up for sale receive several offers.

The problem with higher interest rates is that just a .5% higher rate can increase your monthly payment and add tens of thousands of dollars of interest payments over the life of a 30-year mortgage. In 2018, home prices are rising faster than incomes in much of the country and the higher rates can be more than enough to shut many first-time buyers out of the market. Plus, higher mortgage insurance costs are occurring as the hot housing market is allowing insurers to raise their rates as well. Mortgage insurance rates being higher also affects first time home buyers. If you put down less than 20% on your home, you must pay for mortgage insurance unless you have a VA mortgage. Most first-time home buyers have difficulty coming up with a 20% down payment, so higher mortgage insurance rates affect them especially.

First time home buyers can expect that a combination of low inventory, higher prices, higher mortgage rates and higher mortgage insurance rates will make it harder to buy a home in 2018. Some economists think the economic indicators mean US home sales this year will remain flat even though the economy is strong as a whole. For example, a buyer in Colorado highlighted by USA Today this month said that he put in 11 offers on homes and lost out every time to other buyers who offered more money. Rising rates made it harder for him to afford a home.

He said that the rates continued to climb, and the more it happens, the smaller home you have to buy. The man eventually settled on a new $370,000 townhome with an interest rate at 4.7% but he cannot lock his rate until later in May, so it is possible that he could have to pay more. Some industry experts think we could see 5% rates before the end of 2018. This could really put a damper on the housing market for first time buyers.

Right now, the national median home price is $225,500, which is 3.8 times the median income of $59,000. In cheaper parts of the country in the Midwest, it is easier for first time buyers to get into homes. In Pittsburgh, a median priced home is only $125,000 which is only 2.2 times the median income of the area of $56,000. But in Los Angeles and Seattle, the median price of homes is as high as $600,000, which is eight or nine times the median income of $66,000. This is putting first time buyers completely out of the market.

If you are a first-time home buyer and are worried about being priced out of the market with higher rates, mortgage insurance rates and higher prices, here are some tips:

  • Ask your lender about first time home buyer programs. Some lenders work with state agencies to provide first time home buyers with rate discounts, help with down payments and educational resources. You may be able to find a grant to help you with your down payment, for example.
  • Look for lenders that offer government backed loans. Government backed mortgages are good choices for many first-time buyers. They offer low rates and low-down payments. FHA home loans are great for first time buyers with 3.5% down payments and rates that are below market.
  • Make sure you very carefully shop mortgage interest rates. You may be enticed by a super low interest rate in an advertisement. But this number often does not include all the closing costs and fees and could be for only the best credit borrowers. You are better off looking at APRs which have all costs figured into the number.

The reality is that it may be harder to find a home to buy in some areas of the country right now for the first-time home buyer. It really comes down to what part of the country you are in. But there are often options available to help you to get into a home loan you can afford so you can enjoy the American Dream.

 

References: https://www.usatoday.com/story/money/personalfinance/real-estate/2018/04/18/mortgages-homeownership-get-tougher-rates-rise/527530002/

primary residence

Can I Consider Two Homes My Primary Residence If I Spend Time Equally?

Anytime you apply for a mortgage, you must tell the lender if the home is going to be your primary residence, your second home or a vacation property. The status of the home is important because second homes and rental properties are a higher risk for the lender. Any home that you do not live in most of the time is more likely to result in a mortgage default.

Find out how the best mortgage lenders define primary residence in today’s home loan guidelines.

If you are financing a second home, usually the lender will charge a significantly higher mortgage rate for that home. Also note that most government backed mortgages do not allow you to finance second homes or rental properties. But what if you have two homes and you are living in each one about 50% of the time. Can you finance each one as your primary residence? Experts say this depends upon the circumstances. Banks and mortgage lenders will usually solve this issue by looking at the particulars of your case.

For example, the lender will look at how far apart your homes are, and whether your job creates a need to have two homes. Also, the lender will look at the size and location of your family to determine if you really need to have a second home as your primary residence.

There are some limited exceptions where government backed mortgage providers will consider allowing you to have a second primary residence:

  • Relocation: It is possible to get a second FHA home mortgage on another primary residence without selling the old home. But you need to be relocating at least 100 miles, and the relocation has to be related to your job. For example, you might work from an office in your town and also work at the company headquarters in another part of the state. If you buy a home near the other office, you might be able to finance the new home as a primary home without selling the first one.
  • Larger family: You also can be eligible for another primary residence if your family is too big for your current home, and you have a loan to value that is 75% or lower. This means you must have at least 25% equity in your current home. This can be helpful if you are moving other members of the family in to share the expenses or to take care of aging parents or relatives.
  • Break-Ups: You might be allowed to have another primary residence mortgage if you are leaving the current home permanently, but the co borrower is continuing to live there.
  • Co-Borrowing: If you are co borrower on another person’s primary residence but you do not live there, you can usually finance your own primary residence. But remember that being a co borrower will create contingent liability. This means you could be responsible for making the payment on that property if the co borrower does not meet their obligations.

If you want to buy a primary residence while you still have ownership of the other property, you will need to show the lender the transaction makes sense. If you are buying a new home in the same city, and you want to convert your old home to a rental property, you can help make your case to the lender by showing a rental agreement with your tenant.

It also is required to have at least 25% equity in your old home to count your new one as your primary residence. This requirement is still in effect from the old days when people who were underwater on their old house were buying new homes in the same city and walking away from their previous mortgage.

The bottom line it is possible in some cases to have two primary residences for mortgage purposes. Just make sure that you do not tell the mortgage company that one home is your primary residence and then fail to live there the required amount of time. Lenders have been known to do post-closing investigations to make sure you are actually living where you say you are. If they discover you are not living in the home, they can call the loan due. It also is mortgage fraud to tell the lender you are going to live somewhere and not actually live there.

https://themortgagereports.com/29744/mortgage-qualifying-two-primary-residences

 

 

What Do the Midterm Elections Have to Do with Mortgage Rates?

After a momentary pause in May, mortgage interest rates are back on the rise. According to data released in mid-May 2018, the average mortgage interest rate for the 30-year fixed rate mortgage was 4.62%. A year ago, home mortgage rates were only 4%. The 30-year fixed mortgage rate has not been this high since 2011.

The 15-year fixed mortgage is now 4.08%; it was only 3.27% a year ago. The five-year adjustable rate mortgage is 3.82% and was only 3.13% a year ago.

Why Are Mortgage Rates on the Rise?

Mortgage industry insiders say a strong economy, low unemployment, higher oil prices and comments from Fed officials are contributing to higher rates. Markets are expecting there to be three interest rate hikes this year, but it is possible there could be a fourth Fed rate hike before 2019.

After a big sell off in the bond markets after strong economic data was released, the yield on the 10-year Treasury went above 3% for its highest rate in seven years. Because how long-term bonds move is the best indicator of what mortgage rates are going to do, home loan rates went up. As yields rise, so do interest rates.

According to Bankrate.com, more than 50% of experts think mortgage rates will continue to rise for the rest of May. Generally, the price paid for a better economic environment is higher inflation and higher interest rates. That is why mortgage rates are the highest they have been in seven years.

Many experts think rates will continue the slow rise higher this year, going into fall and the midterm elections. Generally, if the Republicans hold Congress, it is possible that rates will continue to rise as markets will expect stronger economic activity. If Democrats take at least the House, it is possible rates could fall.

Regardless of who takes Congress, there is little doubt that higher rates are leading to more skepticism among potential buyers. Mortgage applications fell again last week with the market composite index falling 2.7% from the week before. The home refinance application rate fell 4%.

Experts say the combination of higher mortgage interest rates and higher prices is making it harder for people to apply for mortgages. In many cases, volatility in interest rates is good for the housing market, because it pushes people to buy before they go higher. But as there have been frustrations with high demand and low inventory, there could continue to be a drop-in mortgage applications.

As rates get closer to 5%, the markets could start to see what is called rate lock. This is when people stay in their homes with low rate mortgages than trade into a bigger or better home with a higher rate. For example, if you refinanced in 2017, you may have been able to get a rate below 4% for a 30-year mortgage. Those rates are long gone. If you were to buy another home today, you could go from a 3.5% mortgage to 4.5% or higher. That adds hundreds of dollars per month to your mortgage payment.

Experts say a one percent increase in mortgage rates can cause a drop in home sales of 7%. At this time, price increases on homes have not shown much sign in dropping, but as rates get closer to 5%, it is possible that this will start to happen.

It will be interesting to see what happens to mortgage rates around the Congressional election. As noted earlier, we could see higher rates if the GOP holds Congress. But it would not be surprising to see volatility in late October and early November before the election. There is a lot of uncertainty at such a time, and markets do not like uncertainty. But once the election is over, rates will probably continue to move higher as the economy continues on a strong trajectory.

 

References: https://www.washingtonpost.com/news/where-we-live/wp/2018/05/17/mortgage-rates-reach-levels-not-seen-in-seven-years/?utm_term=.0ec8eccaa9e2

Is Home Refinancing a Thing of the Past, Where Do Americans Get Cash Now?

Interest rates for both traditional and cash out refinance mortgages are on the rise in 2018, with rates for firsts around 4.5%. The higher rates that have been coming due to better economic indicators and Federal Reserve rate increase hikes, have put a bit of a damper on refinances for the past few months.

What is the outlook for cash out refinances? Is it a thing of the past, or will people still do refinances in the coming years? Below is more information to consider to help you make your home refinancing decision.

Overview of Home Refinancing Loans

Refinancing your first mortgage can be a good idea if you can save interest and lower your rate. Refinancing with cash out may be a smart move if you can save on your rate and also pull out cash for things that you need. According to financial experts, you may want to consider a refinance in 2018 in these situations:

  • You can get rid of PMI: With a conventional loan, you are required to pay PMI until you have reached 20% equity. One of the most popular refinance products is the no PMI mortgage, because borrowers can get rid of the PMI payment monthly. Homes have been appreciating nicely in 2018 with 7% increases overall according to some surveys across the country. You could find yourself with more equity than you thought you would. If so and you are near 20% equity, refinancing to get rid of mortgage insurance can be a good idea. If you have an FHA-insured mortgage and are nearly 20% equity, consider a refinance into a conventional loan to escape mortgage insurance; you generally must pay mortgage insurance on FHA loans for life.
  • You can go from an ARM to a fixed rate mortgage: If you have an adjustable rate mortgage, you may want to go into a fixed rate loan with your refinance. This will provide you with more stability over time as far as your payment. But rates have gone higher since 2017, so you could find the rate is going to be higher with a fixed mortgage. Consider a 15 year fixed rate mortgage to score a lower rate, if you can handle the higher payment.
  • You are able to cut your rate by 1%. Many experts say it is worth refinancing if you can reduce your rate by 1%. Remember that every new loan you do incurs thousands in closing costs, so you really do not want to refinance your loan unless you can save a lot on the interest rate.

If you are in the following situations, you may not want to refinance right now:

  • There is too little difference between your current rate and new rate. Rates on first mortgages are 4.5% or higher right now. If you have a rate that is close to that, you will probably not want to refinance. You also should resist the temptation to refinance anyway and pull out cash. The major reason to refinance should always be to get a lower interest rate.
  • You want to pay off old debts. Some people like to pull out cash with a refinance to pay off debt. But you are transferring your unsecured debt to a debt secured by your home. If you fail to pay your mortgage, you could end up losing your home. Many people argue the only reason to pull out equity with a refinance is to do something that will pay you back, such as renovating the home or paying for college tuition. Buying investment property is another possibility.
  • The breakeven point is not in your favor: If the rate is not low enough, you may not end up saving enough money to outweigh the cost of refinancing. If your refinance saves you $100 per month and the refinance cost $4000, you have to pay more than four years to make the deal break even.
  • You have a small amount of home loan left to pay: If you only have a few years left on your mortgage, you may find there is little financial benefit to refinance now. You could get a lower monthly payment, but you will pay thousands in closing costs and fees.

 

The bottom line on home mortgage refinancing in 2018, especially when taking cash out, is to tread carefully. Rates are higher now and you may have a harder time saving money with a refinance after you account for closing costs. Another possibility is to consider a second mortgage instead of replacing the first mortgage. Your second mortgage rate could be in the 6% range, and that would allow you to access some of that built up equity at a still low interest rate.

It appears we are in a long term rising interest rate market, so for now, we expect to see fewer people taking advantage of refinances as the cost of borrowing money gets more expensive for the foreseeable future.