Mortgage and Economic News This Week 01-31-11

This week is extremely busy in terms of economic data scheduled for release and will likely be another active week for mortgage rates. There are five economic releases scheduled for the week, some of which are known to be extremely influential on the financial and mortgage markets. All five of these reports are considered to be of moderate or high importance, meaning we should see quite a bit of movement in mortgage rates this week.

The first report of the week is January's Personal Income and Outlays data tomorrow morning, which gives us an indication of consumer ability to spend and current spending habits. This is important because consumer spending makes up two-thirds of the U.S. economy. Current forecasts call for an increase in income of 0.5% while spending is expected to rise 0.6%. Larger increases would be good news for the stock markets and could hurt bond prices, driving mortgage rates higher tomorrow. Smaller than expected increases would be considered good news for mortgage rates.

Tuesday also has only one economic report with the Institute of Supply Management's (ISM) manufacturing index. This index tracks manufacturer sentiment by rating surveyed trade executives' opinions of business conditions. It is usually the first economic data released each month and is one of this week's very important reports. Current forecasts are calling for a reading in the neighborhood of 57.5 that would be an increase from December's reading. The lower the reading, the better the news for the bond market and mortgage rates because weak sentiment indicates a slowing manufacturing sector.

Wednesday has no government reports scheduled or data that is considered likely to impact mortgage rate. However, there are a couple of private sector employment-related reports due to be released. They normally would not be of much concern, but one of them showed an unexpected spike in new hires recently that caused selling in bonds and an increase in mortgage rates. I still am not too concerned about their results, but the potential does exist that a significant variance in the numbers could lead to changes in mortgage pricing.

Employee Productivity and Costs data for the 4th quarter will be released early Thursday morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing. If it varies greatly from analysts' forecasts of a 2.2% increase, we may see some movement in mortgage rates. However, the markets will be much more interested in Friday's data, so a slight difference shouldn’t cause a noticeable movement in mortgage rates.

Late Thursday morning, December's Factory Orders data will be posted. It is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is one of the less important reports of the week, but can influence mortgage pricing if it varies greatly from forecasts. Analysts are expecting a 0.7% decline in new orders, hinting at manufacturing sector weakness.

Friday's data is by far the most important of the week. The Labor Department will post January's Employment data early Friday morning, giving us the U.S. unemployment rate and the number of jobs added or lost during the month among other related statistics. Analysts are expecting to see the unemployment rate rise from 9.4% to 9.6% and that approximately 150,000 new jobs were added to the economy. An increase in unemployment and a loss in payrolls would be great news for the bond market. It would probably create a bond market rally, leading to lower mortgage rates Friday morning. However, if Friday's report reveals stronger than expected results, we can expect to see mortgage rates move higher.

Overall, look for tomorrow, Tuesday or Friday to be the biggest day for mortgage rates. Friday's Employment report is the most important piece of data, but Tuesday’s ISM Index draws a lot of attention also. We could also see movement in rates tomorrow morning following the activity at the end of last week. If we get weaker than expected results from Tuesday's ISM report and Friday's employment data, we should see rates close the week lower than last Friday's closing levels. If the data shows stronger than expected results, we may see mortgage rates move higher for the week. With some very important data being posted over the next five days, I strongly recommend keeping fairly constant contact with me if you are still floating an interest rate.

Mortgage Case Study: Home Buyer with 580 Credit Score

We closed a FHA loan with a home buyer that has a mid fico score of 580, which is below the current standard now of 640. The process does require more planning for the loan officer and buyers.

Here are the things we evaluated: (The best plan for a real estate professional is to work with a loan officer to evaluate the buyers ability to purchase a home, or just contact us.)

Credit - Their credit of course is less than ideal, but one major factor not listed on the credit report is their rental history. They had an excellent rental history and no collection or charged offs from any apartments they ever lived.

Assets - I recommended them to have (on top of their down payment) at least 2 months PITI (principle, interest, taxes and insurance) saved in any of their retirement, 401K, checking, or savings account.

Bank Statements - Bank statements took time to plan and execute. I reviewed their most recent 2 months statements and it is obvious they are spending more than what they made. Underwriters will view that as failure for the home buyers to budget their finances, and therefore cannot afford to purchase a house. I sat down with the buyers and worked out a budget for them to follow. After 2 months following the budget, they closed on their loan and were very happy.

I sincerely believe home ownership is for everyone. It does take planning, working the plan, and willingness to change your life style to fit a mortgage into the budget.

Tarrant County Bond Program

Properties must be located in Tarrant County (excludes Grand Prairie, Southlake, Grapevine, and Keller)

◊ First come, first served reservation process: scan and email the completed 1003 and first page of the contract to: jenny@jennyloans.com

◊ 2010 Tax returns will be required when available

◊ FHA loans only: cannot be combined with TX Vet or MCC Program

◊ Owner Occupied

◊ 4.70% fixed rate, 30 year loan program provides 3.0% of the total loan amount as a gift to be used towards down payment or closing costs (called bond premium proceeds). Example: $100,000 loan receives a $3000 gift ◊ 1 discount plus 1 origination fee ◊ Sales price limit $243,945

◊ Income tax recapture provisions apply

◊ Income of all applicants count towards income limit: includes non-purchasing spouse

◊ Target area census tracts have different guidelines

City Grant for Down Payment Assistance

For many years, I've worked with several cities in the Dallas Fort Worth area to provide down payment assistance through block grant programs for first-time homebuyers (or anyone else who has not owned a house in the last 3 years.)

Here is information you need know about the different city programs currently available in the market (Call me if you don't see the city you're wanting to purchase a house from):

McKinney: Must purchase house under $130,000. McKinney will pay 1/2 of your down payment and all of your closing cost up to $7,500.

Grand Prairie: Must purchase house under $160,000. $5,000 grant will be given without any repayment terms.

Plano: Must purchase house under $140,000. Plano will also pay 1/2 of your down payment and most of your closing cost or NSP program for purchasing a foreclosure home.

Lewisville: Up to $7,500 will be given to the first time homebuyer. Lewisville will pay 1/2 of your down payment and most of your closing cost. They are great to work with. The City of Lewisville will even offer improvement dollars after your house is purchased.

Irving: $10,000 grant will be given to first time homebuyers.

Frisco: Applicant must work within the city limits or be an employee of the city (i.e. police, fire fighter, teacher, or city administration employee.)

Garland: up to $10,000 for first time buyer.

Other cities with grants available: Arlington, Fort Worth

Other cities in Collin County may qualify for the USDA Rural program, which offers 100% financing and allows the seller to pay up to 6% of closing cost. Essentially, you will have to pay very little up-front money. USDA Rural program is one of the best programs available. YOU PAY NO MONTHLY PMI WITH 100% FINANCING.

JENNY'S TIPS: Understand Your Debt-to-Income Ratio

Your debt-to-income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.

Debt limit

There is generally a debt limit associated with each type of loan, such as a 38/45 qualifying ratio for a conventional loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit.

Typically conventional loans have a qualifying ratio of 38/45, and FHA loan has 40/50. The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner's association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.

For example, with a 28/36 qualifying ratio:
Gross monthly income of $3,500 x .28 = $980 can be applied to housing
Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

Remember these are just guidelines. We’d be happy to pre-qualify you to determine how large a mortgage loan you can afford. We look forward to helping you buy your dream home.

Need Down Payment? Check Your 401(K)

You've finally found the home of your dreams. There's just one thing standing between you and your new house: the down payment.

Many home buyers today opt to use funds from their employer’s 401(K) program to come up with the down payment on a house. Ordinarily, you can't take money from your 401(K) plan unless you retire, leave the company or become disabled, but many company plans permit certain “hardship withdrawals” when there is an immediate and heavy financial need, including the purchase of the employee's principal residence.

The drawback to a hardship withdrawal is that you will pay taxes and penalties on the amount withdrawn from your plan, which often must be paid in the year of withdrawal. And while hardship withdrawals are allowed by law, your employer is not required to provide them in your plan. Check with your employer’s human resources department if you're not sure if your 401(K) plan allows hardship withdrawal.

Another approach may be to borrow against your 401(K) – often as much as 50 percent of your account balance. You pay interest on the loan, but the interest goes back into your account. The money you receive is not taxable as long it is paid back and plans can give you anywhere from five to 30 years to pay back your loan.

There are risks involved in borrowing from your 401(K). If you lose your job or leave your employer, you must pay back the loan in full within a short period, sometimes as little as 60 days. If the money is not paid back in that time, it is considered a withdrawal from your plan and subjected to the same taxes and penalties. And while 401(K) accounts can usually be rolled over into a new employer’s 401(K) without penalties, loans from a 401(K) cannot be rolled over.

In addition, because the funds withdrawn from your account are no longer earning compound interest, your account will be smaller when you retire. And you’ll be replacing pretax money with after-tax money.

Some lenders will count the money you borrowed from your 401(K) as an additional debt that will go along with your car payments, student loans and credit cards. While it may seem unfair since you are borrowing your own money, most lenders view it as a payment obligation that affects your debt-to-income ratio in qualifying for a home loan. It may be a factor in whether you decide to make a hardship withdrawal from your 401(K) and pay tax penalties or borrow against it.

SUCCESS STORY: Home Buyer with Low Credit Score Buys $284,000 House

A JENNYLOANS.COM SUCCESS STORY
Home Buyer with Weak Credit but Strong Rental History Buys House

One of our clients closed a mortgage loan today, even though his credit score of 619 is 21 points below most lenders' standards. This client is a perfect example of how planning, strategizing, and taking action helped him reached his goal of buying a new home. The process started 3 months ago when I evaluated his income, assets, and credit. They were living in a rental house with $1,400 rent and $400 utility bill. Even with a low credit score, we found several positive traits (lenders would call it "compensating factors"):

-Low debt-to-income ratio

-12 months verifiable rental history through cancelled checks

-401K available for down payment

-Good employment history

With all this considered, he purchased a house for $284,000 and is moving in today! Is your credit good enough to purchase a house? Not every situation is the same, but contact me and we can evaluate your options.

NEW YEAR, NEW HOME! Tips for Buying A New Home in 2011

If your New Year's Resolution is to buy a new home this year, then you need to follow these five steps to help you qualify for a mortgage.

The past few years have been rocky times for the real estate industry, and most lenders have tightened their lending standards. Is it still possible for most people to own a home? Absolutely! Mortgage and real estate industries are ever changing, especially in today's economy and era of government compliance, but you can prepare yourself with the right information. And get help from a loan officer who understands the new rules.

Many realtors and home buyers often call me and ask how to qualify for a mortgage. Well, the process has changed drastically over the last 2 years. I have to honestly say I am glad for the change in order to bring stability back to the market. We are now back to common sense lending. Getting a mortgage and borrowing a huge amount of money should not be a one day process. Buying a home should be planned. It is not complicated or difficult. It is simply the right planning with help from an expert. So what should a home buyer plan for? Here are the basics:

1. Take the time to talk to a Licensed Mortgage Loan Officer. A 20-minute consultation will map out a good plan of action to help you purchase a new home. A good loan officer should not take more than 1 day to get back with you.

2. Evaluate your credit with a Loan Officer. All lenders have certain fico score requirements. Although most lenders require a minimum 640 fico score, there are some lenders who will accept a score as low as 580 as long as you have a documented rental history. If your score falls below 580, a good loan officer will offer advice in what you need to do to improve your credit score.

3. Evaluate debt-to-income ratio with a Loan Officer. Most lenders can only accept no more than 50% debt-to-income ratio. This means all minimum monthly payments listed on the credit report plus projected new mortgage payment with PITI (principle, interest, taxes and insurance) should not exceed 45% to 50% of your income. Utility bills are not included.

4. Money for down payment. All FHA loans require minimum 3.5% down payment. The money can be from your savings and checking account, 401K, retirement, gift from relatives, and tax refund. The money should be traceable and documented. A good loan officer will evaluate 2 months of recent bank statements and inform you of any red flags.

5. Ask the Loan Officer about all the costs involved in purchasing a home. In most situations, home buyers should plan to pay for the inspection fee, appraisal fee, and earnest money when making an offer. When it comes to home buying, never under-estimate the power of preparation.

Of course not everyone's situation is the same. Self employed business owners are different than W-2 paid employees. You may have spotless credit. Some people have foreclosures on their credit, and others have bankruptcies. Anyone can qualify for a mortgage but planning a strategy and setting a realistic time frame will be different for everyone, so it is very important to work with an experienced loan officer who can help you plan and guide you through the home buying process.