Austin Mortgage Market

Can you get what you want in your price range

2009-04-23T11:52:00.000-07:00

This is a question asked by everyone that starts to look for a house. So how do you find out what you get for a certain price?

First I'd take your established price range and with your realtor mark areas of town where homes are selling in that range. At this point be very broad, you don't need to pinpoint by exact street. There's no reason to be closing options this early in the game.

Once you have the areas, do you see any that are not desireable because of location? Too far from work, family, downtown, etc. Any other areas that are a definate No for any other reason?Go ahead and mark these off the list. If you're familar with all the areas on the list you can skip the next step.

If you're not familar with the areas it's time to take a drive through them to get to know them better. This can be in an afternoon or over the course of a week or two depending on your schedule.

Have you realtor pull some listings in each of the chosen area(s). It may only be one area and that's fine. Get a good sampling of homes for sale so you can get a good feel for the houses there. Take some at the low end, the high end and the middle of the market. Are they big? Small? New? How many bedrooms? Garage?

Now that you've got a basic feel for the homes it's time to figure out what you're looking for. This differs from person to person, but also in area to area. For instance, if you're looking in a newer community the age of the home is very important. However if you're looking in an older neighborhood it doesn't matter very much if the house was built in 1944 or 1950.

After deciding on what is important, compare that to the areas. Do they match up? If so, you're on your way towards searching for a house! If not, reassess your needs and/or the areas until you've got a match.

For some this process is very quick. For others it can take a while. But for everyone it's a good way to 1) get to know the market and 2) realistically assess what you're looking for in a house.

I'm a real estate broker in Austin and would be happy to sit down with you to discuss buying a home or planning to buy a home. Bill Conover, Broker 844-1910

How much house can you afford

2009-04-01T10:42:00.000-07:00

When starting to search for a new house one of the most important items to know is how much you'd like to spend. Sure you'd like to spend one dollar, so let me rephrase that. How much would you realistically like to spend? Fannie Mae underwriting guidelines use a "Debt to Income" ratio (DTI) when approving a loan. Currently they cap the DTI at 41%. DTI is based on monthly debt to monthly income. So to figure how much you can spend on a house payment multiply your monthly income by 41% and subtract your non-housing monthly payments (car loan, credit cards, student loans) from that amount. The result is what you could spend on housing and be approved for a mortgage.

I've emphasized 'could' as that doesn't mean you should spend that much, but that's the maximum the guidelines would allow. Now that you know what you have to spend on a house you'll need to decide what payment amount you'd be comfortable with. The last thing you want to do is to get into a situation where all your income is going out each month and you don't have extra for savings, retirement, travel, etc.

After you decide on a good number you can use the following to figure out a home price. A mortgage payment (including taxes and insurance) is roughly just less than 1% of the sales price. So if you'de like a payment of $1800 that would be for a roughly $200,000 house. These are rough numbers as interest rate, taxes and down payment are all TBD. For an accurate quote please email me, I'm happy to run some numbers for you.

The next thing to think about is since you've found a price range, can you get what you want in that price range? I'll be covering this next month so be sure to stop by my blog in early May.

When to refi

2009-03-31T13:01:00.000-07:00

Typically homeowners will refinance their current mortgage for one of two reasons: to get a lower rate and payment or to cash out on some equity. Since rates are so low now I'll only discuss the first. The first step when thinking about a refi is to see what your loan characteristics are currently. This is the rate, the term length, whether there is mortgage insurance, loan amount, any seceondary financing and whether there are escrow accounts or not. Now that you have this info it's time to contact a lender and get a loan quote.

The lender will need the above info as well as your plans for staying in the house. Do you plan on being there 5 years, 10 years, forever? Or maybe you plan to move in 3 years but will rent it out at that point. This gives a time frame for comparing refinancing vs not refinancing.

The lender can then give an estimate of where the rates and terms are for available financing given your scenario. There are closing costs involved in refinancing so it's good to find the 'break even point'. This is when the interest you save each month is cumulatively enough to reach the amount of closing costs you pay.

For example: Let's say closing costs are $5,000 and the interest savings per month is $200. You'd need to keep the loan for $5,000/$200 = 25 months for the refinance to be worth it.

As you'll be estimating how long you'll be in the house and can't name a specific month, I like to give a cushion of 6 months to a year when deciding whether it's worth it. In the above example, if you said you'd be in the house 2 1/2 years, I'd advise that it's probably not worth it as you may very well move before the break even point. Alternatively if you planned on staying 3 years, I'd say it'd be worth refinancing then.

There are a few more steps and info needed to get a proper rate quote from the lender, but once that's accomplished we'd go through the above process. If you think your rate may be a little high, give me a call. I'd be happy to discuss.
-Bill 512-844-1910
billconover@america-lending.com

$8000 homebuyer credit

2009-03-02T10:51:00.000-08:00

Legislation was pass as part of the stimulus package for a new tax credit for homebuyers. The new credit is $8,000 and is a true credit that does not need to be repaid. This is much different than the previous $7,500 credit, which had to be paid back to the IRS.

As it stands now, it’s free money. This will be a great deal to take advantage of. If you’re thinking about buying, give me a call and we can discuss options.

There are a few stipulations to the credit and I’ve outlined the main ones below:

Buyer must be a first time homebuyer
Credit is the lesser of $8,000 or 10% of sales price
If buyer keeps house 3 years, credit does not need to be repaid. If owner sells before 3 years is up, the full amount needs to be repaid
Must purchase before December, 1 2009
Income must be lower than $75,000 for filing single and $150,000 for filing jointly
Credit is taken when you file your tax return

Estimated Payments

2008-11-24T14:06:00.000-08:00

A good step to take before you start planning on buying a house is to get a good idea of your monthly payments will be. You can figure out what payment you are comfortable with, and then can see what price range of home you'll be looking at.

As a general rule the total payment including taxes and insurance will be just under 1% of the sales price. There are a couple things to keep in mind though.

First, this is just a rough estimate. Interest rate, insurance and property taxes are all variables. So please use it as a general guideline, not an exact calculator.

Second, the further that you move higher than $150,000 the rule becomes less and less than 1%. For example, at $150,000 the payment may be $1400, but for a $400,000 house the payment would be $3200.

Third, this is assuming a down payment of 5%. A larger down payment will lower the payment further.

Fourth, this is not for condos. Condos will be a little more because of HOA dues.

If you want to calculate an actual payment, please go to my mortgage calculator on my website www.america-lending.com.

Hope that helps!

Escrow accounts

2008-11-17T13:51:00.000-08:00

Escrow accounts are accounts that lenders set up to recieve payments from borrowers to use to pay property taxes and homeowners insurance. In this way a borrower can send in 1/12 of the yearly tax and insurance bill each month instead of coming up with the full amount at the end of the year.

When you put down less than 20% as a down payment, the lender will require you to have escrow accounts. The lender wants the escrow accounts as they can be sure the taxes and insurance are paid on time. They also collect interest on the money.

If you put down at least 20% (or get a second loan so your first LTV (Loan To Value) ratio is less than 80% of the price) you can elect to waive the escrow accounts. Since the lender doesn't get to collect interest on that money any more they charge a fee, usually 0.25% of the loan amount.

At closing lenders also collect 3 months worth of taxes and insurance as a buffer against rising taxes and insurance. They are regulated by the Federal government on how much they can hold in escrow. So if your taxes drop, you should receive a partial refund from the lender. Conversely if they go up, your escrow payments will increase.

For most borrowers escrow accounts are a good idea as the payments are spread throughout the year and it's easier to let the lender handle it. However, for some it's preferable to pay the fee so that they can make interest on their own money.

I'd be happy to look at any loan scenario you may have. Just email me billconover@america-lending.com.

Closing Costs, how much are they?

2008-11-02T06:51:00.000-08:00

As equally important as interest rate is closing costs when choosing your mortgage loan. Closing costs are different for each lender and the amount is inversely related to interest rate. So the higher your closing costs, the lower your rate and vice versa.

Closing costs can be broken down into two categories: lender fees and third party fees. Lender fees are those that are charged by the lender and therefore the lender has control over these fees. It's very helpful to know this when comparing loans from different lenders. Lenders have to assume what the third party fees are and their assumptions are not always the same. So to compare use lender fees and rate and take out third party fees. Third party fees will be the same independent of the lender you use.

I'll start with lender fees. There is typically an Underwriting fee, a Processing fee, a Tax Service fee, a Document Prep or Attorney fee, and an Application fee. These fees vary from lender to lender but here are there rough ranges. UW fees are $400 to $700, Processing is $350 to $550, Tax service is around $100, Doc Prep from $85 to $350 and Application is $250 to $450. A lot of times the Application fee will cover the appraisal and credit report.

So expect between $1,200 and $2,000. Of course the lender can work these into the rate if they wish, please see my previous post for more info.

Third party fees include: Title policy, Title Escrow fee, Survey, Recording Fees, and HOA transfer fees. The owner's title policy is paid by the seller in Texas, but the buyer is responsible for paying for the Lender's title policy to cover their interest in the property. This is usually $100 to $250. The Escrow fee is charged by the title company to handle the transaction and is $200 to $400. Surveys are $440, but many times the seller will already have one that you can use for free. Recording fees are $150 or so. HOA fees are $200 to $600, this is only applicable if the property has a Home Owner's Association.

On average you're looking at about $650 if there is an existing survey and there is no HOA.

The total of all closing costs will then be between $2000 and $3000. There are also items that you pre-pay at closing, called you guessed it "pre-paids". Items such as interest, insurance and taxes. I'll cover that in a post later, so please check back next month.

Interest rate vs Closing costs

2008-08-27T13:04:00.000-07:00

When looking for a mortgage many people are in search of the "best rate". While getting a low rate is certainly important, buyers must look at all aspects of a loan before deciding if the loan really is best for them. Brokers and banks can offer a variety of rates, but with each different rate there is an associated set of closing costs.

For instance Broker 1 might advertise 6.0% interest and Broker 2 might advertise 6.25%. The first question you'd want to ask is how much are each of their closing costs. If they are equal or close Broker 1 has the better option. However it's more likely that Broker 1 has higher costs. You'd then have to decide whether it's better for you to pay more now to get a better rate, or to save your cash although paying a higher rate over time.

To make it a little easier to compare both offers, it's usually wise to pick which option would work best for you and then ask the other Broker what set of closing costs he'd offer at that selected rate. This way you'll have the structure you want and can compare apples to apples.

This short post was meant to explain the relation that rate and closing costs have, not to fully explain how to pick your mortgage broker. When looking for and choosing your broker there are many more characteristics that you'll want to evaluate such as: having the right loan program for you, disclosing fees upfront, trustworthyness and ability to close your loan among others.

Feel free to email me with questions. I really enjoy helping people understand the loan process.

Austin Neighborhood Map

2008-08-27T13:00:00.000-07:00

To the right is a map of the different neighborhoods in Austin.

Coming up with down payment money

2008-07-29T14:45:00.000-07:00

Most loan guidelines will not allow an third party, even a family member, to loan you the money for the loan down payment. In some instances a gift is allowed from a family member though. To set it up properly you'll need to go about it a certain way depending on your situation.

If you have the money for the down payment and closing costs but are still getting a gift from family it's easiest to not even bring up the amount of the gift at all. Many times though buyers don't have enough for the down payment and closing costs so will need the gift to use for closing. In this case as long as the buyer has the required down payment in their own funds then the family member will write a gift letter and it is allowed. The gift letter states who is giving the money, who is receiving the money and that it is truly a gift and doesn't need to be repaid.

The last case would be where a buyer does not have enough for the required down payment. Here the buyer needs to receive the gift well ahead of closing and put it into their bank account. When the lender verifies the buyer's assets they will look back 60 days. If the gift has been in there the whole time, it's considered 'seasoned' and is viewed as the buyers own money.

Every loan situation is different so I'd suggest talking with your lender before making any final decisions.

jumbo rates increase

2008-06-02T19:53:00.000-07:00

We've had some decent economic news coming in, so as the stock market has done better it's pushed up mortgage rates. The upward rise has not been dramaticthough and made most of the movement the last two weeks of the month.

Of special concern is the Jumbo mortgage rates. While they've been hovering the the low to mid 7% range since last August, Jumbo mortgage rates increased to the high 8%. That is with no points, but now many lenders' Jumbo rates are 9% and requiring 3 discount points! This is a huge jump, and is going to put serious pressure on those homes that require Jumbo loans.

*Please remember that the conforming limit is $417,000 but that is for the first loan amount only. It is not the purchase price, nor the first and second loans combined.

So when buying a home over $440,000 it's definately worth it to make the first loan amount less than $417,000 through a combination of down payment and a second lien.

how much should you put down?

2008-05-19T07:10:00.000-07:00

Here are some other questions I get a lot, "How much should I put down? Do I get a better rate if I put down x, what about y?". There are a couple different downpayment levels that will improve your rate.

If you have 20% to put down, that'll take care of having to get mortgage insurance or a second loan. This savings can equal hundreds of dollars a month and depends on your loan amount. If you have the 20% and are comfortable putting it down, this is a great option to take. If you don't have 20%, or have it but just don't want to put it down, 5 or 10 percent would be other good options.

5% will get you a better rate than 0% down, so I'd recommend that as a minimum downpayment. If you put down 10%, the rate will be the same on the first loan but your rate on the second (or mortgage insurance amount depending on which one you have) will be less.

Those are the main downpayment levels that will result in lower rates and/or payments when buying a home. There are different levels for investment properties and cash out refinances. Feel free to email me with any questions on those billconover@america-lending.com.

Have a great week!

rates moved up today

2008-05-14T18:29:00.000-07:00

Rates rose up about an eighth yesterday and another eighth today. They're right about 6.125%.

alternatives to mortgage insurance

2008-05-13T14:26:00.001-07:00

I always get asked the question "Do I have to pay mortgage insurance?". It's a good question, why would you want to pay for insurance that only benefits the lender not yourself? If you're not putting down at least 20% to get your loan amount less than 80% of the sales price, conventional underwriting will require you to obtain and keep mortgage insurance with your loan.

However there are two exceptions though that I use quite often. The first is to obtain a first lien loan at 80% of the sales price and then use downpayment and a second loan to cover the other 20%. In a common scenario a buyer will put down 5%, get a second loan for 15% and get a first loan for 80%. As second loans don't require mortgage insurance they do charge a higher interest rate. In most cases though the total payments still work out to being less than one loan with mortgage insurance.

The second exception is to get a loan with Lender Paid Mortgage Insurance, or LPMI. In this case a buyer can put down less than 20% but instead of paying for mortgage insurance themselves the lender obtains and pays for a policy. To cover this extra cost, the lender will charge a slightly higher interest rate, typically 1/4 to 1/2 % higher. Again in most cases this will be a less expensive route than to get a loan with buyer paid mortgage insurance.

There are a number of other details to think about when deciding which route to take. I'd be happy to answer any questions you have. You can email me at billconover@america-lending.com.

Steady since Friday

2008-05-06T10:37:00.000-07:00

Rates went up an eighth on Friday and remain the same today. If I was looking to lock a loan, I'd hold off and see how this week shapes up for rates.

rates are dropping

2008-05-01T08:08:00.000-07:00

Rates have come down by a quarter of a point between yesterday and today. If you're in the loan process now, it's a great time to lock in!

fannie mae cracking down on low credit borrowers

2008-04-29T15:03:00.000-07:00

Fannie Mae has come out with new price hikes to their mortgage rates for those borrowers without perfect credit. Up until February if Fannie would approve the loan, everyone got the same rates. Now Fannie may approve someone, but if their credit score is below 720 (which is really excellent credit) they will have a higher, and sometimes much higher, interest rate.

So for all the media hype of making loans better and more affortable, here is the largest GSA doing the exact opposite. I'm not saying that it doesn't make sense, only that the media needs to get it right.

let me know what you think

Bill

rates up, rates down

2008-04-29T15:02:00.000-07:00

They did come up on Friday, and now they've come back down some. A lot of news is coming out this week so it will continue to be very volatile.

rates likely will rise

2008-04-24T13:52:00.001-07:00

Unfortunately my earlier prediction of where rates were headed on Tuesday missed the target. Upon news that the Fed is cutting rates next week by an expected 1/4 point, rates bounced up 1/8th today. Still pretty low, right around 6.25% but certainly not the lowest they've been.

Bill

100% hard to find

2008-04-23T14:37:00.000-07:00

PMI (Private Mortgage Insurance) companies are tightening up their standards after getting hit with some heavy losses due to the national foreclosure problem. While conforming loan underwriting standards still techincally allow for 100% or zero-down loans they do require mortgage insurance. Roughly a month ago the PMI providers decided it was in their best interest to stop writing policies unless a buyer puts at least 5% down. So while 100% loans used to be quite the norm, now they're non-existant.

Although this does hurt some buyers trying to buy a home, overall it's good for the industry as the added oversight will certainly allow fewer bad loans to get approved.

Enjoy your Wednesday,
Bill

Rates dipping slightly

2008-04-22T08:37:00.000-07:00

Mortgage rates have risen in the past 7 days but have shown signs of falling yesterday and today. Currently they're 6.125%. I'm hoping that they'll come down to 6% by the end of the week.

crossing my fingers!
Bill

Current Austin Market

2007-10-09T15:20:00.000-07:00

Overall the Austin real estate market is doing very well. The national news paints a pretty rough housing picture, but Austin and Texas as a whole seem to be exempt. We didn't see the huge appreciation that other areas of the country did over the last few years. Our growth was much steadier which is why we're still seeing good appreciation today.

In August the average price went up but sales volume was down. Two forces are pushing both of these indicators. First, the tightening of the lending market on out-of-the-box financing has removed some potential buyers from the market, mainly buyers that could only qualify under subprime guidelines and investors relying on low downpayment loans. Both types of buyers typically purchase at the low end of the market.

Second, as homes appreciate there are fewer numbers of homes for sale at the price range at the bottom of the market. But when sales are tallied for that low price range they are lower than the previous year.

The mid market sales volume saw an increase of 3% over August 2006, and sales over $400,000 saw an increase of almost 10%. Buyers in these ranges aren't typically reliant upon out-of-the-box financing and are usually buying their primary residence so aren't affected by the credit tightening.

So fewer lower priced homes are selling, while the mid range and higher are still selling, bringing the average price up, even though overall volume is down. These mid range buyers, with their secure financing options, are driving the Austin market and will continue to steadily push appreciation.

Mortgage Mess

2007-09-07T15:23:00.000-07:00

So where does all this mortgage mess put us? For a lot of people it's not a good situation. Many people are losing money, jobs and even their homes. I personally know of 12 people here in Austin that lost their jobs through no fault of their own just in the past two weeks.

The people losing the money are the ones that put money towards buying the commercial paper on all these subprime mortgages. And of course the people losing their homes are the ones with these mortgages. Many times the rates rise after the fixed period and the payment becomes too much to bear. But we are at the beginning of a rate adjustment cycle, so why are their so many deliquencies and foreclosures now? Wouldn't it be too early for those few loans to cause all the defaults we are seeing?

The default rate is up because borrowers maxed themselves out on what they could buy and overspent. So if a few small bad things happen to them financially, it can really hurt their ability to pay their mortgage. This is why we see so many of the defaults, the borrowers shouldn't have been put into those loans in the first place.

For all the new borrowers that can get approved for conventional financing, it's actually a really good time to borrow money. Rates are down further than they have been in 8 months for conforming loans under $417,000. Check out www.bankrate.com.

I think we should start seeing everything get better in the next six months. Investors still have money to invest and people are still buying houses. So while the guidelines will tighten, it'll be a much more stable industry and buyers will still be able to get loans.