Another Indication

The Housing Affordability Index was developed over thirty years ago to help consumers determine when it is a good time to buy a home. It's considered advantageous to the buyer when the index is over 100 because a median income family can qualify for a median price home.

Recent figures released by the National Association of REALTORS' economic department show that the 2011 index of 184.5 is the highest annual average since it has been calculated. The most recent month released, December 2011, was 194.9. The index is also broken down into four regions of the country.

The two major components that contribute to the index are home prices and mortgage interest rates which are lower than they've been in the last five years which account for the dramatic rise in the index since 2006.

The Housing Affordability Index is another indication that this is a good time to buy a home for people who have good credit, a down payment and want a home. It may be the best time we'll see in our lifetimes.

FHA Fees Going Up April 1st

FHA has raised the annual Mortgage Insurance Premium to 1.25% beginning April 1st.  MIP is required on all FHA loans and used to fund losses by lenders for borrowers who default on their mortgages.  As of June 1st, FHA loans in excess of the standard maximum of $625,500, in high-cost areas, will have a premium of 1.5% of the loan amount.

In addition to the increase in the annual MIP, FHA also announced it plans to raise the fee on the up-front MIP from 1.00% to 1.75%.  No date was reported for its implementation.

The bottom line will result in a borrower’s payments going up.  However, it might not be restricted to the MIP.  Freddie Mac’sPrimary Mortgage Market Survey showed that both 30 year and 15 year mortgages have gone up too.

One way to avoid the increase is to have a completed sales contract and have your lender order the FHA commitment prior to April 1, 2012.  If you plan on buying a home this spring, there is a reason to do it earlier rather than later.

Fix It Anyway

"If it isn't broke, don't fix it" is certainly popular advice, but if you've ever had a serious plumbing leak, you certainly wished you had taken care of the problem earlier.

Washing machines, like all appliances, are supposed to work and when they don't, it's time to have them fixed or replaced. However, there is a critical connection from your water supply that may even be older than your washing machine itself.

Ask someone whose hose broke while they were asleep or out of town and you'll hear stories of how quickly the water can damage walls, flooring and furniture. Almost anyone can replace the hoses with a pair of pliers for under $30.00 to avoid this potential catastrophe.

As you're shopping for the replacement hoses, consider the braided stainless steel connectors. The advantage is that the stainless steel offers additional protection should a soft spot develop in the hose beneath. They'll cost a little more but offer considerably more protection for a nominal price.

The IDEAL Investment

Rental homes can be the IDEAL investment in today's market because they offer a much higher rate of return than alternatives without the volatility of ups and downs in the stock market.

IDEAL serves as an acronym to identify the advantages of rental properties:

• Income from the monthly rent contributes to paying the expenses and a return on the investment
• Depreciation is a non-cash deduction that contributes a tax shelter
• Equity grows monthly as the mortgage amortizes due to some of each payment being applied to the principal
• Appreciation is achieved as the value of the property goes up
• Leverage can increase the return on investment by using borrowed funds to control a larger asset

The combination of these characteristics working together makes rental real estate a very good investment for today's economy and years to come. Increased rents, high rental demand, good values and low non-owner-occupied mortgage rates contribute to positive cash flows and very favorable rates of return.

Contact me for more information about actual opportunities in our local market.

Great Investment

If you invest in a savings account, you'll make less than 1% and will have to pay income tax on the earnings. On the other hand, contribute something extra to your house payment on a regular basis and you'll essentially, earn at the mortgage interest rate which is certain to be more than you're earning in the bank.

Making additional principal contributions on your mortgage will save interest, retire debt and build equity. An extra $100 a month in the example shown will save thousands in interest and short the term of the mortgage as well.

Reducing your cost of housing is another way to improve the investment in your home. Becoming debt-free is a worthy goal that is achieved with discipline and good decisions. Suggestions like this are part of my commitment to help people be better homeowners when they buy, sell and all the years in between.

Risk Determines Rate

Regardless of what a lender quotes on mortgage rates, the actual rate paid by a borrower is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.
Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.

• Loan amounts - conventional loans for more than the conforming limits set by Fannie Mae are considered jumbo loans and generally have a higher interest rate.
• FICO score - the lowest interest rate is reserved for the highest credit scores; the lower the score, the higher the rate borrower will pay.
• Occupancy - borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
• Loan purpose - purchase transactions generally have the lowest interest rate while refinancing a home is generally higher.
• Debt-to-Income ratio - a borrower's monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower's ability to repay the mortgage.
• Loan-to-Value ratio - the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.

Any combination of these factors could limit a borrower's ability to secure a mortgage at the rate initially quoted. Being pre-approved by a trusted mortgage professional is the best way to know what rate you can expect to pay. Please call for a recommendation.

Risk Determines Rate

Regardless of what a lender quotes on mortgage rates, the actual rate paid by a borrower is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.

Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.

• Loan amounts - conventional loans for more than the conforming limits set by Fannie Mae are considered jumbo loans and generally have a higher interest rate.
• FICO score - the lowest interest rate is reserved for the highest credit scores; the lower the score, the higher the rate borrower will pay.
• Occupancy - borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
• Loan purpose - purchase transactions generally have the lowest interest rate while refinancing a home is generally higher.
• Debt-to-Income ratio - a borrower's monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower's ability to repay the mortgage.
• Loan-to-Value ratio - the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.

Any combination of these factors could limit a borrower's ability to secure a mortgage at the rate initially quoted. Being pre-approved by a trusted mortgage professional is the best way to know what rate you can expect to pay. Please call for a recommendation.