Latest from the Mortgage Blog
Should I wait until 2014 to buy a home?
During this time of year, a lot of sellers and buyers, are deciding that with the Holidays upon us, they are going to put off the "move" until 2014. Adding to the delay, is that interest rates are about 1% higher today, than they were this time last year - so there is some hope that, maybe, they will move lower.
I wanted to point out a few reasons, why you may consider making the "move" now, instead of waiting:
1. The Fed will eventually start to taper the stimulus we've seen in place since 2009. This stimulus, known as quantitative easing, is the program where the Federal Reserve is buying billions of dollars in mortgage bonds each week, in an attempt to stabilize the economy. A side effect of this buying spree, is that rates have dropped to record lows. That program could go away at any time, and when it does, interest rates will rise. Last June, when the Fed hinted at tapering the stimulus, interest rates shot up by 0.5% is just a couple of days.
2. Home prices are rising - in the Denver market, we are seeing the 2nd consecutive year of double digit gains. Depending on the report you read, values are up by more than 10% in the last 12 months. This is a replay of what we saw in 2012 also. As home prices go up, your purchasing power goes down. When interest rates rise as well, the effect can be exponential, and leaving some buyers regretting the decision to wait.
3. While higher home prices may be great if you’re a homeowner looking to sell, it’s not so great if you’re a home buyer. In Denver, we are continuing to see record low inventory, and fast contract once homes hit the market. This low inventory, in combination with high demand, rising prices, and rising rates, is creating a perfect storm, and can create some major challenges for home buyers.
4. The new Dodd-Frank reform is being instated in January. Mortgage lending became much stricter after the housing market crashed, but the new Dodd-Frank reform will make it even more difficult to qualify. This reform, which dictates that borrowers must meet eight criteria to qualify for a loan, will go into effect in January 2014. So, you may want to get approved and buy a home, before this new reform becomes law. We are seeing the early signs of this already, with Fannie Mae doing away with the popular 3% down loan program on November 15th. We still have access to the CHFA 3% down loan program, but no everyone can qualify for that, as there are income limits for the borrowers.
So, while it may be tempting to wait and see if interest rates drop further, or put things off until after the Holidays, you may be better off looking for a home to purchase, sooner rather than later.
Call me with any questions, or to get the pre-approval started, I would love to help. With our Certified Pre-Approval, and super fast closings, we can get you into a home before 2014!
Conventional Financing for Condos
At first glance, one may think, "is there really a difference between a condo and a townhouse?" The answer is yes -- when it comes to obtaining a mortgage on the property, the difference is tremendous. Determining if the property is a condo or a townhome, comes down to the legal description for the property; it's a bit complicated because sometimes a project is called "ABC Townhomes", but the legal description tells us it's really a condo. The determining factor will always be the legal description; for example, a townhome (or detached home) have a legal description that includes the words "Lot ?? and Block ???" , while a condo's legal description includes something like "??? Condominiums, unit ??". Your Realtor and I can help determine this for you.
CONDOS NEED TO BE WARRANTABLE
If you are purchasing a condo, the project needs to be "Warrantable" by Fannie Mae or Freddie Mac guidelines, in order for you to be able to secure financing on the property. What does it mean to be warrantable? This means that the condo complex, and the HOA meet certain guidelines created for Conventional loans. We can determine if your condo meets these guidelines by reviewing a "Condo Questionnaire" and current budget that the HOA will complete.
This questionnaire is comprised of 24 questions, per Conventional loan guidelines, that when answered by the HOA, will tell us whether the condo project is "warrantable" (i.e. you can secure financing and close) or not. Some of the most common questions on these questionnaires are the following:
• Does one person/entity own more than 10% of the units in the complex?
• What is the ratio of owner occupied vs. rented units? For example, If you are buying the condo as a rental property, it must be at least 51% owner occupied.
• Is the HOA involved in any litigation?
• Does the HOA have sufficient insurance & reserves in their budget?
• What percentage of the homeowners are 30 days or more behind on their HOA dues?
• If the condo has been recently converted or built, what percentage of the units are sold or under contract?
• If the condo has retail space in the building, what percentage does it make up of the total space?
Our goal is to have the questionnaire completed and reviewed as soon as possible; if it turns out that the condo does not meet guidelines, you can terminate the transaction before you spend any money on inspections or appraisal. Please note that some HOAs charge $50-$200 to complete these questionnaires, so that is an investment that will have to be made upfront in those cases.
MORTGAGE RATES CAN BE HIGHER FOR CONDOS
In April 2009, Fannie Mae and Freddie Mac installed new "loan level pricing adjustments" for condos. A 30 year fixed mortgage rate for a condo will be anywhere from 0.25%-0.5% higher, than it would be for non-condo property, even with great credit scores. This pricing adjustment is in effect for every borrower who is putting a down payment of less than 25% of the price.
For "Lot & Block" properties like detached homes/townhomes, none of these extra steps are required. These are the biggest differences between purchasing a condo versus a townhome/detached home, in today's market.
Probably WAY more than you wanted to know, but I hope it helps.