Why Home Buyers Need a Clue about the Mortgage Process
By Gino Blefari President & CEO Intero Real Estate Services, Inc.
As demand continues to pick up from home buyers, the mortgage lending market can expect gains from purchase loans. There's just one snag: a third of home buyers are ill-prepared for the mortgage process, and can't answer basic questions about down payments, interest rates and lender rules.
A survey released by Zillow last week found that home buyers answered basic questions about mortgages wrong 32.5% of the time.
Some of the misinformation out there includes:
34% of first-time buyers surveyed aren't aware that it's possible to get a mortgage with less than 5% down.
Home buyers also don't understand how to secure the best possible interest rates and loan terms. 26% incorrectly believe they are obligated to close their loan with the lender that pre-approved them. 24% incorrectly believe that they'll get the best rates and fees through the bank they currently do business with. And 34% of buyers believe all lenders are required by law to charge the same fees for credit reports and appraisals.
Further misinformation and beliefs exist in refinancings, with 25% saying it's not possible for underwater borrowers to refinance. In fact, 2.2 million underwater borrowers have refinanced under the federal Home Affordable Refinance Program, which was recently extended through 2015. And almost half (47%) of current homeowners believe they must wait at least one year between refinancings.
Why is this story significant?
A number of reasons. For one, as the market picks up speed, we need more savvy buyers among our ranks to keep it moving. Understanding the mortgage process enables a borrower to navigate it better and more quickly, which we're seeing is really important in markets where inventory moves fast.
In hot markets that have tight supply, buyers who've gone through pre-approval and/or better prepared themselves for the loan process will be the more attractive offer for sellers. They're more likely to qualify for financing and close faster than their unprepared counterparts.
In addition, as we saw with the financial market collapse, recession and housing downturn five years ago, the unsavvy borrower is not only a danger to himself, but to our economy as a whole.
So, how do you educate yourself if you're in the market to buy? You can read up on the basics at the Mortgage Professor, a site with great information from a non-interested third party (i.e., it's not your bank giving you advice). You can engage in discussions with your Intero Real Estate agent, who can recommend local sources.
This is an important piece of the housing recovery that until now hasn't received much attention. How can we expect a healthy purchase market if buyers don't know how to navigate their loans? Maybe borrower education will (or should) be the next big area of innovation in our marke
Home prices also keep on going, and in a decidedly upward direction. The National Association of Realtors (NAR) reported thatfor Q1 of this year, the median existing home price jumped 11.3% over last year, the largest annual gain since Q4 of 2005. But Q1 inventory was down 16.8%. The NAR's chief economist expounded: "Inventory conditions are expected to remain fairly constrained this year, so overall price increases should be well above the historic gain of one-to-two percentage points above the rate of inflation."
A leading research analytics firm reported that home prices in March jumped 10.5% year over year, posting their biggest annual gain in seven years. Plus, the 1.9% price increase over February was the 13th monthly gain in a row. These analysts expect April to register a 12% annual and a 2.7% monthly price hike, if you exclude distressed sales. Finally, Fannie Mae reported a milestone in consumer optimism about home prices: the majority of Americans they surveyed now expect home prices to increase over the next year.
New Home Sales were up 12.3% in February compared to a year ago. After a super big hike in January, new home sales fell slightly in February, but they're still at a 411,000 annual rate. Plus, the median price of new homes sold was up 2.9% versus a year ago, with the average price up an impressive 14.5%!
Speaking of prices, check out the closely watched Case-Shiller index of home prices in the 20 largest metros. Up 1% in January, prices are now up 8.1% over a year ago. That's the largest annual gain in over 6 years! The chief economist at an online real estate site observed, "We're seeing prices increase both in markets that had a really big decline during the bust, as well as markets that have really strong fundamentals." Finally, Pending Home Sales in February were at their second-highest level in nearly three years, up 8.4% over a year ago, although slipping a tad for the month.
Interest rates are up to 3.65% for a 30 year fixed, conventional mortgage with 20% down. Still excellent rates for purchasing within the Geneva Lake Resort communities.
As Buyers for lake homes in the resort communities around Geneva Lake you have to consider your purchasing thought process. The difference between you and the Seller may be $10,000 to $20,000 but in reality it is a $40-62.00 difference in your monthly payment because of LOW interest rates and your offer to purchase While this may be a simplistic example that is how you should consider your offer and negotiation process. There are only so many homes with lake frontage, piers and slips within 1.5 hours of your home. Talk about a hedge against inflation?? Do you want to be on your own pier in 30 days or not?
We're only one year into this recovery… " Doug Yearley said on Bloomberg TV yesterday morning.
"Remember, we had seven of the worst years in housing that this country has ever seen. This recovery, we believe, should be a lot longer than just one or two years."
Yearley is the CEO of Toll Brothers, a nationwide homebuilder. When asked if he thought the strength in housing could continue, he didn't mince words…
"We feel really good this spring," he said. "Our orders are up 49%."
He explained that there's simply "no inventory." And "no inventory" is one of the key ingredients in seeing higher home prices ahead.
You always have to take a CEO's comments with a grain of salt. It's his job to be optimistic. But I fully agree with his assessment. As you probably know, I have been extremely optimistic on U.S. housing for years now—expecting big gains.
Our True Wealth Systems numbers back me up…
In short, U.S. housing is the greatest value it's ever been in our lifetimes—and probably the greatest value it will ever be.
I objectively define value as "affordability." Affordability is a function of 1) house prices, 2) mortgage rates, and 3) income. The first two crashed to an epic degree, making U.S. housing more affordable than ever.
Last week, more good news came regarding home prices. A leading data aggregator reported national home prices were UP 9.7% in January versus a year ago, the biggest annual increase since April 2006. And the 0.7% monthly advance they posted was their 11th in a row. Many observers feel these price gains will likely boost home sales during the first half of the year. Lake Geneva and area is part of the Milwaukee Metro system and our stats show that days on the market has fallen to 5.7 months and inventory continues to go down.
In addition, asking prices of homes listed for sale on a major online real estate portal were up compared to a year ago in 90 of the top 100 U.S. metros. The asking price gains for February were the largest since the recession began, UP 1.4% for the month and UP 7% versus a year ago. Their chief economist commented, "...buyers face a dilemma between buying now before prices rise even more, or later this year, when they'll have more inventory to chose from." If you have been waiting to jump back into the market you may be watching it go by! Many buyers have been use to 'having time' but that is not the case right now as properties go under contract. Second home buyers for the Geneva Lakes Resort communities are purchasing now to be in for summer.
SETTING RECORDS... Starting Tuesday, the Dow set new record highs four days in a row, blasting past the peak it reached in 2007, well before the recession. Even the broadly based S&P 500 index ended the week just 14 points away from its all-time record high. What made investors feel so optimistic were some decent corporate earnings, better economic data, and the growing recognition that the government spending cuts known as the sequester probably wouldn't have that much of an economic impact once they started to kick in.
ISM Services bested expectations, at 56.0, showing solid expansion in the sector where over 80% of our jobs are found. Those jobs are now being created at a healthier pace, with236,000 nonfarm payrolls added during February, enough to push the unemployment rate down to 7.7%, its lowest level in four years. The release of the Fed's Beige Book of economic observations from around the country concluded that the U.S. economy is now expanding at a "modest to moderate pace." The week ended with the Dow up 2.2%, to 14397; the S&P 500 up 2.2%, to 1551; and the Nasdaq up 2.4%, to 3244.
Theupbeat economic data that sent stocks skyward slammed bonds pretty hard. The FNMA 3.5% bond we watch ended the week down .94, at $104.31. Freddie Mac's Primary Mortgage Market Survey had average fixed mortgage rates mostly holding steady from the week prior. Their chief economist feels, "...these low mortgage rates are helping to revive the housing market." Underlining that point, mortgage applications were up 14.8% over the week before, according to the Mortgage Bankers Association.
Pretty soon this will be open water! Get ready to jump in as with this winter snow and the frozen water will lend itself to amazing water quality this year. I can't wait as one of my favorite things to do is jump off the Fontana Municipal pier and lap swim.....a few more weeks!