Mortgage bond prices finished the week near unchanged which kept rates steady. Rates started the week lower Monday morning but the improvements were erased by Thursday. The NAHB Housing Market Index printed at 68 versus the expected 70. The index is based on a monthly survey of members belonging to the National Association of Homebuilders (NAHB) is designed to measure sentiment for the U.S. single-family housing market. Weekly jobless claims were near expectations. Leading economic indicators rose 0.4% versus the expected 0.3% increase. The Philadelphia Fed survey showed strong economic activity in the Mid-Atlantic region. Mortgage interest rates finished the week unchanged to better by approximately 1/8 of discount point despite some volatility.LOOKING AHEAD
ReleaseDate & Time
Tuesday, April 25,10:00 am, et
Thursday, April 27, 8:30 am, et
Thursday, April 27,8:30 am, et
Friday, April 28,8:30 am, et
Friday, April 28,10:00 am, et
Employment Cost Index
The employment cost index is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. Though ECI figures are usually weeks old, the data remains the best indicator of employment price pressures considering it factors employees’ total compensation.
If wage pressures become evident, higher expectations of inflation also tend to arise. However, increasing compensation does not necessarily lead to increased inflationary pressures. Oftentimes, increased productivity enables employers to increase compensation without increasing the costs of their goods or services. Be cautious heading into this release.
Dana Bain & Robin Dunbar BainPremiere Mortgage Services Inc.www.BainMortgage.comhttps://danabain.mortgagemapp.com978-422-2311Mortgage In Massachusetts & New Hampshire for over 30 years. Most Competitive mortgage rates available. Find Us On LinkedIn & Face Book www.Bainmortgage.com/DanaBain-PremiereMortgage-Reviews
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Mortgage bond prices finished the week a little higher which helped rates hold steady. Rates started the week lower with no data Monday in response to the failure to repeal the Affordable Health Care Act. Stocks took a hit early amid concerns that stimulus spending would run into similar legislative issues. Some of the rate improvements were erased mid-week as several Fed officials talked about rate hikes. Weekly jobless claims were 258K versus the expected 245K. Q4 GDP rose 2.1% versus the expected 2% increase. Personal Income rose 0.4% as expected. Outlays were a little weaker than expected with an increase of 0.1% versus 0.2%. PCE core inflation (The Fed's preferred inflation gauge) rose 0.2% as expected. Mortgage interest rates finished the week better by approximately 1/8 of discount point despite some volatility.LOOKING AHEAD
Monday, April 3,10:00 am, et
Tuesday, April 4,8:30 am, et
Tuesday, April 4,10:00 am, et
Wednesday, April 5,8:30 am, et
Wednesday, April 5,2:00 pm, et
Thursday, April 6,8:30 am, et
Friday, April 7,8:30 am, et
Friday, April 7,3:00 pm, et
The ADP employment report is a measure of employment derived from data of roughly 500,000 US businesses. The survey focuses on the private sector of the economy. In contrast, the Bureau of Labor Statistics releases the regular employment report which includes both private and government employment statistics.The Fed is usually focused on inflation. Tightening employment conditions can result in wage inflation. The ADP report provides solid data on these conditions. Despite this, the data can still diverge from the regular employment report. The employment report is derived from a household survey and an establishment survey. These surveys often differ from one another and from the ADP employment report in that they are based on different data sets. There are no guarantees that the most important employment report the first Friday of each month will mirror the ADP report released 2 days prior but the Fed looks at all the data.
http://mortgagesinmassachusetts.com/ http://www.bainmortgage.com/Home #MortgagesInMassachusetts #RealEstate Dana Bain & Robin Dunbar Bain 978-422-2311 ** See Testimonials At http://www.bainmortgage.com/DanaBain-PremiereMortgage-Reviews
“Before you start trying to work out which direction the property market is headed, you should be aware that there are markets within markets.”
We once again seem to be in a
buyer’s market locally, with demand outpacing inventory, homes getting bid-up
and buyers frustrated. How do you find listings and fresh inventory? How do you
identify potential sellers, or help those on the fence decide that now is the
right time for a move?
the spring market warms up, here are some ideas that may help:
through your past client database-88% surveyed by NAR said they would work with
their agent again, but how many agents reach out and assess when “again” might
be? Call and ask! Remind them you are there when they are ready, ask what their
concerns are, make sure to give your updated contact info, and to get theirs.
Add them to a weekly email with homes for sale in their neighborhood, along
with a place of interest to them, so they can see for themselves that now may
be the right time to sell.
local real estate market is at a peak, so it could be a great time to sell,
even for those not sure where they want to land next. Empty nesters who no
longer have to worry about schools may be more willing to experiment with
lifestyle, sell their home and rent in the city, or in a more resort-like area.
Now is a great time to check out what’s next. Be the one to market to people’s dreams
and help them see the future.
objections and be prepared to help. Many would-be sellers get overwhelmed by
repairs or updates they think are needed prior to selling, or the amount of
work to cull through and get rid of their accumulated stuff. Offer a free home
assessment to identify the minimum repairs or updates, and recommend services
like transition specialists and tradespeople that could alleviate that burden.
You want to be an invaluable resource for all things related to the sale of the
home, not just the sale itself.
Alert-On Friday it was reported that one of the 3 main credit reporting
agencies has been fined by the CFPB for misleading consumers about its PLUS
Score product. This product, sold by Experian, is considered “educational” and
intended solely to educate consumers about their credit score. The CFPB found
that the PLUS Score was represented as the same score used by lenders, which is
false. The CFPB found that in some cases there were substantial differences
between the PLUS Score and the actual score used by lenders, creating confusion
regarding how lenders determine credit worthiness. Please remind your clients
that they are entitled to a FREE credit report annually and can obtain one from:
For more information, here
is a link to the CFPB’s page on obtaining credit reports.
always, we are here to help you and your clients have a smooth and successful
home buying experience!
More and more
borrowers today are looking for ways to finance their home purchase without
making a full 20% down payment. As FHA continues to increase fees, many are
turning to private mortgage insurance (PMI) combined with a conventional loan.
To the surprise of
many homebuyers, there is more than one way to obtain PMI. One of those PMI
alternatives is called Lender Paid Mortgage Insurance, or LPMI.
What is Lender
Paid Mortgage Insurance?
Mortgage Insurance is a form of PMI that is paid for by the lender via a
one-time fee, rather than by the borrower monthly. Some form of PMI is required
whenever a borrower puts less than 20% down on a conventional loan.
The term “Lender
Paid Mortgage Insurance” is a bit misleading, however. The lender does not pay
the borrower’s mortgage insurance premium out of the goodness of its heart.
Rather, the lender raises the interest rate on the mortgage to generate enough
profit to pay the mortgage insurance company the required one-time fee.
The party who ends
up paying the cost of LPMI is ultimately the borrower, since it’s the
borrower’s interest rate that is increased. For this reason, LPMI is sometimes
referred to as Single Premium mortgage insurance.
The reason it is
often called “lender paid” is that the borrower is not allowed to pay the
one-time premium directly out of their own funds. The funds must come from the
lender, or from another party, such as the builder or seller.
Some lenders offer
a PMI option where the borrower pays the one-time premium out of their own
funds. This is known as either Borrower Paid Mortgage Insurance, BPMI, or
Borrower Paid Single Premium mortgage insurance. If you want to buy out your
own mortgage insurance to avoid the LPMI rate increase, ask your lender
about their BPMI programs.
How Does LPMI
What’s not readily
apparent to homebuyers is that the higher the interest rate on your mortgage,
the more profit is available to the lender. So, let’s imagine that you accept
an interest rate on your mortgage that is 0.50% higher than market rates. The
rate increase generates an extra $5000 in profit on that loan.
Let’s also imagine
that a PMI company agrees to accept a one-time payment of $5000 in lieu of
receiving a monthly PMI payment from the borrower.
The lender could
opt to take that extra $5000 in profit and essentially prepay the PMI premium.
The borrower ends up with a higher rate, but no monthly mortgage insurance
Is LPMI better
Administration (FHA) loans have been a great tool for homebuyers over the past
few years. If not for FHA, many would be locked out of homeownership. However,
FHA is increasing fees again as of April 1, 2013, to steady its troubled
financial position. LPMI might become a more attractive option.
It’s true that the
interest rate on an LPMI loan would be higher than an FHA loan. But FHA has
very high monthly mortgage insurance costs, and also an upfront fee of 1.75% of
the loan amount. FHA mortgage insurance negates any savings from a lower
Still, FHA may be
a better option for some homebuyers. FHA allows for as little as 3.5% down,
compared to LMPI’s 5% down requirement. FHA also allows for more seller
contributions toward closing costs. Leniency from FHA means a lot less
out-of-pocket expense for FHA borrowers.
borrowers can qualify for an FHA loan with a lower credit score.
As shown in the
chart below, each borrower would have to analyze their available funds, their
monthly payment tolerance, and their credit rating to opt for LPMI or FHA.
Out-Of-Pocket Expense: LPMI vs Monthly PMI vs FHA
option comes out on top? Let’s look at an example of a $250,000 home purchase.
$245,471 (includes 1.75% upfront
Interest Rate & APR
4.0% (APR 4.053%)
3.5% (APR 3.948%)
3.25% (APR 4.798%)
Principle and Interest Monthly
Monthly Taxes and Insurance
Estimated Total Cash Needed to
Close the Loan
LPMI seems to come
out on top based strictly on monthly payment. But that’s not the whole story.
LPMI has its advantages as well as disadvantages depending on other factors.
Ask Yourself: How
Long will I Keep this Mortgage?
Even though the
monthly payment on an LPMI loan might be cheaper initially, it might cost more
than monthly PMI if you keep your loan for 30 years. This is because you can
cancel monthly PMI when your loan reaches 80% Loan-to-Value (LTV), but you
can’t lower your LPMI interest rate at any time without refinancing. Let’s look
at a cost comparison of a person who keeps their mortgage for 10 years and 30
years. All scenarios assume a 5% down payment:
after 10 years
PMI after 10 years
after 30 years
PMI after 30 years
Lifetime MI cost
$1133 x 120 months: $135,960
$1066 x 120 months: $127,920
$1133 x 360 months: $407,880
$1066 x 360 months: $383,760
Total Principle, Interest, and
10 years: $135,960
10 years: $139,721
30 years: $407,880
30 years: $395,561
Should You Choose
The main benefit
to LPMI is simply lower monthly payments at the beginning of the mortgage, when
you’re first starting out on your homeownership journey. It’s also nice to know
that you won’t be seeing that pesky mortgage insurance payment on your
statement each month for the first 7-10 years of your mortgage. It’s a great
program for those who want a low monthly payment and don’t mind a slightly
higher interest rate. Ask your mortgage professional and see if a loan with
Lender Paid Mortgage Insurance is right for you.
All PMI scenarios based on $250,000 purchase price and value, 5% down, 740 credit score. 30 year fixed rate 1st mortgage with principle and interest payment. FHA scenario based on $250,000 purchase price and value, 680 credit score, 3.5% down. Mortgage payments rounded to the nearest dollar.
When can I remove private mortgage insurance (PMI) from my loan?
To remove private mortgage insurance (PMI) that you pay on your mortgage loan, you must be up to date with your monthly payments. These rules apply to mortgages closed on or after July 29, 1999. Federal law generally provides two ways for you to remove PMI from your home loan: canceling PMI or PMI termination.
Mortgage lending underwriting criteria falls into three general categories, credit, collateral, and capacity. Credit has to do with how well you pay your bills (as evidenced by a credit report and score), collateral has to do with the type and quality of the property you’re using to secure the loan, and capacity has to do with your financial ability to repay the loan. Your debt-to-income ratio falls into the latter category – capacity – and is considered an important factor in determining your financial ability to pay back your mortgage.
Your debt-to-income ratio, or DTI, expresses in percentage form how much of your gross monthly income is spent on servicing liabilities such as auto loans, credit cards, mortgage payments (including homeowners insurance, property taxes, mortgage insurance, and HOA fees), rent, credit lines, etc.
Living expenses such as cable, gas, electricity, groceries, etc., are not considered part of your DTI.
If your DTI is high, it means you are highly leveraged and have tight finances, which, naturally, is considered risky from a lending standpoint. On the other hand, if your DTI is low, the lender knows you have plenty of room in your monthly budget to absorb unexpected expenses and still make your mortgage payments.
In today’s mortgage marketplace, the maximum DTI allowed is 45% for Fannie Mae loans and 50% for FHA-insured loans. In other words, for a Fannie Mae loan, no more than 45% of your gross (pre-tax) monthly income can go to debt service and mortgage and housing-related expenses.
Both Fannie and FHA allow for higher DTIs under limited circumstances, but these are the standard guidelines.
If you’re in the market for a home loan, it doesn’t hurt to calculate your debt-to-income ratio ahead of time so you know where you stand. To do this, simply tally up your total monthly debt obligations and divide by your gross monthly income, as follows:
If you’re self-employed, I recommend working with your loan agent to determine your qualifying DTI. Self-employed income verification is more complicated and there’s really no way to determine your qualifying income definitively without tax returns.
Keep in mind that when you’re qualifying for a home loan, your qualifying DTI will be based on what your expenses will be after the loan is complete. In other words, if you’re currently renting and are taking on a house payment higher than what you’re paying for rent, your qualifying DTI will be based on the new mortgage payment. If you’re refinancing and consolidating debts, your qualifying DTI will reflect your expenses after the various debts are consolidated.
The positives in the BLS November 2016 Employment Situation released Friday prompted one analyst to declare that the economy is “running largely at full steam” and another called the economy “stable and strengthening. One analyst commented that the report was a “mixed bag” while another called it “unremarkable.” Still another said the economy “appears to be stable and strengthening.”
Job gains totaled 178,000 for November and the unemployment rate fell by 30 basis points down to 4.6 percent, its lowest level since August 2007. Still, the report had its low points—namely, a 3-cent decline in wage growth over-the-month (down to $25.89) after gaining 18 cents over the previous two months, and a labor force participation rate (62.7 percent) stagnating near a four-decade low.
Nearly all of them agreed, however, that the report did nothing to discourage a rate hike by the Fed later this month.
“November was a bit of a mixed bag as far as jobs were concerned. While the headline figure for job growth is a positive, both labor force participation and wage growth declined,” said Curt Long, Chief Economist with the National Association of Federal Credit Unions. “Still, the report provided no impediments for a rate hike from the Fed later this month, and a quarter-point increase is now a certainty.”
An increase in the federal funds target rate may not mean good news for the housing market, however. Mortgage rates have already spiked by 51 basis points since the presidential election and are at their highest level in 16 months.
“The good news: the economy appears to be stable and strengthening,” realtor.com Chief Economist Jonathan Smoke said. “The bad news: rising rates could pose a challenge to many homebuyers, especially first-time buyers who now represent more than half of the potential buying pool. The key question for the months ahead is whether the demand created by more jobs and wage growth will be enough to offset the affordability and qualification challenge posed by higher rates. Mortgage rates have already moved in that direction, surging higher than we have seen in two years.”
Fannie Mae Chief Economist Doug Duncan stated, “Today’s Labor Department employment report was unremarkable, suggesting a small Federal Reserve rate hike will occur—as the market expected—in December. Some attention will be paid to the drop in the unemployment rate to 4.6 percent, but that is driven by the combination of jobs added and a decline in workforce participation, the latter of which was disappointing. The income growth number dropped back, thus easing Fed concerns about compensation as a driver of inflation through tight labor markets. Professional services showed broad-based employment growth, and state government employment made a healthy contribution. Manufacturing employment, currently featured in many headlines, showed a fourth consecutive month of minor employment declines, but housing more than offset that with a third consecutive month of healthy job growth. Housing supply growth continues to grind upward adding to economic growth. In sum, there’s no reason to believe that the pace of future rate hikes will pick up based on this release.”
Zillow Chief Economist Svenja Gudell noted that “the report shows an economy running largely at full steam, with the unemployment rate—already low—falling to its lowest level since August 2007,” and that some of the largest job gains occurred among residential constructors and developers, which could bode well for housing.
“Residential construction employment rose 4.9 percent from a year ago, continuing recent strength, though some of the bump is likely attributable to re-building efforts in the Southeast after Hurricane Matthew,” Gudell said. “Over the past three months, the construction industry overall has added 59,000 jobs, largely in residential construction. Continued hiring in this sector could be a good sign for home buyers struggling with incredibly tight inventory, and a continued ramp up in home construction activity will only help alleviate the problem as we move past the holidays and into 2017.”
Click here to view the full November 2016 Employment Summary.
Because Fannie Mae financing is so dominant in today’s mortgage market, it’s important that real estate investors understand how Fannie prices risk into mortgage interest rates using loan-level price adjustments, or LLPAs. Once you understand how risk-based pricing works, you’ll be better equipped to “groom” your financial profile to qualify for the best rates and maximize the cash flow and ROI of your bank-financed real estate investments.
What is an LLPA?
LLPAs are essentially charges for risk factors such as low credit scores, high loan-to-value (LTV), property type, etc. Check out the image below, which shows a variety of LLPA hits for various combinations of credit score and LTV. Note that for a 95% LTV loan, there is a 3.000% hit for borrowers with credit scores less than 620 but no hit for borrowers with credit scores better than 740. Assuming all other factors are the same, this means that the borrower with a qualifying credit score of less than 620 will have to pay a charge of 3% of the loan amount to get the same interest rate as the borrower with a 740 credit score. For example, on a $200,000 loan, the borrower with the low credit scores would have to pay a $6,000 buy down fee to get the same rate as the borrower with the good credit scores.
Though LLPAs act like fees, they usually are not passed on to the end borrower as additional closing costs on the loan. Lenders typically price LLPAs into the base rate they offer, so the end result is that LLPA hits usually result in higher rates instead of higher fees. See Matrix https://www.fanniemae.com/content/pricing/llpa-matrix.pdf
Now, check out the chart below, which shows the LLPA hits for investment property (highlighted in red). As you can see, the hits are steep, and they’re a standard charge applied regardless of credit score. If you’re willing to put down 25% (which means a 75% LTV), the LLPA hit is a relatively modest 1.75%. However, if you’re only willing to put down the minimum 15%, the LLPA hit is a whopping 3.75% (not to mention you’ll pay mortgage insurance because the LTV is over 80%).
Why LLPAs Matter to Real Estate Investors
It’s obvious that Fannie views investment properties as riskier than owner-occupied properties, particularly those with little equity. These LLPA hits are the reason investment property rates tend to be significantly higher than owner-occupied rates. See Matrix https://www.fanniemae.com/content/pricing/llpa-matrix.pdf
If you haven’t noticed already, credit scores are a big part of LLPA pricing. If your credit scores are in the mid to high 600 range, you’re going to get hit with some significant LLPAs unless you owe less than 60% of the value of the property. This is why it’s important to keep your credit scores as high as possible – ideally above 740.
If your plan is to purchase a property with short-term financing such as private or hard money, it’s also important to make sure you’re buying your properties right so that you have a built in equity position when you need to refinance into a traditional bank loan. For instance, if you purchase a fixer property with hard money, rehab it, and still have a 30% equity position in it when you’re done, it should be relatively easy to convert the hard money loan into a permanent bank loan.
For More information on LLPAs https://www.fanniemae.com/content/pricing/llpa-matrix.pdf
There’s a lot more that goes into pricing out a loan, so it’s important to work with a mortgage professional to get information specific to your particular situation. If you’re looking at financing residential investment real estate (4 units or less), feel free to give me a call.
FHA Debt-to-Income (DTI) Ratio
When you submit an
application for an FHA-insured home loan, the mortgage lender will evaluate
your debt-to-income ratio to see if you're qualified for a loan. If you have
too much debt in relation to your monthly income, you might have trouble
qualifying. On the other hand, if you have a manageable level of debt (as
defined below), you have one less thing to worry about.
The current (2015)
limits for FHA debt-to-income ratios are 31% for housing-related debt, and 43%
for total debt. But there are exceptions to these general rules. So don't be
discouraged if you're slightly above those numbers.
Here's an overview
of FHA debt ratio requirements for 2015 - 2016:
Definition of a Debt-to-Income Ratio
ratio (DTI) is a percentage that shows how much of a person's income is used to
cover his or her recurring debts. Lenders calculate DTI at the monthly level
using the borrower's gross, or pre-tax, income.
There are actually
two numbers used for FHA qualification:
The math is fairly
simply. You can calculate your DTI ratio by dividing your total monthly debts
by your gross (pre-tax) monthly income. For example, if my recurring monthly
debts total $2,000, and my gross monthly income is $6,000, I have a DTI ratio
of 33% (2,000 ÷ 6,000 = 0.33, or 33%).
The Department of
Housing and Urban Development (HUD) has specific guidelines for FHA
debt-to-income ratios. HUD is the government entity that establishes all of the
rules and requirements for the FHA loan program, including the DTI limits.
According to HUD:
"Qualifying ratios are used to determine if the borrower can reasonably be
expected to meet the expenses involved in home ownership, and provide for
2015 DTI Limits for FHA Loans: 31% / 43%
official FHA guidelines, borrowers are limited to having debt ratios of 31% on
the front end, and 43% on the back end. Here are the relevant excerpts from the
differently, the borrower's housing-related expenses should add up to no more
than 31% of his or her gross monthly income. And the borrower's total
debt load (including the monthly mortgage payments, credit cards, car payments,
etc.) should not exceed 43% of his or her gross monthly income.
Those are the
current FHA DTI ratio limits for 2015. We expect these requirements to remain
in place for 2016, since HUD has not announced any changes to them. If they do
update their debt ratio guidelines in 2016, we will update this page to reflect
Compensating Factors for Borrowers with
On the surface,
this suggests that borrowers with DTI numbers above the stated limits could
have a harder time qualifying for FHA loans. But that's not always the case.
There are exceptions to the official debt-to-income caps.
HUD gives mortgage
lenders some leeway to approve borrowers with DTI ratios higher than the
above-stated limits, as long as the lender can find and document
"significant compensating factors."
A partial list of
compensating factors is presented below.
Reference: HUD Handbook
4155.1, Chapter 4, Section F
applicants don't necessarily have to meet all of these compensating factors.
One or more may be sufficient for FHA qualification purposes.
To learn more
about FHA debt-to-income ratios in 2015, and the compensating factors that
could allow you to circumvent them, refer to Chapter 4 of HUD Handbook 4155.1.
To recap, FHA's
maximum qualifying debt ratios for borrowers in 2015 are 31% and 43%. This
means the monthly housing payments should not exceed 31% of gross monthly
income, while the total debt burden should not exceed 43% of monthly income.
But there are exceptions to these rules, as noted above.
Disclaimer: HUD makes changes
to their FHA requirements from time to time. While we make every effort to keep
this website up to date, there is a chance the information presented above will
become inaccurate over time. This website is not meant to replace the official
guidelines found on the HUD website, but only to explain their policies in
plain English. For the most current and accurate information available, refer to
Read more: http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf
Hold onto your
seats, folks, because mortgage rates are going on a wild ride after the
election. Thirty-year fixed rates skyrocketed by nearly a quarter of a
percentage point, while 15-year rates and 5/1 ARM loans jumped
significantly on Thursday.
If there’s one
thing investors hate, it’s uncertainty. And there’s plenty of that
going around in the bond markets, because no one is sure what a
Donald Trump administration has in store.
On Wednesday, the 10-year Treasury yield
closed above 2%, about 25 basis points higher than it was before Tuesday’s
election. It’s also the highest yield since January, according to
Freddie Mac’s weekly survey of mortgage rates, released today.